Financial Distress in Local Authorities

Debate between Clive Betts and Nigel Evans

Thursday 1st February 2024 Commons Chamber

[Mr Clive Betts (Sheffield South East) (Lab)]

It is a great pleasure to make this statement on behalf of the Levelling Up, Housing and Communities Committee about its report “Financial distress in local authorities”. Let me first thank the Leader of the House for tabling the business motion that has allowed the statement to be made. Our Committee Clerk is excited about the fact that we have apparently set a procedural precedent today; I was certainly not aware of that, but I am now. Let me also thank the Backbench Business Committee for originally providing the time for the statement.

Our inquiry looked into the extent of the funding gap in local authorities’ finances, and some of the main spending challenges that they face: social care, special educational needs and homelessness. The report brings attention to key issues ahead of the upcoming local government financial settlement. It makes recommendations not only for urgent action to resolve the immediate crisis, but larger reforms for the Government to consider after the next election.

Everyone recognises that the financial crisis in local authorities across England is out of control. In recent months an alarming number of them have issued section 114 notices—admissions that their spending is exceeding their income—thus effectively declaring bankruptcy. In the last six years, eight authorities have issued such notices; in the previous 18 years, none did. It is no longer the case that a small number of individual councils with particular issues are in financial distress. We are now seeing widespread financial distress across large parts of local government, and the situation is only getting worse. The Committee has heard evidence from the Local Government Association that one fifth of councils may be in financial distress within the next year.

At the heart of this crisis is a multi-billion-pound funding gap. The income available to local authorities from council tax, retained business rates and government grants has not kept pace with the increased demand for their services and the effect of inflation. As a result, the Local Government Association estimates that authorities face a funding gap of £4 billion over the next two years to maintain services at their current levels.

Witnesses have told us that the current funding system is “broken” and “not fit for purpose”. Successive Governments since 2010 have reduced the level of central Government grants awarded to local authorities by about 50%. This has been partly offset by a 20% increase in council tax, which has therefore led to an overall reduction in local authority core spending power of 26% in real terms between 2010 and 2021.

In the short term, local authorities need immediate additional funding. Our report recommends that the Government must include additional funding in the local government finance settlement for 2024-25 to fill the gap. Last week the Government announced £600 million of extra funding, and I give credit to the Minister, who has been assiduous in listening to the views of Members on this subject. However, although those measures are welcome, they are not sufficient.

Our report recognises that the Government have recently begun consultations on other methods of increasing the funds available to local authorities. We have cautiously welcomed the fact that they are considering giving authorities additional capital flexibilities to fund day-to-day costs, but we have recommended that those additional flexibilities should be considered carefully and limited to extending flexibilities over invest-to-save activity. We do not want to store up problems for future years.

Our report also recommends other ways in which the Government can improve funding for local authorities in the medium term. We have repeated the recommendation, which our Committee first made in 2021, that the Government must urgently reform council tax. This would involve undertaking a revaluation of properties and introducing additional council tax bands. Finally, we have once again called for the Government to implement the business rates reset and fair funding review, to which they committed themselves in 2016 but which they have yet to deliver, and to reintroduce multi-year settlements.

Our inquiry asked witnesses what had caused the sharp rise in council expenditures. It identified three particular areas where costs have risen significantly: adults’ and children’s social care, special educational needs, and homelessness. On adults’ social care, the increasingly complex needs of a changing population continue to drive up costs, and long-term workforce shortages and inflationary pressures have made the position worse. As the Committee recommended back in 2022, the Government need to recognise that local authorities will need several billion pounds of additional funding each year to continue to deliver and improve adult social care, and should plan a sustainable mechanism to deliver this funding that does not simply rely on increasing council tax.

On children’s social care, our inquiry found that councils are facing rising demand for residential care placements and a poorly functioning market for providing them. That has driven significant cost increases. Our report recommends an urgent comprehensive reform of the children’s social care system. As part of that, the Government should help local authorities consider greater collaboration so that between them they can deliver more children’s care services directly, instead of through private suppliers. Our inquiry also found that local authorities face significant financial pressures in providing services for children and young people with special educational needs and disabilities—SEND. The number of education, health and care plans has “skyrocketed” since they were introduced in 2014, which has significantly increased demand for more expensive forms of SEND provision and home-to-school transport. Funding is provided to local authorities through the dedicated schools grant, but it is not enough to meet the demand and does not cover home-to-school transport.

