Private Finance Initiative

Michael Fallon Excerpts

Thursday 23rd June 2011 Westminster Hall

[Jesse Norman]

I shall be talking about the early history of the PFI shortly. As my hon. Friend implies, the Ryrie rules were an important part of the fiscal stringency that surrounded that project. What the issue of the Dartford crossing brings out is that PFI is often successful on these economic infrastructure projects and less effective on social infrastructure projects.

[Michael Fallon (Sevenoaks) (Con)]

While my hon. Friend is on the subject of a voluntary rebate, is he aware of the research from the university of Adelaide showing that the average profit made when PFI equity on hospital projects is sold on was more than 66%. Is it not the case that we should be looking at something more than voluntary?

[Jesse Norman]

At this point, I want to keep the rebate voluntary because we are making good progress, but many Members feel that something more stringent would be appropriate. In the assessment of the profits on these equity stakes, I would caution that in some cases those equity stakes have been built up over a considerable period and one should not necessarily look at just the headline number if it is the result of a 10 or 15-year investment.

I have spoken about the campaign that we have run so far. An important feature of the rebate campaign is that at least part of any savings would remain with the public service involved. The result, therefore, would be a win not merely for the taxpayer but for local communities, which could potentially benefit from many millions of pounds in savings over the next two decades.

Let me make it clear that I am not for one moment suggesting that existing PFI contracts should be torn up, but contracts are routinely renegotiated in the private sector. The rebate would be a voluntary one, and not a haircut imposed by Government. There is a valid precedent in the code of conduct that was signed in 2002, by which the contractors agreed to share windfall refinancing gains with the taxpayer. It may be that that code of conduct needs to be further extended to the secondary market trading of equities.

What I did not expect was the level of support that I and colleagues have received from key players in the PFI industry itself. They know that something is wrong. They are aware of public concern, and they want to participate in the next generation of economic infrastructure. Having started as a solo mission, the campaign has become a cross-party movement of more than 70 Members of Parliament. We have sat down with many large PFI companies and talked in detail about the scope for savings.

Parliamentary concern about the costs of the PFI has resulted in an inquiry by the Treasury Committee and, to their huge credit, the Government are taking the idea of a rebate very seriously indeed. Ministers at every level have made clear their desire to see savings. The Cabinet Office has been looking closely at the PFI in its quest for greater efficiency across the public sector; the Ministry of Defence has announced that it is reopening three major contracts as part of its own renegotiation strategy; and the Treasury has opened discussions with the PFI industry about a new code of conduct and it has recently concluded a “deep dive” investigation of the PFI contract at the Queen’s hospital in Romford. That is the first time in 15 years that a Government have taken a forensic look at a specific PFI contract, and it sends out a clear signal of intent to dozens of other PFI projects. So we are making progress. That is the context for this debate—the first Parliamentary debate on the PFI—and I hope that colleagues from all parties will make their support loud and clear for these actions for better public services and real savings for the taxpayer.

However, to understand the present we must understand the past. How did we get to such a sorry state of affairs with the PFI? The history is surprising and damning by turns. It can be divided into three phrases: experiment; ramp-up; and standstill. The PFI was introduced in 1992 from Australia by the Major Government, which was interested in how private capital and expertise could be used to support the public services. Labour Members often deride the Conservatives for introducing the PFI, but the facts tell a very different story. The Major Government could not make the PFI work. They insisted on judging each deal on its merits, having inherited a structure from the Ryrie rules, and the merits were sometimes very thin indeed. By 1996, barely £6 billion worth of PFIs had been approved and no PFI hospitals had been approved, let alone built.

Meanwhile, Labour was split. Old Labourites denounced the PFI in traditional terms as “creeping privatisation”, but it is often forgotten that the new Labour position was the exact opposite of that. New Labour thought that the PFI was a good thing and that the problem was that the Tories had not gone ahead with it fast enough. In a speech in Parliament on 28 November 1995, Tony Blair rammed that point home repeatedly. His position was perfectly clear:

“The PFI is right in principle. We have supported it, and in many ways we have been advocating it.”

At that point, John Prescott, who is now Lord Prescott, helpfully intervened with, “We initiated it.” Blair continued:

“It should not be manipulated to cook the books of public finance.”—[Official Report, 28 November 1995; Vol. 267, c. 1077.]

