Commons Chamber

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House Of Commons

Wednesday 9 July 1997

The House met at half-past Nine o'clock

Prayers

[MADAM SPEAKER in the Chair]

European Fighter Aircraft

Motion made, and Question proposed, That this House do now adjourn.— [Mr. Clelland.]

9.35 am

I am grateful for the opportunity to raise the crucial issue of the European fighter aircraft, and I am also grateful to the Under-Secretary of State for Defence, my hon. Friend the Member for Warley (Mr. Spellar), for being here to listen and reply to the debate. It is nice to remember that this is the 60th anniversary of Whittle's jet engine, which was developed in the north-west, so it is an opportune moment to discuss the future of the aircraft industry in the area. Clearly, this issue remains important to many hon. Members, and it is good to see several colleagues here to join the debate. This is also a timely moment to raise the subject once again.

One set of our partners in the project—the Germans—may well take a decision on their participation in the programme at a Cabinet meeting this week, on 11 July. In the past couple of weeks, press reports have suggested that the Treasury is unhappy with the costs of the Eurofighter and is looking to reduce our commitment to it, or to cancel it altogether. Since the Government have given assurances on numerous occasions that the project will proceed, I regard those reports as nothing more than inaccurate. However, it is helpful for the Government once more to have the opportunity to reaffirm their support for the EFA project, and I hope that Ministers from the Foreign and Commonwealth Office and the Treasury will bear in mind the points that are raised in this morning's debate.

The aerospace industry is without question one of the major sources of employment in the north-west, and the EFA is a major aerospace project in the United Kingdom at present.

Aerospace is a major employer in Lancashire, where it forms the backbone of the county's economy. Lancashire represents the largest concentration of aerospace production in the UK. However, it is not only Lancashire that is the beneficiary of this project, as there are more than 100,000 direct employees in the aerospace sector throughout Britain. In total, 500 establishments employ people directly in the aerospace sector. The EFA project includes sites in Surrey, Hampshire, Bristol and Humberside—it is truly a national project.

In Lancashire last year, 13,000 people, or 10 per cent. of the county's total manufacturing work force, were employed directly by the industry in more than 40 different establishments. Lancashire also accounts for 13 per cent. of the national total employment in the industry. In my constituency alone in 1995, 400 people were working in the aerospace industry. Having said that, we must remember that many principal contractors buy in up to 70 per cent. of their requirements. The number of indirect jobs created by the aerospace sector is therefore higher than in many other industries.

Among the major employers are British Aerospace—particularly in Salmesbury and at Warton—Lucas Aerospace, and Rolls-Royce. In addition to the main contractors involved in the Eurofighter programme—British Aerospace, Rolls-Royce and GEC Marconi—there are 32 major equipment suppliers and 60 sub-suppliers involved in contracts for the manufacture of the airframe equipment and engine accessories.

Is the hon. Gentleman's entire argument to be based on a job creation scheme, which is what it sounds like at the moment, or will he advance any arguments about the capability of the aircraft or defence capability generally?

The right hon. Gentleman seems to be a little impatient. Obviously a bad night's sleep has not done him much good—he might get better rest tonight, and become more responsible tomorrow morning.

So far, 11,000 people have been employed in the development phase, and estimates from the industry suggest that the peak of production could provide 16,000 jobs directly and another 16,000 among suppliers of goods and services. However, there are countless other firms and many more thousands of people who are linked directly to the aerospace industry, but not employed in it. For example, there are firms in precision and high-technology engineering and electronics, metals treatment, rubber, plastics, software development and design and testing services. More than 120 companies in Lancashire alone are directly or indirectly linked to the industry.

One example in my constituency is Computer Science Corporation of America. It has sited a new office on the Royal Ordnance factory site in Chorley, which Conservatives should remember as the subject of the disastrous decision that led to the factory's closure. CSC has created 400 jobs there, and is looking to double that number. Those are not aerospace jobs, but are linked to the aerospace industry, and more directly to the EFA. If the EFA were to be cancelled, CSC would have to consider its expansion plans.

Other examples of firms in my constituency of Chorley alone that are closely involved in the EFA programme include: Royal Ordnance, which makes weaponry and ammunition for the project; Lyndhurst Precision Engineering Ltd.; NIS Ltd., which undertakes engineering and design of equipment and is one of the leading firms in Europe in its field; and Xelflex Precision Moulders, which makes engineering and moulding equipment. All those firms play a key role in the success of the EFA project. The aerospace industry in Lancashire has been making purchases of raw materials, components and manufacturing supplies totalling more than £1 billion per annum, and it has spent more than £70 million on industrial services.

The EFA has not had the easiest history, because of changes in the international scene, notably the end of the cold war, and it has faced opposition because of budgetary pressures within the partner nations. Most notably, the German Government, faced with the huge costs of unification and the need to cut expenditure to meet Maastricht criteria, dragged their feet on the programme for many years. In fact, in 1995 they denied their commitment, and we are back at the same point today. In mid-1992, Germany announced its reluctance to go ahead with the production as then envisaged and even hinted that it wanted to halt the programme altogether, arguing instead for a cheaper, lighter version.

The Spanish and Italian Governments also dragged their feet, and it was decided to scale down the technical specifications in order to make the version cheaper. After a full review of the specifications and production method, a deal was reached in late 1995: Germany proposed to increase its purchase of Eurofighters from 140 to 180, while the UK would reduce its purchases by 20 to around 230. There has been continuing speculation about German involvement, despite that agreement and despite the fact that Germany is benefiting from 30 per cent. of the production work and will benefit also from future sales or the aircraft. Even now, there seem to be great doubts among certain sections of the German Government and Administration about the importance of the EFA.