The Government have already been forced to take temporary measures to prevent SEND costs from forcing a large number of councils into bankruptcy. In 2020, the Government introduced a “statutory override”, allowing local authorities to exclude any deficits on their DSG spending from their main revenue budgets. Local government faces a potential cliff edge of section 114 notices whenever the statutory override comes to an end. The question is: will the Treasury write off that extra borrowing when the time comes? Our report recommends, therefore, that in the short term the Government should provide additional funding for home-to-school transport. In the long term, there needs to be a fundamental reform of the EHCPs, based on a cross-Government review.

Finally, our report makes it clear that rising homelessness has increased costs for councils. A big cause of the increase has been the Government’s decision to freeze local housing allowance rates in April 2020, so our report welcomes the Government’s recent announcement that they will increase local housing allowance rates from April 2024. However, it also raises concerns about the Government’s decision to then re-freeze the rates in 2026. Instead, we recommend that local housing allowance should be retained at at least the 30th percentile of local market rents. In the longer term, the best solution, as the Committee has recommended repeatedly, is to build more social housing, which will always be cheaper than paying for temporary accommodation.

These problems require a long-term solution. That is why the Committee has made recommendations in this report for whichever Government are elected after the next election. The next Government, regardless of their political persuasion, must embark on a fundamental review of the systems of local authority funding and local taxation, both council tax and business rates. In doing so, they must be clear about what local authorities are for and how they can best co-ordinate with delivery of the Government’s wider objectives. We have recommended that the next Government should consider many options, which may include land value taxes and others, and wider fiscal devolution. They must also explore all options for reforming the funding and delivery of social care services, to address the underlying causes of the acute funding and delivery pressures currently faced by local authorities. It is my hope that the need we have identified for additional funding will be properly reflected in the local government financial settlement we will debate next week, and that our other recommendations will be carefully considered by this Government and whoever form the Government after the next election. I commend this report to the House.

[Mr Deputy Speaker (Mr Nigel Evans)]

Thank you very much for your statement, Mr Betts. I call Bob Blackman. I intend to call the Front Benchers at the end, if everybody is happy with that.

[Bob Blackman (Harrow East) (Con)]

I thank the Chairman of the Select Committee for what he said. Clearly, one problem is that adult social services, children’s social services and homelessness services are all demand led, so it is very difficult for a local authority to predict the number of people involved and how much money will be required. Does he agree that what the Government and the Department need to look at now is how we can enable local authorities to have a pool of money nationally that could be used by a particular local authority when these demand-led services have dramatically increased the burden on it?

Departmental Response Times

Debate between Clive Betts and Nigel Evans

Tuesday 19th September 2023 Commons Chamber

[Mr Clive Betts (Sheffield South East) (Lab)]

Today, the Levelling Up, Housing and Communities Committee has published a special report on the response times of the Department for Levelling Up, Housing and Communities to the Committee’s reports. I thank the Backbench Business Committee for kindly granting time to our Committee for a statement on the special report, and I thank the Committee staff for their support to assist us in producing it.

The House has appointed our Committee to scrutinise the Department. The issues that our Committee considers affect the day-to-day lives of constituents up and down the country. During this Session, we have published reports on topics such as adult social care, housing supply and funding for levelling up. We have also investigated damp and mould, and reforms to the private rented sector—two issues that are raised on a daily basis in correspondence to the Committee and in our mailbags as constituency MPs. We have heard evidence from hundreds of witnesses, who have given up their time to share their experiences—in some cases, harrowing and deeply personal experiences—to inform the Committee’s work. They do so in the expectation that our reports and recommendations will influence Government policy and improve people’s experience of public services.

For our scrutiny of Government policy to be fully effective, the Government must consider and respond to our conclusions and recommendations. Sometimes the Government will accept our recommendations and sometimes they will not. What is important is that we receive a response from the Government. Their responses demonstrate that they have considered the views of the Committee and allow the public to see what the Government are doing in response to our inquiries. It is a well-established convention that the Government should respond to all Select Committee reports within two months of publication. We understand that that will not always be possible, perhaps during a parliamentary recess or where recommendations are directed to more than one Department. However, delays should be the exception not the rule, and we expect open and proactive communication from Ministers and officials on the rare occasions when they expect a Government response to be delayed.