On that point at least, the future Prime Minister and his Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), were agreed, since the right hon. Gentleman also remarked in the early 1990s that

“PFI is a cynical distortion of the public accounts.”

How are the mighty fallen, and in what disgrace. We are accustomed to make fun of Lord Prescott—rightly so—but at that point he spoke truer than he knew. In many ways, Labour was in fact the real originator of the PFI in its current form. In 1997, the new Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath, and his then adviser, the right hon. Member for Morley and Outwood (Ed Balls), were tied down by the promise that Labour had made to stick to Conservative spending plans for two years. They had committed to keep public sector net debt below 40% of GDP, according to their sustainable investment rule, but they were desperate to leave a legacy by building a huge amount of public infrastructure. They quickly spotted that PFI projects offered a way out of that quandary, because PFI liabilities could be treated as off-balance sheet and so they would never appear formally within the net debt numbers. Of course, as we now know, they later fudged the sustainable investment rule by redefining the economic cycle and then the rule was blown apart as the financial crisis took hold.

After the 1997 election, the new Paymaster General, the hon. Member for Coventry North West (Mr Robinson), summarily fired Alastair Ross Goobey, the chair of the PFI panel and a man with an impeccable record of protecting shareholder value, and ramped up the PFI dramatically. Over time, an unholy alliance developed between the Labour Government and the PFI companies. PFI became the “only game in town”, as more and more projects were pushed in its direction by Government Departments that were desperate for capital spend but prevented by central Government from looking at alternatives.

That ramp-up was aided by the introduction of PFI credits, which allowed Departments to avoid running local authority PFI spend through their own budgets, thus evading responsibility for them; it was also aided by the use of high official project discount rates, which artificially privileged the PFI over other forms of procurement; and it was also aided by the unwillingness of both the Blair and Brown Governments to permit debate on the issue, conduct any overall analysis of the PFI’s cost-effectiveness or gather the full data on primary and secondary transactions, which would have allowed proper transparency and proper public accountability. Frankly, that was disgraceful behaviour.

Fast forward to today and what do we find? More than 800 PFI projects are now in place, covering every imaginable form of public infrastructure from hospitals and schools to roads and military hardware. Nearly £70 billion—not £6 billion, as was the case in 1997—of capital commitments have been made, with a total liability to the taxpayer of well over £200 billion. And—irony of ironies—new accountancy rules are in place that require PFI debt to appear in the national accounts after all. The Balls-Brown attempt to fix the books has proven to be a failure, and a costly failure to boot.

It is important to say that many PFI projects have been completed on time and within budget. There is a mixed picture. Contractors such as Jarvis have gone bust when projects failed, or taken huge financial hits. Also, conventional procurement itself has not always covered itself in glory, as demonstrated by the Eurofighter, Wembley stadium and British Library projects.

In response, it is easy to highlight the many PFI projects that have been horrendously overpriced. They range from huge deals, such as the Airtanker contract, which is now estimated to cost £1.5 billion too much, and the M25 widening, which is now estimated to cost £1 billion too much, to tiny but telling details about smaller schemes, such as the kennels at the Defence Animal Centre in Melton Mowbray, which cost more per night than rooms at the London Hilton.

An even more telling criticism emerges if we look at the overall record on the PFI. We now know that there is no general evidence that the PFI is cost-effective, or that the PFI improves the quality of buildings. Average annual maintenance costs are higher in PFI hospitals than in non-PFI hospitals. The most detailed study of PFI hospitals demonstrates that there is a large element of excess return to both debt and equity holders. Indeed, for equity holders the financial returns have been on occasion up to six times higher than the risk would justify.

There have been important secondary effects. The ramp-up of PFI projects helped to create an artificial boom in construction, which pushed up costs and over-extended the construction industry. Within the NHS, it has resulted in a huge and inflexibly designed Maginot line of hospitals, each one on inflation-adjusted contracts lasting decades, at a time when health care is moving towards more flexible models that combine specialist institutions with health and social care nearer to the home.

The Economy

Michael Fallon Excerpts

Wednesday 22nd June 2011 Commons Chamber

[Ed Balls]

Thank you, Mr Speaker.

In the Budget debate, I took 16 interventions from Members on the Government side of the House. I will take interventions, but not from people who shout and are aggressive while I am still establishing my argument. Let me establish my argument; then I will take interventions. I will start with the hon. Member for Sevenoaks (Michael Fallon) in just a moment.