I was grateful for the support of my right hon. Friend the Prime Minister, who, in one of his first trips abroad after taking office, went to Bonn and made a point of lobbying Chancellor Kohl for stronger support for the programme. On 18 June, when he came to the House to make a statement about the Amsterdam summit, I asked my right hon. Friend about German support for EFA and expressed gratitude for his continuing efforts. He said:

"I raised that issue with Chancellor Kohl in Bonn a short time ago and I was pleased that he confirmed that he still desires to proceed with the project. Apparently, budget discussions are going on in Germany at present, but I think it is very important that the project proceeds, for the defence of the country and for jobs and skills.''—[Official Report, 18 June 1997; Vol. 296, c. 327.]

We are now told that the German Government will make a final decision on the programme at their Cabinet meeting this week on 11 July. I urge Chancellor Kohl and his Cabinet to re-affirm, once and for all, their commitment to this vital project. I see no reason other than internal politicking for this procrastination, and I hope that Ministers in the Foreign Office will make use of the last couple of days before that German Cabinet meeting to present the case for the EFA project. Once the decision to participate fully is taken—as I am sure it will be taken—I urge the Germans to consider it final. There should be no more lingering uncertainty and no more rumours about doubts or cancellations.

Another line of criticism of the EFA has been unattributable complaints that its technical performance is not up to scratch. The German magazine Der Speigel claimed recently that the steering and radar mechanisms were so bad that a complete overhaul of the design was necessary. It said:

"The flight control system is so slow that the plane is in danger of falling out of the sky at high speeds".

Yet the aircraft has already flown 370 flight hours in prototype without any problems. It was warmly greeted at Farnborough last year, and it gave an impressive performance at Paris last month.

Most important, the plane's pilots testified to its ability. One pilot said:

"The general impressions resulting from this sortie were of a fantastically powerful aircraft that was easy to operate and fly accurately". Another stated:

"The cockpit promotes the feeling of being right on the cutting edge".

That does not sound like a plane with problems and, although nobody would expect it to be perfect at this stage in development, it is clearly not the liability that some parts of the press make it out to be.

Part of the problem may be the divisions within the German Government on this matter and I fear that it is being used as a political football. Sadly, with rumours and recent press reports of Treasury anxiety, I hope that similar tactics of doubt expressed by unattributed experts will not be used by the EFA's opponents in this country.

Having said that, I cannot understand the opposition to the EFA. It has the potential to be a world-beating product, with technology and design to last us for many years, yet its opponents continue to criticise. Sometimes I wonder whether the British tendency to knock our successes is the root cause of opposition in this country—the desire to pour cold water over anything at which we do well. Perhaps some individuals or groups are waiting for the Germans to delay further or to pull out completely, so that we have a face-saving excuse to cancel the British participation in the programme.

However, if people really do want us to cancel the EFA project, they must propose an alternative and, although there are no real arguments in favour of cancellation, we must listen to what others have to say. Of course, we could simply not replace the existing equipment and allow the country's defences to age and become obsolete. Then again, we could buy an off-the-shelf replacement from abroad. The only aircraft that can match the EFA in terms of technical ability is the American F22. Yet—at this point I am addressing the Treasury as well as the House—it is not a cheaper alternative. The Americans are not simply going to give us a fleet of their most advanced fighters; if we want the aircraft, we will have to pay for them.

The price of such a purchase would be high, albeit cheaper than developing our own alternative; but what would be the additional costs—the costs to the British aerospace sector and to British manufacturing industry? The money is going to be spent, so why not spend it in Britain and in Europe? More than 100,000 people are employed in the aerospace sector in this country; and, at the peak of manufacturing in the EFA programme, up to 250,000 will be employed throughout all the partner nations of Europe.

If we were to buy from abroad, most of those jobs would be lost. They are largely high-skilled, hi-tech manufacturing jobs, with high value added to the economy. They epitomise the way in which the Government have stated they want our economy to develop. As an illustration, in Lancashire the average wage in manufacturing is £14,400, yet in the aerospace sector it is £18,600.

To lose such an important part of our economy would be a catastrophic blow, which becomes even worse when we take account of the effect on the whole country and not just the north west. Just as important, we would be signalling our intention to leave the aerospace sector. That is the danger.

The development of technology which can be transferred to other sectors, not simply to commercial aviation, would be lost, as would design and computer systems development—such as that carried out by CSC in my constituency. We would damage our position within the Airbus consortium. The strength and ability of Airbus to continu e technological development and to maintain the challenge to the major American manufacturers would also be damaged. Boeing and McDonnell Douglas were last week given outline permission to complete their merger, which will have a damaging effect on our aircraft industry.

Our ability to maintain the future large aircraft project, which is both a military and a civil design, would be put in jeopardy if the parallel project of the EFA development were to be taken away. That would affect the viability of BAe regional jet production, based mainly in Hatfield, where the BAe 146 aircraft has been a major success, and one of the country's most valuable exports. Indeed, the sale of BAe Hawk aircraft throughout the world generated £12 billion of business for the UK, with about £5 billion being returned to the Treasury—a fivefold return on investment. The EFA would give similar returns.

Some of the largest export contracts ever have involved British Aerospace projects, and have made significant contributions to Britain's balance of payments. The defence division of British Aerospace had a turnover of £5.3 billion last year. Already there has been sales interest in the EFA in countries as varied as Norway and the United Arab Emirates.

If press reports are to be believed that some forces in the Treasury are looking critically at the EFA programme, that Department has a simple choice. It can pull the plug on the Eurofighter programme, to save £16 billion. It can leave the Ministry of Defence to defend our country with obsolete equipment. Alternatively, having saved £16 billion, it can spend a large part of that on a suitable replacement, and spend the rest of the money paying for the huge unemployment in the aerospace sector and all those industries that rely on it.