The experience of our Committee is that the Department for Levelling Up, Housing and Communities has historically and consistently failed to respond to our Committee reports within a reasonable time. During this Session, we have published seven reports and not one of the Government’s responses has been published within the two-month deadline. On average, Government responses to our reports have been almost six months late. The responses to our reports on funding for Levelling Up, on the Electoral Commission’s strategy and on exempt accommodation were all late. The response to our report on adult social care was eight months late; The response to our report on social housing was 10 months late. The response to our report on permitted development rights was one year and eight months late. We are still waiting on overdue responses to our reports on reforms to national planning policy and on reforming the private rented sector. Our Committee staff spend a disproportionate amount of their time, resources and energy attempting to engage with Ministers and officials, through formal and informal channels, to get responses.

Over the years, as Chair of the Committee, I have seen responses being late, but things have got progressively worse. In March 2022, the Chair of the Liaison Committee wrote to the then Leader of the House to highlight cases of “egregiously overdue” Government responses. The Department for Levelling Up, Housing and Communities was identified as a repeat offender when it came to late responses, and was responsible for five of the 13 examples in that letter.

In January this year, we asked the permanent secretary about his Department’s failure to respond. He said:

“We need to make sure that it is an important responsibility of the Department that we respond on time.”

We have seen little evidence that the Department has taken this responsibility more seriously. Indeed, in the case of our report on reform in the private rented sector, published in February, the lack of response has been deeply disappointing.

The two-month deadline passed on 9 April. On 3 May, the Secretary of State wrote to the Committee to explain that the delayed response will be published

“alongside the introduction of the Renters Reform Bill”.

The Bill was introduced on 2 May, but we have still not received a response to the report. Instead, we have heard that a response will be published “as soon as possible”. We have made seven separate formal requests for the response, as well as many informal requests, but we are still waiting for the Government’s response. It is now more than five months overdue.

The Committee broadly supports the legislation on private rental reform and has made suggestions for its improvement. We now need to hear whether the Government plan to accept these recommendations, and if not, why not. We expected a response in April; we were promised one in May; we are now in September and still waiting. We are also waiting for the Second Reading of the Bill. We hope to receive the response before Second Reading, although that appears to have been somewhat delayed as well.

It is imperative that the Government fully consider the Committee’s conclusions and recommendations in the report, and publish a full response imminently. Our special report calls for a Government response on the private rented sector in the next two weeks, along with an explanation as to what has caused the delay. We have requested an assessment from the Cabinet Secretary about these matters. Finally, we have asked the Liaison Committee to consider a formal review of Government response times, including our experiences with this Department.

In reality, a Select Committee’s powers and effectiveness are significantly undermined when the Government do not fulfil their responsibilities towards it. Ministers must be accountable to this House. We, as a Committee, treat our responsibility to scrutinise the Department and its Ministers with the utmost seriousness. It is time that the Department for Levelling Up, Housing and Communities took its responsibilities to our Committee and the House equally seriously. The first step in doing so must be to respond to our principal output—our reports—in a professional and timely manner.

I normally take great pleasure in coming to the House to report on the Committee’s inquiries and findings. It gives me no pleasure at all to have to make this statement today. I hope I do not have to make a similar statement in the future.

[Mr Deputy Speaker (Mr Nigel Evans)]

There is now an opportunity for hon. Members to ask questions of the Chair of the Select Committee.

[Mike Amesbury (Weaver Vale) (Lab)]

I thank the Chair of the Select Committee, my hon. Friend the Member for Sheffield South East (Mr Betts), and all its members for the valuable work they do shaping, challenging and scrutinising policy and holding people to account. My constituents, and those of many other hon. Members, are waiting with bated breath for reforms to the private rented sector. The Committee has produced an excellent and powerful report about it, but can I clarify that a response to that report has been requested from the Department on several occasions?

--- Later in debate ---

[Mr Betts]

Yes, the hon. Gentleman is absolutely right. He has served on the Committee all the time I have been Chair. We have worked together closely and he has done an absolutely outstanding job, both on the Homelessness Reduction Act 2017 and the Supported Housing (Regulatory Oversight) Act 2023, which deals with exempt accommodation.