The Chancellor insisted, despite the fact that we were not in the euro, that our debt maturity was long and that our long-term gilt yields were historically low and had started to fall well before the election. He made the economically illiterate and preposterous claim that, like Greece, Britain was on the brink of bankruptcy. Having already abolished the child trust fund and the future jobs fund, he announced in the Budget immediate plans to take billions more out of the economy through a combination of deep spending cuts and tax rises. That included an increase in VAT to 20% and a cut in tax credits for thousands of families. It also included cuts to housing benefit, pensions and disability benefits. The Chancellor boasted in that speech that the Budget was progressive, not regressive, and that it would be an extra £40 billion fiscal hit in this Parliament. Labour Members warned him of the dangers, but the Chancellor said it would work. Let me cite what he said a year ago:

“These forecasts demonstrate that a credible plan to cut our budget deficit goes hand in hand with a steady and sustained economic recovery, with low inflation and falling unemployment.”—[Official Report, 22 June 2010; Vol. 512, c. 168.]

Things did not turn out that way last year.

Since the Prime Minister foolishly said in October that the economy was out of the danger zone, we have had the biggest fall in consumer confidence for 20 years; our economy has flatlined and not grown at all since the autumn; inflation is now higher than in every country except for Estonia and Turkey; the Institute for Fiscal Studies has declared the Chancellor’s Budget to be regressive, not progressive; and child poverty is expected to rise this year, next year and the year after, with women hit harder than men and families with children hit hardest of all. I have to say that this anniversary—unlike your anniversary, Mr Speaker—is not one worthy of celebration. It is certainly not an anniversary worthy of a 40th birthday party bash at Dorneywood. I do not know whether you were invited to the party at the weekend, Mr Speaker. I was not, which might be because I am not a Knight of the Garter.

[Michael Fallon (Sevenoaks) (Con)]

I am grateful to the shadow Chancellor for giving way so early in his speech. While we are on the issue of credibility, will he explain why his sudden, completely unfunded £13 billion tax cut did not appear to be either agreed or even discussed with the shadow Cabinet? When the former Labour Chancellor was asked nine times this morning whether he agreed with it, he failed to endorse it. Why is the shadow Chancellor so isolated?

[Ed Balls]

The former Labour Chancellor is not in the shadow Cabinet, as the hon. Gentleman will know—[Interruption.] He chose not to stand for the shadow Cabinet. We voted against the VAT rise earlier this year. The Leader of the Opposition said some months ago that it should be reversed. I repeated that claim last week and what I know, as it happened last week, is that when I go to speak to my leader, he understands the issues and backs me up, which is more than could be said for the Education Secretary, the Health Secretary, the Environment Secretary, the Lord Chancellor—and, I fear, quite possibly for the Chancellor of the Exchequer, too, if things carry on as they are.

Oral Answers to Questions

Michael Fallon Excerpts

Tuesday 21st June 2011 Commons Chamber

[Mr Osborne]

There is this myth on the Opposition Benches that we inherited a golden economic legacy. It is not a myth believed in by the International Monetary Fund, the OECD or the CBI, nor is it a view shared by Tony Blair or the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), both of whom have identified—since the general election, of course—the fact that Labour was running into spending problems in 2007 and that the structural deficit was starting to build before the global economic crisis that the hon. Lady mentioned.

[Michael Fallon (Sevenoaks) (Con)]

How much greater would our public sector debt be if we adopted the completely unfunded and opportunistic proposal for a £13 billion VAT cut from the very people who racked up all the debt in the first place?

[Mr Osborne]

My hon. Friend draws attention to the completely ludicrous policy put forward by the shadow Chancellor last week—it was mentioned just on that Thursday, and has not been repeated by any Labour politician since—for a £13 billion unfunded tax change, or £51 billion over the Parliament. The policy is totally incredible, and was rejected by every serious economic commentator on the day. It just shows how far those on the shadow Front Bench have to go to make good for the mistakes that they made in office.

Amendment of the Law

Michael Fallon Excerpts

Thursday 24th March 2011 Commons Chamber

[Ed Balls]

The hon. Lady is right—deficits went up. They went up in Britain, Germany, France, America and all around the world. They did not go up because spending or the national debt was too high in Britain. That is a Conservative myth put about to try to justify the Government’s cuts to police, the national health service and schools. The reason deficits became big was that we had the biggest global financial crisis in 100 years. If we had not let the deficits go up when the tax revenues went down, it would have been not a world recession but a world depression. It was only our actions—here in Britain and around the world—that saved our financial system from disaster. We nationalised the banks, let the deficit go up and got unemployment down—all of which was opposed by the present Chancellor.