Twenty years from now, we will still be paying for that unemployment because we no longer have an aerospace industry, our design and computing sectors are second-rate, and our balance of payments is damaged by the need to import those services from abroad, along with aircraft, while our aerospace exports have ceased to exist. All of a sudden, £16 billion does not seem a huge liability, but starts to appear more like a major investment in this country's future.

We have sold off our motor industry and run down our shipbuilding industry. During the past 18 years, our heavy engineering and manufacturing industry has fallen to a third of its previous capacity; yet in aerospace we remain a world leader. We cannot allow the Pacific rim and tiger economies to overtake us in that sector as well, and we cannot present our American competitors with a free hand to dominate the world market for aerospace. The technology that is developed with the aircraft can be transferred to the civil aviation industry and the future large aircraft programme.

For the sake of the Royal Air Force pilots who will have to defend this country, for the sake of the hundreds of thousands of jobs that rely on the Eurofighter project, and for the sake of the aerospace industry in Britain, which has been a success for us in terms of technology and exports, it is vital that we remove all doubt, that rumours from HM Treasury cease, and that we give our full support to the Eurofighter project.

9.52 am

A rumour is going around that the defence review will be shelved or diluted out of sight. I very much hope that the Minister can deny that. I welcome the projected defence review for several reasons—partly because it was long needed, and partly because the Secretary of State said that it would be policy-driven, not Treasury-driven. It is high time that proper consideration of policy in its widest sense governed our defence spending and deployment.

Defence policy is made up of three components: an evaluation of our national security, a projection of our foreign policy direction over the next 20 years, and an anticipation of the industrial and economic consequences of weapons procurement. All three headings have their lobbies.

The services are always keen to lobby for items of equipment, and in this instance the Royal Air Force undoubtedly believes its entire career structure to depend on the Eurofighter aircraft. Indeed, some argue that its survival as a service depends on it, because there is an argument—which has much to be said for it—that the Royal Air Force should be dispensed with, and that an Army air corps should support the Army, the Fleet Air Arm should support the Navy, and there should be a transport command to arrange back-up services. I am not arguing that, but the RAF is well aware of that argument, so its advocacy of EFA has an edge to it.

The Foreign Office wants EFA mainly because of its collaborative aspects, because it regards it as a major purchasing contract that will provide cement for our relations in Europe. Then there are the arguments of the industrial lobbies, whose validity I do not doubt. I congratulate the hon. Member for Chorley (Mr. Hoyle) on the way in which he advanced those arguments. However, he would probably be outnumbered by Labour colleagues who say that the whole sum should be spent on hospitals, schools, kidney machines and so on.

First I shall discuss the issue of national security evaluation. EFA is not an effective weapon system. It is a short-range interceptor fighter, conceived at the height of the cold war, the need for which has been overtaken by events. It has a very short loiter time, and must operate from sophisticated and hardened airfields. It does not have buddy refuelling, which means that it cannot be refuelled from tanker aircraft of identical type, but must wait and locate a slow and vulnerable dedicated tanker if it needs to take on more fuel. It has doubtful software in its targeting and direction-finding equipment, and it has as yet unsolved deficiencies in the fly-by-wire system.

It is likely that the article in Der Spiegel exaggerated those failings, but the statement by the hon. Member for Chorley that the EFA has flown for 340 hours without problems can only be based on a press release from British Aerospace or another source; it does not relate to the facts.

I shall now discuss the Foreign Office implications. The Foreign Office is probably in favour of the EFA because of the collaborative aspect. If the Foreign Office did its job properly, and if its staff applied their minds to the commitments that we are likely to have to undertake during the next 20 years, they would see that what is required is an aircraft with very long range, which can operate off rough local airfields, and which has a relatively low-tech requirement in terms of spares and logistics—something that does not have practically every component in its structure to be new and prototypical.

I shall now discuss the industrial and economic consequences, under three headings. The first consideration is the possibility of exporting or selling the EFA, which I believe to be nil. As the EFA does not meet our national security requirements, it is hardly likely to meet those of potential customer countries, who will undoubtedly buy something that suits their requirements better.

Secondly, under the industrial heading, we must consider the consequences that relate directly to employment and to profits in the aerospace industry. Although the hon. Member for Chorley argued in terms of employment, he is well aware that those who are giving him his briefings are probably very profit-oriented also. The Minister will have very much in mind the fact that among the problems of United Kingdom defence procurement is the almost unbreakable interdependence between British Aerospace and his Department's procurement desk.

Surely, now that the cold war has abated, we could look more widely—not necessarily to the United States—to meet some of our requirements in this area. In any case, if EFA is to be presented as a job creation scheme— I always have some sympathy with the Keynesian ethic—we must find a less extravagant way of paying people to make buckets with holes in them.

The real problem is that a great deal of investment—prestige, money and service commitment—is going into a project that is essentially flawed and out of date. I agree with the hon. Member for Chorley that we must not abandon leading edge technologies. To do so would be extremely dangerous; it would mean finally forfeiting our independence as producers.

What we have to do—it is the hardest thing of all to get past the Treasury—is maintain the research and development on the aircraft and fly prototypes, defective and dangerous though they may often be, so as to maintain our capability. At the same time, we must get out of the commitment to going into production of a large number of these aircraft. We do not need them, and they are already obsolete. They lack variable nozzle technology and other details with which I will not weary the House this morning.

Will my right hon. Friend give way?

Not at the moment. Everyone knows that EFA's life expectancy, even if it has a dominant capability, is only four or five years; and the likelihood of our involvement in the kind of conflict where it would be needed is probably more than four or five years distant.

I am not arguing for the elimination of the whole project. I am saying that producing these aircraft and buying them at colossal individual cost in numbers far greater than we need would be wrong. We do not want to stock up with obsolete weaponry at this stage. On the other hand, the need to maintain our R and D capability and fly prototypes is clear. So the Minister and the Department must find a way of getting out of the production contract while maintaining the capability. It will be hard; the Treasury will never fund R and D if it possibly can. There is no end product—or if there is, it will be of a type which the Treasury believes will ultimately commit it to greater expenditure: best, therefore, to throttle it at birth.