Given that the Committee undertook a report on the issue of exempt accommodation, it would have been really helpful, not merely to the hon. Gentleman but to all Members of the House who were looking at that particularly challenging issue, which we described as a complete mess, if the Government’s response to our report had been available in a timely fashion, as it could have informed the deliberations and considerations of the hon. Gentleman’s excellent Bill. In the end, we got an Act that is valuable and well supported, but the Government did not help because of their delay in responding to our report.

[Mr Deputy Speaker (Mr Nigel Evans)]

Thank you, Mr Betts, for your statement—it was almost a 10-minute point of order. I am sure that Members on the Treasury Bench will have heard the points that have been made, not only by Mr Betts but by Bob Blackman.

Building Safety Bill

Debate between Clive Betts and Nigel Evans

Report stage
Wednesday 19th January 2022 Commons Chamber

[Mr Deputy Speaker (Mr Nigel Evans)]

I call Clive Betts, who has tabled amendment 73 and 74.

[Mr Betts]

And new clause 23, but let me comment briefly on two other new clauses. New clause 17, which was tabled by the hon. Member for Blackpool North and Cleveleys (Paul Maynard), is about safety on stairs and ensuring that stairs built in new properties conform to British standards. He is absolutely right and I have put my name to the new clause. Each year, 300,000 people are admitted to A&E because of falls on stairs. That is a staggering figure and anything that we can do to reduce that has to be considered. This proposal is not a difficult one; as he said, it should be easy to implement and cost-free because it would be in new properties. Making sure that the stairs are wide enough and have proper handrails is not rocket science, and I hope that the Minister might indicate agreement on that in future, even if he cannot agree to the new clause today.

I just want to make it clear that nothing I am saying here is meant to try to improve harmony in the Conservative party—that is not something I want to be associated with, as the hon. Member for Blackpool North and Cleveleys indicated. However, I am more than happy to have harmony with him in promoting new clause 17.

My hon. Friend the Member for Hammersmith (Andy Slaughter) is right that there should be similar standards for social tenants in social rented properties. The Select Committee on Levelling Up, Housing and Communities has an ongoing inquiry into the regulation of social housing, and if he could drop a note to the Committee as evidence so that we can take account of his proposals, that would be useful.

I turn to new clause 23 and amendment 73 in my name, which reflect what the Select Committee has looked at. Building control has come up as an issue as a result of the Hackitt review. Dame Judith Hackitt made it clear that two of her concerns about the construction industry were: the whole culture of the industry with its race to the bottom; and—this goes alongside that—conflicts of interest.

In the previous debate, I mentioned conflicts of interest on approvals for products in the industry, with suppliers hawking products around until they found someone—a friendly approver—who would approve them. Building control is the same—it is about the developer finding someone less likely to give them difficult scrutiny. The Government have addressed that for the highest-risk buildings, for which in future building control will be appointed by the regulator. However, for all other properties the developer can say, “Yes, I’ll have you to do my building control” or, “I won’t have you, because you gave me a difficult time with the last property I built.” That is not acceptable.

We need someone to approve a building who is independent of the developer. The Committee has gone on record on that several times, and we recommended it when we scrutinised the draft Bill. So far, the Minister has come back with, “The Government don’t agree.” I hope that at some point the Government will reconsider, because that seems to be a fundamental principle and something that will make all buildings safer in future. It would provide security for the owners, occupiers and tenants that their buildings have been approved by someone independent of the developer.

HOUSING, COMMUNITIES AND LOCAL GOVERNMENT COMMITTEE

Debate between Clive Betts and Nigel Evans

Thursday 17th June 2021 Commons Chamber

[Mr Deputy Speaker (Mr Nigel Evans)]

[Mr Clive Betts (Sheffield South East) (Lab)]

--- Later in debate ---

[Mr Betts]

[Mr Deputy Speaker (Mr Nigel Evans)]

Future of the Planning System in England

Debate between Clive Betts and Nigel Evans

Thursday 17th June 2021 Commons Chamber

[Mr Betts]

I do not think either is really mentioned in the White Paper, which is something we drew attention to. The lack of any mention of climate change comes back to the lack of any linkage with some of the Government’s environmental proposals. On levelling up, I refer to the fact that the Government changed the housing needs formula midway through our inquiry and moved some requirements to build homes from southern, more rural areas to major cities, many of them in the north and midlands. Many cities will struggle to deal with that without building on their green belts—that is the feedback we are getting, including about problems in London. However, the requirement to build homes for areas outside the major cities in the north will be reduced, which does not quite square up with an ambition to get more development, infrastructure and jobs in the north outside the major cities, and removing that requirement will also mean a lack of support from Homes England to get the building under way. That is a major concern, which we have drawn attention to and needs addressing.