[Michael Fallon (Sevenoaks) (Con)]

If all that is true, can the shadow Chancellor explain why the deficit here was the worst in the G20?

[Ed Balls]

The hon. Gentleman knows the answer. We went into the downturn with a deficit that was low and covered our borrowing for investment. [Interruption.] It was low. We had low national debt—lower than France, Germany or Japan. We then had a global financial crisis, which hit the American and British economies hard. Our economy had a larger financial services sector than others—that was precisely why we did not join the single currency in 2003—so of course America and Britain were harder hit than other countries by the financially driven recession.

If we had not let the deficit go up, which some hon. Members now seem to think we should not have done, the result would have been unemployment above 3 million rather than it peaking at 2.5 million. The economy would have gone from recession into depression. That is the economics of the situation. The question is, who did a good job of getting the deficit down? We had the deficit coming down, unemployment coming down and growth going up, but a year later we have unemployment going up, inflation going up and the economy ground to a halt. As a result, borrowing will be £45 billion higher, not lower.

--- Later in debate ---

[Michael Fallon (Sevenoaks) (Con)]

I remind the House of the interests recorded in the Register of Members’ Financial Interests.

I am sorry that the shadow Chancellor is no longer with us, because a couple of elements were missing from his speech. First, any sense of humility was lacking in one of the architects of banking supervision, who started with 10 well-funded banks and ended with only five. Secondly, there was no apology for the appalling deficit that we inherited. Let us be clear: it is 10 years to the month since the Labour Government balanced a Budget. That is nothing to do with something that happened in 2007 or 2008. They made the mistake of letting the deficit grow in the good years as well as the bad.

The Budget’s most important feature is that it does not change the fiscal consolidation plan. We remain on track to balance the budget again by removing the structural deficit by 2015. The Office for Budget Responsibility’s forecast is that we maintain our position on track to being able to do that.

Most of the meat of the Budget is also extremely welcome, and I am glad that Opposition Members have picked out pieces that they, too, can welcome as helping their constituencies. Simpler taxation and less regulation are the drivers of a successful economy. Businesses have enough to worry about at the moment; the Government should not be one of their worries. Reducing the weight of tax and red tape on our businesses is essential. I urge Ministers to stick to their task, regulation by regulation, tax by tax, until we can genuinely say that we have one of the most competitive economies in the west.

I also welcome the Budget’s emphasis on the longer term, backing the newer technologies, especially in energy and the environment, and taking the measures necessary to improve the employability of that huge pool that we inherited of people under 25 who are simply outside the labour market.

I am struck in my constituency by how many companies succeeded in growing even under the previous Government, without direct subsidy or specific grants. I visited three recently. The Sevenoaks energy academy, which I had the honour of opening last year, trains hundreds of engineers in renewable energies, providing courses in fitting solar panels, rainwater harvesting and so on. One of Sevenoaks’s most dynamic business women, Julie Walker, made a £1.5 million investment in that academy, and I welcome that.

[Ian Lucas]

Will the hon. Gentleman give way?

[Michael Fallon]

I will not, if the hon. Gentleman will excuse me.

Secondly, Vine Publishing is a new media company in my constituency that is heavily involved in all kinds of print and digital work. Its turnover now approaches more than £3.25 million and it employs 12 people. It was founded by three entrepreneurs, who dropped out of university because they preferred to go into business.

Thirdly, I attended the opening of the Ideal Waste Paper Company this month. It has built a major new recycling facility at Swanley—a £14 million investment, creating 60 new jobs and recycling more than 250,000 tonnes a year.

Those are examples of companies of the future, in the new technologies, the new energies and the new media. We should all ask ourselves how we get more of them. Of course, getting the long-term climate is right, but we must also address how to make it easier for people to set up such companies.

First, we must consider how we make it easier for them to start up. Like my hon. Friend and neighbour the Member for East Surrey (Mr Gyimah), who made an excellent speech, I support the Government’s enterprise incentive scheme, the entrepreneurs’ relief and the relaxation of planning. I would also like us to return to share ownership and consider how we can spread it more widely among those who work for start-up companies, particularly in the payment of dividends.