I have described what the Minister must do; it is never too late to do it. The aircraft is not yet in production. The cost overruns are stupendous. Many sectors within its specification are defective and will need huge expenditure to put right. This is the time to close down any idea of producing the aircraft, but to maintain the research and development.

I am grateful to my right hon. Friend for giving way—

I have finished my speech.

Order. It is clear that the right hon. Gentleman has sat down.

10.2 am

I congratulate my hon. Friend the Member for Chorley (Mr. Hoyle) on his lucid presentation. For a new Member, he has an effective insight into the problem—[HON. MEMBERS: "Of jobs"] It is my hon. Friend's privilege to concentrate on jobs. It enables him to get some experience in the Chamber, and I commend his speech this morning.

I applaud the fact that we are having this debate. It is entirely understandable that hon. Members whose constituents work in the defence industries should be concerned about jobs for their people. The right hon. Member for Kensington and Chelsea (Mr. Clark) seems to think it wrong to battle too hard for Britain because, in an age of new technologies, things move too fast for us to keep up.

I am a long-standing member of the aerospace and technology committee of the Western European Union, where we have been battling away with the Germans and French over the airbus for some time. Not long ago, we unfortunately lost out in the helicopter argument. Our cardinal objective in all these arguments is to present a good economic case for the viability of British aerospace productive capacity, especially when it comes to making specialist aircraft of this type.

Does the hon. Gentleman agree that it is important to maintain our manufacturing capacity, and that relying on service industries alone would impoverish us all? Does he agree that the Treasury has a case to answer over research and development? As I understand it, it has not matched British aerospace's R and D investment pound for pound, as it should have done.

I agree. It is imperative to keep up the progress in this area, because it will affect the whole future of British aerospace technology. Treasury mandarins have always been the same. Some present in the Chamber today who have had ministerial experience can, I am sure, quote chapter and verse to show how the Treasury cuts off or isolates funding.

We have been discussing these matters in the WEU aerospace committee. Next week, I shall have talks with Karl Lenzer, the acting chairman of our committee, who will be in America for discussions. Understandably, German politicians, just like their British counterparts, want value for money. We are all in the same game; no one wants to be frivolous about public money. We are talking about 16,000 German and 10,000 British jobs.

The right hon. Member for Kensington and Chelsea questioned the performance of the aircraft. We take pride in British quality—indeed, we claim to be the best in the world—but we need to be competitive as well as technologically sound. We have always proceeded on the basis of open competition.

We are assured by Labour Ministers now that the Eurofighter is not to be considered under the defence review. I call that backing Britain with confidence—

The hon. Gentleman should get his facts right. I am as strong a supporter of the aircraft as he is, and I recognise the excellent work being done by the WEU committee on which he serves. I also recognise the importance of positive, joint decisions with the Germans.

However, it is inaccurate to say that the aircraft is not to be included in the defence review. When the Chief Secretary to the Treasury made his statement on departmental reviews of spending, I questioned him on this very point. He replied that both Trident and EFA were in the review. That is not to say that the Government will not come up with a positive decision. Labour has always supported the project, and we hope that the Government will maintain that support, despite the review.

There appears to be some confusion between the information that the hon. Gentleman has and what I have been told. It is important that the House be informed as soon as possible, because that is the only way to guarantee democratic accountability.

When I first went to the Council of Europe, there were 18 member countries. Now 40 nations belong to it. In WEU—the European wing of NATO—and the Council of Europe all the British political parties have always flown the flag together to support British interests in Europe. There has never been a division. The previous Prime Minister congratulated the delegation to the Council of Europe on how we tackled the problem of securing and advancing British interests in co-operation with our European colleagues.

The American disposition within the defence framework is clear. I have no scruples about predicting that, in 10 to 15 years' time, American and NATO services will have disappeared from the European theatre. It is evident from the political scene on the horizon that, now that the Russians have been accepted into NATO—other countries are coming in daily—rather than deal with short-term aircraft, as the right hon. Member for Kensington and Chelsea said, the Eurofighter will fit the bill for Europe in 10 years' time, which is why the project is necessary.

We will be dealing with a new type of NATO, with Russia playing a part—it now has a consultative role. It sounds a bit funny to say that it will be a North Atlantic Treaty Organisation within the framework of Europe, but a new European defence organisation will emerge through the evolving nations that will become new members. We are perfectly capable of looking to Europe for our defence.

Whether in technology or in performance, other parts of the world, such as Scandinavia and Asia, are declaring an interest in our project. When Japan was made an observer to the Council of Europe—America and Canada have also been made observers—it expressed an interest in the European defence scene. We therefore have allies throughout the world who support, in principle, Eurofighter's claim to be an effective weapon within our defence framework.

Does the hon. Gentleman dismiss, as I do, the argument, which we hear time and again, that, for reasons of cost and capability, we should put EFA to one side and buy an effective and proven alternative from the United States? Does he agree that, if we do that, the jobs he mentioned—10,000 in Britain and 16,000 in Germany—would be put in jeopardy, and manufacturing skills in both countries would be lost? If those skills were lost, they would be lost for ever, and it would be extremely difficult to say whether those teams would ever work again for European defence manufacturing interests.

The hon. Gentleman makes a succinct point. The bulk of my constituents who work in the Lostock factories in Bolton and on aircraft wings in Chadderton are highly skilled technicians, from planners on the drawing board to electricians and fitters, which is why I have a direct interest in this matter. The new skill training programme introduced by the Labour Government will do much to reassure the hon. Gentleman that the skills, dedication and loyalty that now exist will be part of a follow-on process, with new apprentices in that category.