[Mr Deputy Speaker (Mr Nigel Evans)]

I thank the Chair of the Select Committee for his statement and for responding to Members’ questions today. We will now suspend for three minutes for covid protection measures.

Fire Safety Bill

Debate between Clive Betts and Nigel Evans

Consideration of Lords amendments & Ping Pong & Ping Pong: House of Commons
Wednesday 24th February 2021 Commons Chamber

[Mr Clive Betts (Sheffield South East) (Lab) [V]]

First, may I send my best wishes to the right hon. Member for Old Bexley and Sidcup (James Brokenshire)? When he was Secretary of State, he and I discussed our respective illnesses, and I really feel for him and his family at this very difficult time.

The Housing, Communities and Local Government Committee has discussed the issue of cladding remediation and fire safety works on many occasions. In June, we made it clear that

“residents are in no way to blame”

for defects from cladding

“and it is our view that they should bear none of the cost of remediation.”

We repeated those sentiments in our prelegislative scrutiny of the Building Safety Bill. Again, we said:

“The Government must recommit to the principle that leaseholders should not pay anything towards the cost of remediating historical building safety defects…for which they were not responsible.”

That is very clear.

The question is who should pay: the initial developer—the Government could help to co-ordinate action against them—the taxpayer, of course, or the industry as a whole? Unfortunately, the amendments tabled by the hon. Member for Stevenage (Stephen McPartland)—I very much agreed with the sentiments of his comments—and by the Labour Front Benchers seek to place responsibility on the freeholder.

For reasons that the Minister gave, those amendments cut across the contractual relationship between freeholder and leaseholder. The hon. Member for Thirsk and Malton (Kevin Hollinrake), who raised this issue a number of times in the Select Committee when he was a member, showed that freeholders are often quite small companies that, where they were not responsible for the initial development, simply collect ground rent. If faced with the cost of remediation, they would simply walk away. Those amendments will not get the work done. That is the fundamental issue. We want to see it done without leaseholders having to pay for it.

Turning to who should pay, certainly, the Government have put on the table £3.5 billion in addition to the £1.6 billion, but that does not include anything other than cladding remediation. All the other works, which for many leaseholders are as substantial in cost as cladding remediation, are not covered, and of course that funding does not cover buildings below 18 metres.

The Government have come up with a loan scheme for buildings below 18 metres, but that places the loan charge on the freeholder. Surely, we are back to the same problems: if we cannot interfere with the contractual relationship between the freeholder and the leaseholder—according to the Minister, with respect to the amendments before us from the Opposition and the hon. Member for Stevenage, we cannot—then surely that is a problem for the Government’s loan scheme too, and if freeholders are going to walk away from a direct charge on properties, as the hon. Member for Thirsk and Malton said, they will walk away from a loan too. That is a real problem that the Government have to address.

I welcome that the Government are going to introduce a levy and a financial contribution from the industry, but we appear to be in a position where they cannot tell us whether the money raised from the levy will be in addition to the £3.5 billion or whether it will be taken from the £3.5 billion—in other words, that the Treasury will get some of that money back. That, to my view, would be wrong. The Minister is going to come to the Select Committee on 8 March; hopefully, we will be a bit wiser after that visit.

Finally, we have talked a lot about leaseholders, but what about social housing tenants? The National Housing Federation says that there is £10 billion of remedial work to be done in the social housing sector, and more for council housing properties, yet the only automatic right that social housing landlords have to any funding is for help with the removal of ACM cladding; everything else they are likely to have to pay for. Tenants are going to have to pay through rent increases, cuts to future maintenance or cuts to the house building programme, none of which is acceptable. So we have a perverse situation where the social housing landlord, as a freeholder, could be ensuring that tenants have to pay for the remediation of properties next door that have been subject to the right to buy. That cannot be right.