Secondly, we should consider how we make it easier for such companies to employ those who have been shut out of the labour market, and who might be viewed as too expensive or too risky to hire.

I welcome the Government’s initiative to reduce the number of cases going before employment tribunals. That is still a very serious barrier to employing more staff for small businesses. Finally, we need to make it easier for such companies to access the capital that they need; a number of hon. Members on both sides of the House have spoken about that.

I welcome the agreement on lending targets in the Merlin negotiations. Those need to be met, especially for smaller and medium-sized enterprises. Of course the banks are right to want more certainty on the capital and liquidity requirements, which are now being emphasised on all sides, from the Financial Services Authority to the G20 and so on, but I hope that there will be more focus on simpler business models with stronger regional networks, which can make lending to small businesses more worth while. We need such businesses to flourish, because they will create the jobs of the future.

The Chancellor was right in the Budget to help people to cope with the unexpected increases in the cost of living over the last few months, but I hope the Budget will also be welcomed for its long-term effects: keeping the public finances on track so that we eliminate the structural deficit that we inherited, putting Britain back into the black without huge changes in the tax and spending measures already announced, and helping to pump the oxygen of enterprise around the economy. It is nice, after 13 years under the previous Government, to welcome a Budget from a Government who believe in enterprise and are prepared to back it.

Oral Answers to Questions

Michael Fallon Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Justine Greening]

Perhaps the hon. Gentleman should talk to his former Prime Minister, Tony Blair, or the right hon. Member for Edinburgh South West (Mr Darling), the former Chancellor, who both said that our decision to raise VAT was necessary to tackle the huge deficit that was left by his party. Again, if he is so concerned about the VAT rise, how come he did not vote against it last July?

[Michael Fallon (Sevenoaks) (Con)]

Will my hon. Friend confirm that the Government inherited plans for six increases in fuel duty from their predecessor, four of which have yet to come into effect? Of all the groups of people who are quite reasonably concerned about the increasing cost of fuel, surely the least qualified is the Labour party.

[Justine Greening]

My hon. Friend is absolutely right. In fact, the previous Government introduced 12 duty rises during their time in office. As he pointed out, they also legislated for a further six rises, bringing in the fuel duty escalator, and these would have been on top of inflation rises. It was absolutely amazing to see the Labour party table a motion last week bemoaning the amount of tax that motorists are paying, when they legislated for all—

Oral Answers to Questions

Michael Fallon Excerpts

Tuesday 21st December 2010 Commons Chamber

[Michael Fallon (Sevenoaks) (Con)]

Does my right hon. Friend not agree that the record borrowing figures announced today simply serve to underline the seriousness of the situation to which the spending review was addressed, as well as the importance of sticking to the fiscal plan that has been agreed and not deviating from it in the slightest?

[Mr Osborne]

My hon. Friend is absolutely right. This country has a record budget deficit; that is the situation we have inherited. We have made some in-year reductions, which have made it slightly less worse this year than it otherwise would have been, and then we have measures next year to try to bring the budget deficit down. Every one of those measures has been opposed by Opposition Front Benchers. They have put forward not a single plan, not a single proposal, to reduce the budget deficit, but our proposals have provided this country with economic stability, in a very unstable European continent.

Autumn Forecast

Michael Fallon Excerpts

Monday 29th November 2010 Commons Chamber

[Mr Osborne]

What we have published today is a series of documents, which the hon. Gentleman has perhaps not had a chance to see yet. Some of them are on corporate tax reform, on intellectual property and on how in time for the Budget—after all, a White Paper proposes measures that will then be legislated for—we will have measures that will address the competitiveness of British industry. Our measures will specifically look at things such as the competition regime, the approach we take to attracting inward investment, how we improve our employment law and specific sectors. If he wants to involve himself in that process, I will make sure he can be part of it.

[Michael Fallon (Sevenoaks) (Con)]

Given the forecasting record of the Chancellor’s predecessor but one, who was frequently in error but seldom in doubt, is not the strength of these forecasts that they were prepared by independent officials, who cannot be and were not overruled by politicians?