Will the hon. Gentleman give way?

The right hon. Gentleman would not give way to any of his parliamentary colleagues, but, being a charitable new Labour socialist, I shall give way.

I am grateful to the hon. Gentleman for giving way, and particularly grateful for the candour with which he declared his political affiliation. I did not give way to my hon. Friends because I had completed my speech.

Further to what my hon. Friend the Member for Ribble Valley (Mr. Evans) just said, I want to distinguish between manufacturing skills and design capability. In the same unpunctuated sentence, the hon. Member for Leigh (Mr. Cunliffe) referred to drawing board technicians and fitters, which are totally different categories. It is essential to maintain the drawing board capability, and full research and development. The point about full-scale employment is that the fitters' skills will be wasted if they make something that is of no use. That was the point that I was making.

If something is wrong with the design, the manpower is wasted. The right hon. Gentleman is right about design engineers. I have some in my constituency who are specialists in every sense of the word, and we are proud of that. Their work must complement that of the other workers, whether on the tool bench or on the drawing board. The right hon. Gentleman makes a fair comment, but I did not understand when he said that he knows of many design defects at this time. I shall ask my design boys to see whether there is some logic in his presentation.

Our wonderful achievements in collaboration with our European colleagues, from airbuses to helicopters, augur well, and should bring confidence and trust in the future. We are Europeans in the true sense, and are becoming totally interdependent in Europe in terms of jobs and education. That is the great case for Europe. European countries need one another, politically, economically and socially, but we must continue to plug British interests.

10.16 am

I am delighted to see the unanimity of Lancashire Members in the Chamber today, including my hon. Friend the Member for Ribble Valley (Mr. Evans) and the hon. Members for Preston (Audrey Wise), for Blackpool, South (Mr. Marsden), for Chorley (Mr. Hoyle), and myself from Fylde.

I congratulate the hon. Member for Chorley on how he laid out not only the strategic but the industrial case for Eurofighter 2000. He made a clear and justifiable case for the project's continuity, in contrast to my right hon. Friend the Member for Kensington and Chelsea (Mr. Clark), who was long on criticism but short on objectivity in suggesting an alternative to the Eurofighter 2000. It sounded like the knocking copy that I have heard emanating from north American sources, who for so long have sought to do the project down. Those of us who have lived with it for many a long year have heard this story before.

I respectfully point out to my right hon. Friend that he was in post in the Ministry of Defence when some of the specifications for the Eurofighter were being written, so perhaps at some stage outside the Chamber he will tell me whether his hand was on any of the specifications that he now denounces as inappropriate.

May I put on record words of praise for our former colleagues, Mr. Keith Mans, Mr. Robert Atkins and Mr. Den Dover, for their fight to keep this project alive? Without their efforts, I doubt whether we would be having this debate.

A tremendous campaign was orchestrated to influence Members of the Bundestag when it last had to make a decision on that matter. The Secretary of State wrote a helpful letter to me on this subject, saying that he would come back to me with ideas about how the current generation of Members of Parliament might also communicate with colleagues in the Bundestag, because they have the final decision on the German financial position. I should be grateful if the Minister, if not in his reply then subsequently, would be willing to act as a falcon for the exercise that this Parliament can have in influencing our German counterparts.

I also pay tribute to the work of the trade unions. It may sound odd coming from a Conservative Member, but the trade union movement, based as it is in my constituency of Fylde, at Warton and Samlesbury, has campaigned professionally and skilfully in ensuring that its German, Italian and Spanish counterparts are on side in terms of the Eurofighter project. The project is a joint effort of so many in the House and outside. We now move to a crucial phase for my constituents and those who are working on the successful prototypes operating from Warton.

The vital success of the project, to which the hon. Member for Chorley (Mr. Hoyle) referred, is crucial to the future of the entire European aerospace industry. Without it, a great prize could be missed. In a rationalised Europe there is the opportunity for British Aerospace and the United Kingdom to be the centre of that industry. The maintenance of the technologies that the hon. Gentleman so ably described lie at the heart of the achievement of that objective.

If the European fighter aircraft is not built, we will simply become a jobbing shop for the United States. We will lose the technology base for that and the other aerospace projects that the hon. Gentleman mentioned.

The project is entering a crucial phase, about which I shall ask the Minister some specific questions. I know that the German Government have written into their budgetary plans a four-year sum for Eurofighter's production phase. I should be grateful if the Minister would address himself to the money that will be required in an interim period to finance the further development of production work up to the production phase itself. Is he confident that the German Government and others in German industry will find that crucial bridging finance to take us to the end of the year?

In the Minister's judgment, is there the remotest possibility that the German Government might fast-forward their budgetary procedure, so that we might all go away for our summer holidays less concerned about the matter, or is the relevant date the autumn? Such guidance is important to us as parliamentarians, so that we might influence our colleagues in the Bundestag.

Can the Minister assure me that he and his colleagues in the Ministry of Defence will assist right hon. and hon. Members who want to make representations to other countries in Europe?

I watched "Newsnight", and was somewhat concerned when I heard the Minister of State for Defence Procurement say in an interview from the Paris airshow that the number of aircraft might be subject to the defence review. Can the Minister unequivocally put it on the record that not only will we order and buy the 232 aircraft, but that we will also review the Harrier GR7 replacement in the light of the European fighter aircraft, and that those numbers will not be part of that exercise?

I put that on the record in a written parliamentary answer to the right hon. Gentleman on 26 June at column 627 of Hansard.

I am grateful to the Minister for reaffirming that. We have had so many different stories when one Minister appears on television and another Minister puts something in writing. I wanted to make certain that the two lined up together.

I seek an assurance from the Minister that he and his right hon. Friends are not under any pressure from the Treasury to review the project in terms of numbers. That might not be in his review, but I know that the Treasury never misses an opportunity to have a go at such projects. I should be grateful for the Minister's comments.