All these matters need resolving. We hope that the Minister does so on his visit to the Select Committee.

[Mr Deputy Speaker (Mr Nigel Evans)]

We now move to a three-minute limit. I call Royston Smith.

Sport Sector: Financial Support

Debate between Clive Betts and Nigel Evans

Thursday 19th November 2020 Commons Chamber

[Mr Deputy Speaker (Mr Nigel Evans)]

I will have words with you, Mr Anderson, when you come back to Parliament. Get well soon.

[Mr Clive Betts (Sheffield South East) (Lab) [V]]

I thank the Minister for his statement. Three weeks ago, a number of MPs met Rick Parry, the chair of the English Football League, to discuss the crisis facing EFL clubs. He told us that 10 clubs were unlikely to be able to pay their wages this month, and if substantial financial assistance was not available soon a number would go out of business. I have not heard anything in the statement today that would give reassurance to the EFL and the clubs.

I am sure the Minister recognises that clubs are not like any other business; if one closes, fans cannot go down the road and simply buy their football from another club. Fans give a lifetime of support to their club and clubs are at the heart of their community. So will the Minister now respond to the letter that I sent him, along with the hon. Member for Folkestone and Hythe (Damian Collins), on behalf of the all-party group on football? Will the Minister agree to meet us to discuss the problem of the EFL and meet Rick Parry, its chair, to have a look again at the financial assistance that is going to be needed to ensure that when spectators go back to football they will actually have a team to support?

[Mr Deputy Speaker]

Before the Minister answers that, may I ask everyone to focus on short questions and short answers, as we are really under time pressure today?

Local Government Ombudsman (Amendment) Bill (Money)

Debate between Clive Betts and Nigel Evans

Thursday 8th December 2011 Commons Chamber

[Mr Betts]

I will come on to my concerns about the Bill in a second.

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. We are not here to discuss the Bill. We are just discussing the money resolution, which is rather narrow.

[Mr Betts]

Yes. I made my point about the ombudsman, because there are concerns about the delay to the service itself. Candidates have been waiting for nine months, and that is not an acceptable way of proceeding—I wanted to put that on the record.

I understand your strictures, Mr Deputy Speaker, about the money resolution and not discussing the Bill. However, I return to what the Minister said about not envisaging the measure costing anything to local authorities. There is potential for costs and the spending of extra money precisely because of the way in which the Bill is drafted and how it deals with the extension of powers relating to health and safety. It creates a relationship between the ombudsman and the local authority that is different from the relationship in any other matter that an ombudsman considers. On any other matter, the ombudsman can produce a report that an authority is bound to consider and tell the ombudsman what action it will take, but in this instance there is no requirement for the authority to act in line with the ombudsman’s recommendations.

As drafted, the Bill includes a clear right of redress for the ombudsman against local authorities, including the ability to compel them to pay compensation to event organisers for events that are unreasonably banned or restricted. That is where money comes in. The power that is granted in respect of that issue is different from the power in other issues with which the ombudsman deals. The power to spend the money does not rest with the local authority—it effectively rests with the ombudsman—so we are almost giving a blank cheque or an undetermined ability for the ombudsman to decide in any case how much the local authority should pay in compensation, with the cost to local council tax payers determined by an unelected official, rather than elected councillors.

That is a fundamental issue of public expenditure that the Bill, as drafted, opens up. The Minister may discuss amendments, but the promoter has said that the Bill has not been amended yet. As drafted, that is precisely what it would do, and I have serious concerns about it. The Minister cannot say that under the Bill as drafted there are no spending commitments, but he can say that there are potential spending commitments, which will be determined by unelected people. The counter-argument might be that, as the measure applies only to events that have been unreasonably banned there is a right for judicial review—in which case, why do we need the Bill? However, there is the potential for money to be spent.

Sheffield Forgemasters

Debate between Clive Betts and Nigel Evans

Wednesday 21st July 2010 Commons Chamber

[Mr Clive Betts (Sheffield South East) (Lab)]

Thank you, Mr Deputy Speaker—[Interruption.]

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. Would Members who are leaving the Chamber do so quietly?