[Mr Osborne]

That is, of course, a very significant feature of what is happening today. It is completely unprecedented for a Chancellor to present an autumn forecast that has been produced independently by people who have been verified by the all-party Treasury Committee and who had their own separate press conference. In addition, Members have had a couple of hours to look at this document. If one thinks back, for example, to a year ago and the pre-Budget report, when the previous Chancellor produced the autumn forecast, one recalls that he rattled off the numbers. There was absolutely no opportunity for the shadow Chancellor to have examined those numbers or to have looked at the document, or for any other Member in the House to have done so. It was the Chancellor’s judgment, rather than an independent judgment. Our approach is a major improvement to fiscal policy making in this country. The legislation is before the House of Lords, and I hope that when it comes to the House of Commons it will have all-party support.

National Insurance Contributions Bill

Michael Fallon Excerpts

Tuesday 23rd November 2010 Commons Chamber

[Michael Fallon (Sevenoaks) (Con)]

I am not alone in finding that a rather disappointing response—an untypically disappointing response. Part 2 of the Bill introduces something that the Labour Government never introduced in their 13 years in power, yet the minute we introduce it, they say: “Well, it doesn’t really go far enough”. We have heard 25 minutes of “We want a better Bill, but we never backed it”. Labour has still not proposed to make this provision part of its own policy, yet it wants it extended to other parts of the country.

Unlike the Labour party I welcome part 2, comprising clauses 4 to 11, just as I welcome any reduction in the burden of taxation on small businesses, even if it is described—rather unfortunately, I think—as a “holiday”. Only in the weird and wonderful world of Her Majesty’s Revenue and Customs could the process of allowing a business to keep more of its own income and turnover be described as some sort of holiday. I rather regret that this phrase has now crept into the legislation. Small businesses pay too much tax, so anything we can do to reduce that burden has to be helpful. Why? Because the bulk of private sector job creation has come, and will continue to come, from small companies. Sadly, it is large companies that continue to reduce their costs, to strip out unnecessary manpower and to outsource various functions, while it is small businesses that have been, and will be, the engine of job creation.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Is not the main engine for job growth among small and medium-sized enterprises the expansion of existing SMEs rather than the creation of new ones, although of course that is an important engine as well? Does the hon. Gentleman favour the extension of the measure to new employees of existing SMEs? As he may know, and as I know from personal experience, starting a business involves a number of risks, and obviously this is one of the factors. An established SME could probably do much more with the “holiday”.

[Michael Fallon]

I was about to suggest that the measure might well be extended. It is true that job creation comes from existing small businesses, although it also comes from new ones. I think that we can find some common ground in that regard.

I have three main reasons for supporting the Bill. First, I believe that it is the right way to help small businesses. It is not the only way, but I do not think that the other ways that have been tried in the past—grants, loans, business link services, and a great deal of bureaucracy—are nearly as effective as allowing small businesses to keep more of their own money, and to employ more people more cheaply. Given that a Government cannot create jobs, this is the easiest, simplest and most effective way of encouraging businesses to take on more people.

My second reason for supporting the Bill, which is directly relevant to the intervention from the hon. Member for Swansea West (Geraint Davies), is that it is clearly future-proof. I note that the Opposition do not oppose it, either in principle or in detail; indeed, they want to extend its provisions throughout the country. If it turned out to be spectacularly successful—and none of us in the House knows yet whether it will—its provisions could be extended. At present, the scheme applies only for the first year of a new business, it is open for only three years, it applies only to the first 10 employees, and it applies only to the regions that we have been discussing.

If we discovered that the Bill really did encourage the creation of more jobs and did not divert employment from existing businesses, it would be perfectly possible—once the economy had recovered, we had closed off the deficit that we inherited, and more money was available—to extend the scheme in different ways. It would be possible, for example, to apply it to the first two years of a business. It can take longer than a year for a very small business to establish itself. It would be possible to keep the scheme open for the whole of the current Parliament, matching the reductions that are sadly necessary in public sector employment to encourage private sector employment alongside it. It would also be possible to apply it not simply to the first 10 employees but to, say, the first 20 or 30. I see nothing particularly magical about the step change involved in employing that 11th person. And yes, if the scheme really was working, it might well prove desirable and cost-effective to start extending it to some of the other regions. I note that the three excluded regions contain the south-east—my own region—East Anglia and London, which currently contain half the number of all our small businesses. If small businesses had already been successful in those regions, perhaps, if costs allowed, it might be possible to extend the scheme in four or five years’ time if it worked particularly well.