Can the Minister tell us what he thinks is the source of briefings that continue to find their place in the pages of our aviation journals and newspapers—the endless knocking copy on such a splendid project? I want an end to such copy. We are now committed to EFA 2000. We want the aircraft to be built and properly funded. Both sides of the House—with the odd exception—are unified in our purpose. The Minister's reassurance from the Front Bench today that the project has the unequivocal support of the Ministry of Defence would be welcome.

10.23 am

Mindful of the time, I shall keep my comments fairly short and to the point. I had the pleasure of attending the launch of the Eurofighter in Warton in the constituency of the right hon. Member for Fylde (Mr. Jack) several years ago, when I was leader of the council in Preston. I also had the pleasure on 19 June of seeing the Eurofighter fly at the Paris airshow.

During the intervening years my commitment to the Eurofighter and my confidence in it have not wavered. I have heard nothing to challenge the conviction that the Eurofighter is the right plane for the Royal Air Force. I find it strange that doubts about the Eurofighter surfaced only after 1 May. As Lord Gilbert said at the Paris airshow, the decision to go ahead with the Eurofighter as the right plane for the RAF was taken by the previous Government. In many ways it is too late now to revisit that decision.

I shall deal with two other issues—first, the link between industrial policy, defence policy and defence procurement policy. It is essential that Britain retains the capability to produce defence equipment at the cutting edge of technology, rather than becoming entirely dependent on the United States as a monopoly supplier. That may mean that we operate in collaboration with other countries, as we have worked with other European countries on EFA.

To abandon the project and buy an off-the-peg plane from the US would imply that, although we are committed to a defence policy that looks after our armed forces with good equipment, we are not committed to retaining the manufacturing base to build that equipment. We would be dependent on monopoly suppliers from overseas. We might save money in the short term and the Treasury might find savings if we bought the F22 instead of the Eurofighter, but 10 years down the track when the development of the next plane begins, we will not have the capability in Britain or in collaboration with other European countries. We will be held hostage to the monopoly supplier. That does not make sense from a defence or a Treasury point of view.

Secondly, it is important to recognise the industrial strategy and the link between defence manufacture and manufacturing in general. That is particularly the case in the aerospace industry. The advances made in military aircraft development have a spin-off effect on and a cross-fertilisation with civil aviation development.

Does my hon. Friend agree that the civil side of British Aerospace's business would take a severe knock if the Eurofighter project fell apart? Does he know that 2,800 of my constituents make the wing of the Airbus? As it happens, I am taking a deputation today to the Ministry of Defence on the future large aircraft.

I agree with my hon. Friend's comment. It is interesting that the future large aircraft is linked to civil aircraft through the Airbus, and there are links between the Eurofighter and other civil projects.

The right hon. Member for Kensington and Chelsea (Mr. Clark) argued that we could concentrate on research and development, and that we do not need to employ people to carry out projects for the Eurofighter. That is nonsense. People who live in my constituency and work in the constituencies of the right hon. Member for Fylde and the hon. Member for Ribble Valley (Mr. Evans) at Warton and Salmsbury have skills that are not transferable to other parts of the engineering industry. If the Tornado and Hawk work going on at British Aircraft military division is blocked because the Eurofighter does not go ahead, the skills that exist in central Lancashire to assemble those planes will not exist in 10 or 15 years, when the next development comes along. It is a matter not simply of R and D, but of hands-on skills that are of little use to any other industry.

In the past, my colleagues have raised the question of arms diversification. However, the skills involved in the aerospace industry are not readily transferable. The Preston technology management centre on the old British Aerospace Strand road site in Preston is considering a diversification strategy by using the intellectual property rights of British Aerospace to help small and medium-sized enterprises produce products that are not defence-based. That is one area where diversification may occur. The skills of my constituents who work for British Aerospace in Lancashire—who are among the most skilled manufacturing workers in this country—are not transferable. Arms diversification is not easy.

We will always need a good defence industry, and our armed forces will always need good equipment, so it makes sense to ensure that we have the manufacturing base to provide that equipment. Some 620 Eurofighter aircraft will be produced initially, with 232 destined for the Royal Air Force, 180 for Germany and the others will be supplied to Italy and Spain. I had received submissions from the industry, and I do not accept that the aircraft has no export potential.

When air forces fly planes that are made in this country, foreign countries decide that they want to buy them. A few weeks ago, the Secretary of State for Defence visited Warton in the constituency of the right hon. Member for Fylde with the Prime Minister of Australia, Mr. Howard, in order to agree the sale of Hawk aircraft to Australia. It is significant that that deal envisages an offset agreement, whereby several aircraft will be produced in Australia. If we abandon aircraft manufacturing in this country, rather than simply buying from abroad, we have the option of offset agreements. However, we would not have mastery of research into and development of those aircraft, and we would get the back end of the job.

I want the British aircraft industry to be at the cutting edge. The Minister must recognise the importance of defence procurement in industrial policy. I should be very worried if the EFA project were delayed, cut or abandoned. That would have serious implications not only for defence but for the future of manufacturing industry in this country in general, and in central Lancashire in particular.

10.32 am

I agree with much of what the hon. Member for South Ribble (Mr. Borrow) has said. However, I think that he is wrong to claim that doubts about the Eurofighter have surfaced only since 1 May. Doubts surfaced immediately after the general election in 1992. At that time, several hon. Members, under the leadership of Keith Mans—who had a long and distinguished commitment to the Eurofighter project—and by arrangement with the Secretary of State for Defence, who laid on an aircraft for the purpose, travelled to Germany so that we could lobby our party equivalents in the German parliamentary system.

That may be the answer to the question raised a moment ago about how best hon. Members from all parties could apply pressure to their equivalents in Germany. If the Minister has an aircraft standing by, I have no doubt that he will find many volunteers to take part in such an operation.