[Mr Betts]

Normally when a Member speaks in an Adjournment debate at this time of night, they stand in the Chamber in splendid isolation. It is obviously pleasing to see so many right hon. and hon. Friends here tonight, particularly four other Sheffield MPs, my right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett), and my hon. Friends the Members for Penistone and Stocksbridge (Angela Smith), for Sheffield, Heeley (Meg Munn) and for Sheffield Central (Paul Blomfield). It is also pleasing to see my right hon. Friend the Member for Rotherham (Mr MacShane) and many other colleagues.

This issue affects not merely Sheffield—it has touched a nerve across the nation—but forging and forgemasters are very important in the history of Sheffield. As a child growing up in the city, the pounding of the drop forges down in the Don valley, which is now part of my constituency, was like the very heart of the city beating.

However, this debate is not only about the history of industry in Sheffield, but about its future. In 2005, when the company was part of the Aitchison group, there were major financial difficulties. Eventually, the company was saved by a management buy-out led by chief executive Graham Honeyman, who by putting his own money in saved the firm, its workers’ jobs, debts to suppliers and, with the help of the pension protection fund, the workers’ pensions. Despite initial problems with cash flow and rising energy prices, the company became profitable and increased in size to 700 employees, taking on 70 new apprentices. The company has full order books and 80% of its work is for export, and it has a turnover of £100 million. All the company’s profits to date have been reinvested.

Two or three years ago, the company saw a major opportunity in the nuclear industry. With £150 million of investment, it could buy a 15,000 tonne forging press. However, as that was larger than the company’s total annual turnover, it needed additional help. It went to my friend, the previous Member for Sheffield Central, Richard Caborn, who deserves a great deal of credit for the help he gave at that time.

That package would have created 400 jobs. The Government were approached and over a two-year period, very detailed negotiations were held. Eventually, an £80 million loan was agreed as part of a package involving private investment, including support from Westinghouse, loans and equity release. There was a full appraisal by Department for Business, Innovation and Skills officials and Treasury officials. It was confirmed in parliamentary answers that the independent Industrial Advisory Board gave its assessment, and that Deloitte and Allen & Overy looked at market opportunities and additionality, and at cost-benefit and commercial considerations. After all that, it was concluded that a loan of £80 million was the right way to go as part of an overall package. The loan was also part of an industrial strategy with a nuclear research centre and the Advanced Manufacturing Park. I do not think that France and Germany would have such a dilemma about what to do about investing in such a company.

After the election, we were told that there would be a review. Funnily enough, most of the reviews that took place actually approved schemes that were in train, so let us examine what the review of the Forgemasters loan amounted to. There was no new cost-benefit analysis and no new external advice was sought. Indeed, the Government did not get back to the original advisers. There was no contact with Forgemasters. The first time the company learned anything of the review was when the chief executive got a phone call from a Minister, who said, “Your loan has been withdrawn.” That is no way to carry out a review. The kindest thing I can say is that it was a virtual review; the worst thing I could say is that it was an absolute sham.

Since then, various reasons have been given for the refusal of the loan, including that the directors would not dilute shares. The Deputy Prime Minister and the Prime Minister said that, but the former has had to write to the chief executive to apologise for making inaccurate statements, although he did not apologise today in the House.

Private funding was involved via an element of equity release, but the company would not continue with extra equity release to the point at which control passed back to an absentee owner—the very sort of owner that nearly bankrupted the company in 2005 when the workers and management had to save it.

It was said that commercial options were available. Indeed, the Lib Dem leader of Sheffield city council, Councillor Paul Scriven, said that the commercial markets would provide the money. Will the Minister confirm that at a meeting with Forgemasters and his officials the other day, it was agreed that there were no straightforward commercial options without the loan?

We have been told that there is no money, and that this is unaffordable, but we are talking about an £80 million loan, not a grant. It would have been repaid with interest, making a repayment of £110 million, plus additional money from equity warrants if the investment had been successful, plus the tax revenue from those employed by Sheffield Forgemasters and by companies in the supply chain such as Davie Malcolm, Siemens and Rolls-Royce. This loan would actually have made a profit for the Treasury. The Business Secretary almost admitted as much to the Select Committee the other day.

We were also told that the loan had been a pre-election bribe to buy up a few votes at the general election, but the negotiations had been going on for between 18 and 24 months before the election. So what was the real reason for this decision?