[Stewart Hosie]

The hon. Gentleman said that there was no step change between the 10th and 11th employees, and he was right. However, there is a huge step change for a sole trader taking on his or her first employee. Does the hon. Gentleman think that, if the scheme were rolled out in the way that he suggests, it should be rolled out to existing sole traders taking on their first employee, which involves a huge commitment?

[Michael Fallon]

I am not sure whether someone would remain a sole trader in those circumstances, but it is true that becoming responsible for someone else’s payroll is often the most difficult step for those who are self-employed or trading on their own account. I certainly think that we should explore that possibility further.

The third, and final, reason why I support the Bill is an entirely different one. The Bill is quite rare in that it recognises the rights of non-workers. I have never forgotten an encounter I had when I was representing a north-east constituency. It occurred at the height of the engineering recession of the early 1980s, when the jobcentre manager in Darlington said to me, “There’s plenty of work about, Mr Fallon, but very few jobs.” What he meant by that was, of course, that the labour market had fossilised. So many restrictions and costs were involved in hiring extra labour that it was too expensive and too risky for firms to take on more staff. Of course, the previous Conservative Government addressed that through a range of liberalisations that tackled areas such as employee rights, access to tribunals and restrictive practices, and I think that a Government need to do that every few years. They need to look again at the balance between those who are fortunate enough to be in the labour market and enjoying the various job protections that this House has given them successively over the years and those who are excluded from the labour market, because those who are excluded have rights too. If we make it increasingly difficult for companies to fire people, then we inevitably make it increasingly difficult for companies to hire people. If we build in unlimited awards for various types of discrimination—sexual discrimination, for example—we discourage firms from employing more women. There is a balance to be struck therefore, and I think that needs to be reassessed every few years.

Small businesses in my constituency tell me that at present they will do almost anything they can to avoid taking on new people, partly because of the difficulty of getting rid of them if they turn out to be unsuitable or unreliable or if they are not prepared to work hard enough, and partly because of the administrative costs piled on them by the last Labour Government through, for instance, needing to check student loan repayments, child care reliefs and immigration status. When we consider measures such as those in this Bill, we need to be thinking all the time about how we can make it easier for businesses to employ people.

This is a short Bill, and it would be wrong to overstate its effects. It must be considered in the context of the other measures to help small businesses, such as the reduction in their corporation tax rate, which I welcome, and the extension of the guarantee scheme. I suspect that the Bill will prove to be successful however, and, if so, I hope that it will be the start of a much wider and deeper process of removing the barriers to growth, such as the thicket of regulation our small businesses have to struggle through and the heavy burden of taxation that still inhibits too many of them. I welcome the Bill.

Financial Assistance (Ireland)

Michael Fallon Excerpts

Monday 22nd November 2010 Commons Chamber

[Mr Osborne]

It would not be particularly responsible of me to speculate on any other country at this time. Let me put it as clearly as I can: there are very specific connections between the UK and Ireland, which we do not have with other countries, and I think that is why it is completely appropriate that we make a bilateral loan in this case.

[Michael Fallon (Sevenoaks) (Con)]

Does the Chancellor agree that, when we end up having to lend very large sums of money to other countries, the Government should always be able to do so at their discretion, in a way that is accountable to this House and not at the mercy of being outvoted by other European countries?

[Mr Osborne]

My hon. Friend makes a very good point. As I say, a bilateral loan will be debated in this House and require the Government to take primary powers, so it is within the control of all Members, and we are accountable to the taxpayers of Britain for that. I have explained the situation, so I will not go over it again, but we are part of the European mechanism, which involves a qualified majority vote, and even if we had exercised a no vote we would have been completely outvoted. That is why I want to see that the UK is not part of the permanent bail-out mechanism, which will be discussed at the December Council.

Finance Ministers’ Meeting (Ireland)

Michael Fallon Excerpts

Wednesday 17th November 2010 Commons Chamber

[Mr Hoban]

I want just to reiterate—to correct the right hon. Gentleman—that no formal request has been received from the Irish for assistance.

[Michael Fallon (Sevenoaks) (Con)]

Irrespective of our obligations under the new European mechanism, which the Labour Chancellor agreed, will my hon. Friend confirm that there is a strong British national interest in securing a stable banking system on both sides of the Irish sea?

[Mr Hoban]

My hon. Friend is absolutely right. We have strong economic ties with Ireland, which is one of our biggest trading partners. Our economies are closely interlinked, and it is therefore in our national interest to ensure that the Irish economy and banking system are stable.