In the short time available, I shall concentrate on the military elements of the matter. I start from the fundamental position that the Royal Air Force should remain a strategic service and that any effort to alter it or downgrade it to the kind of support service for which some argue would be wholly against the best defence interests of the United Kingdom. If we start from the proposition that the Royal Air Force must be a strategic service, we must accept that it has to be equipped properly. It can be equipped properly for the next 25 or 30 years only if it has Eurofighter.

The right hon. Member for Kensington and Chelsea (Mr. Clark) described the Eurofighter as an interceptor aircraft. I must adopt a slightly different view: I have always understood the aircraft to be an agile fighter. It was designed to overcome the defects that had been demonstrated in the Tornado F3, which is an interceptor and was designed to intercept Russian bombers over the North sea from the squadron base at RAF Leuchars in my constituency. That interceptor aircraft was modified from an aircraft that had been designed as a ground-attack aircraft, and it lacks the agility of modern aircraft. That is why the F3 squadrons, of necessity, performed such a limited role in the Gulf war, and why they have been unable to fulfil all the roles that might have been expected of them in operations in Bosnia.

The hon. and learned Gentleman is absolutely right: one of the problems with the Tornado was that it was designed as a multi-role combat aircraft and therefore did not perform well as an interceptor fighter aircraft. Does he agree that the key point about the Eurofighter is that it is a dedicated fighter with air superiority capabilities, which is what Britain badly needs at present?

The hon. Gentleman is correct: the Eurofighter is capable of achieving air superiority.

However, as the Minister pointed out in a written answer on 17 June this year, it also has the capacity to take part in ground-attack operations. That is why any review of Eurofighter numbers should accept the proposition that, instead of 232 or 238 aircraft, we need 80 more than that in order to fill the gap caused by the eventual withdrawal of the Jaguar from service.

Some hon. Members have talked about alternatives. The Grippin and the Rafale are possible alternatives, but we must accept that they have lower capabilities. There are American alternatives. We should remember that, in the last Parliament, Michael Portillo flirted—if I may use that word—with the proposition of leasing in second-hand F16s at the same time as we were leasing out second-hand F3s to the Italians. The Italians, for reasons that I need not go into, are grossly embarrassed in the fighter aircraft area. Eurofighter is probably more essential for them than for the other three project partners.

If we went down the American route, we might get cheap unit costs, but the through-life costs would kill us—if I may put it that way. When one is gauging the cost of these projects, one must have regard to the cost not of buying an aircraft off the shelf but of maintaining and running that aircraft over its lifetime. We certainly cannot afford the F22. However, if we were to buy it, you can bet your bottom dollar that the United States would not provide all the black boxes that are essential to maximising its full capability. We would always receive an aircraft that was less capable than the top-of-the-range aircraft that the United States would maintain for itself.

The Eurofighter aircraft has been designed to fly against the SU27—perhaps one of the most dramatic developments in aircraft design since the creation of the jet engine—and all its derivatives. SU27s are available to countries all over the world as a result of Russian export policies. Therefore, it is not inconceivable that Royal Air Force pilots, while carrying out future operations on behalf of the United Nations and exercising its peacekeeping, peace-making or peace-enforcing responsibilities, will have to fly directly against the SU27. That is why anything less than Eurofighter would be inadequate for the Royal Air Force's purposes.

10.38 am

I congratulate the hon. Member for Chorley (Mr. Hoyle) on introducing this short, but timely, debate. I also congratulate my right hon. Friend the Member for Kensington and Chelsea (Mr. Clark) on his usual robust and challenging speech and my right hon. Friend the Member for Fylde (Mr. Jack) on his very persuasive arguments.

I also congratulate all the men and women of the Royal Air Force and their civilian support staff, and thank them for demonstrating superb professionalism at a very difficult time of adjustment. The structure and the functions of the Royal Air Force have changed. I have seen that in my constituency, and when I have visited the RAF overseas, whether in the Falkland Islands, Belize, Gibraltar, at the sharp end in Incirlik and in Germany, where the changes have been greatest. I found that at Rheindahlen and Brüggen last year, which I visited as a member of the Armed Forces Bill Select Committee.

The RAF's withdrawal is not just an operational change; it is a fundamental change to the way of life of the RAF and all the families who so loyally follow the flag. By 2002, the Tornados will have come home. The upgrading of the Tornado F3 and GR1 will give them another 20 years of service, but by then they will to all intents and purposes be the equivalent of the RAF flying Spitfires today.

Michael Portillo's decision last September to tell our project partners that we are ready to move ahead to the production and in-service support phases of Eurofighter reflected the Ministry of Defence's conclusion that Eurofighter was the best available combat aircraft for the United Kingdom. All other considerations, including jobs, must be secondary to the military decision, but the decision has been clearly and decisively made.

The decision was good news not just for the Royal Air Force—it was good news for Munich, Turin and Madrid—but most of all for the best aerospace work force in the world, at British Aerospace in Lancashire, and at Rolls-Royce in Bristol and Derby, as well as some 200 UK defence companies involved in the development and production of equipment for Eurofighter. It will mean up to 80,000 jobs in the UK, and some say up to 250,000 jobs across Europe, although I find that latter estimate somewhat far-fetched.

The trouble is that there are three spectres at the defence procurement party. First is the shadow of TSR2. The week before the 1964 general election, Harold Wilson went to the north-west and promised that TSR2 would go ahead. Labour was elected. Labour cancelled it. That ghost still walks. Will Labour stick to the agreement between the Conservative Government and British Aerospace to buy 232 EF2000s? The Minister says that he will, but we will come to the reason why I believe that he should not be quite so certain.

The second spectre is the weakened German economy. The day after tomorrow, as the hon. Member for Chorley said, is crucial to this argument, as it is when the German Cabinet holds its budget meeting. Unlike this Parliament, there is no party political consensus in the German Parliament, as members of the House of Commons Defence Committee discovered when the Bundestag Committee visited us last year. Furthermore, what assurances are there from the Minister's Spanish and Italian counterparts that they will honour the agreement to buy their complement of the EF2000s?

Does the Minister accept that Eurofighter should be cheaper to maintain than the Tornado that it is to replace, since Eurofighter will be built with under 15,000 airframe parts, compared with 32,000 for the Tornado?

Has the Minister decided to include thrust-vectoring in the UK specification for Eurofighter, like the Spanish? So far, only the Spanish have said that they definitely want the upgrade, which will increase the speed and manoeuvrability of the aircraft.

Can the Minister confirm reports—which I have heard—that his Department has told British Aerospace to slash its agreed costs by 15 per cent.? If that is true, it would be very hard for the aerospace industry in this country. First the Labour Government decimated the private finance initiative programme without paying compensation to the companies, and now BAe may be forced to make savings that would put jobs at risks.

Will my hon. Friend acknowledge that being permitted to make a reasonable profit on a military project such as this ensures reinvestment into research and development, on which the next generation of aerospace projects depends?

Of course, my hon. Friend is absolutely right. Those profits are reasonable. They were extremely tight—let no one be in any doubt about that—given the international nature of this market.

The third spectre at the party is Her Majesty's Treasury and the strategic defence review. I do not doubt for a moment the sincerity of the Secretary of State for Defence, the Minister for Defence Procurement, or the Under-Secretary of State who will answer today, but not once has any of them been able to deny the bottom line of a Treasury veto. In none of the Parliamentary Questions that they have answered have they been able to make that commitment.

The strategic defence review report will go to the Secretary of State by the end of December, as he said. I believe that it will be completed—considered by Ministers—around the turn of the year, which, as a former Minister. I know only too well can mean anything up to March, which is the financial year anyway, not the calendar year. The Treasury cannot allow the defence budget to be excluded from normal spending round bargaining.

The March 1998 Budget spending plans will be followed by a defence White Paper. Would the Minister like to deny any of this? Only after that White Paper, after the Budget, will we know the truth about the strategic defence review and the fate of Eurofighter.

The Conservative Government put in place a defence procurement programme of which our forces and our nation can be proud. The Labour Government cannot expect—and will not get—cross-party consensus on their defence stance until the spectres of German uncertainty and the Treasury veto are laid to rest.

10.45 am

I welcome the hon. Member for Salisbury (Mr. Key) to his new responsibilities. I also congratulate my hon. Friend the Member for Chorley (Mr. Hoyle) on securing the debate and on his vigorously presented case for EFA, for the aerospace industry and, indeed, for his constituency.

We heard worthwhile and helpful speeches from the right hon. Member for Fylde (Mr. Jack), from the hon. Member for Ribble Valley (Mr. Evans), from my hon. Friends the Members for South Ribble (Mr. Borrow), and for Leigh (Mr. Cunliffe). We also heard an interesting speech from the right hon. Member for Kensington and Chelsea (Mr. Clark).

The interest of my hon. Friend the Member for Chorley in this vital subject is obviously shared by most hon. Members on both sides of the House, so I welcome the opportunity to underline the Government's strong commitment to Eurofighter, which will form the primary component of the RAF's future fighting capability. We are right to stress that as the key aspect to the debate.

Hon. Members raised a number of points, which I hope to dress during my reply. The Gulf conflict and operations in the former Yugoslavia demonstrated the supreme importance of effective air power. The number of countries that possess highly manoeuvrable, high-performance aircraft equipped with modern sensors, defensive aids and missiles is expected to increase. The Russian MiG 29, and the SU27, both of which are being exported and upgraded, are representative of the potential threat that Eurofighter could face over its planned 25-year life. United Kingdom forces deployed on operations in Europe and beyond are therefore likely to encounter aircraft that could out-perform existing RAF and other NATO fighters. We must not underestimate the vital importance to our forces of control of the skies.

We all recognise that the RAF's F3 Tornado has a limited further life. It is not, as has been mentioned, an agile aircraft. It was designed to deal with the cold war threat of Soviet long-range bomber attack on the United Kingdom. The missile upgrade currently being implemented will, of course, make it a much more effective system, but that can be no more than a relatively short-term solution. The RAF's Jaguar aircraft suffers similar limitations. It is clear that both aircraft need replacement from early in the next century. That, I believe, is common ground to all concerned.

Eurofighter will be capable of providing for air superiority and air defence—gaining control of airspace, whether to protect territory, or to enable other operations by land, sea or air to achieve their objectives. The same aircraft will also provide for ground attack and, potentially, tactical reconnaissance. Eurofighter will be able to offer operational flexibility in response to the uncertain demands of the new strategic environment and enable the RAF to reduce its current aircraft types. Indeed, this is characterised by the aircraft's short take-off and landing capability, which will allow it—contrary to the allegations of the right hon. Member for Kensington and Chelsea—to operate from a range of airfields.

Furthermore, I can confirm that it has been designed to meet the range requirements of all envisaged missions. Eurofighter will provide interoperability with three key NATO allies. This will yield important operational advantages as well as the financial benefits flowing from economies in support.

On the technical performance side, I am pleased to report that recent progress on the Eurofighter development programme has been excellent and that all key technical maturity criteria for entry into the production phase have now been met. That was demonstrated by the two Eurofighters that flew in formation at the Paris air show. All the seven development aircraft, two of which are twin-seaters are now flying. At the end of June they had flown more than 441 flights, amounting to about 377 hours. I am pleased to announce that the UK twin-seater development aircraft flew for the first time with two people on board on 2 July. Of the seven development aircraft, five are flying with the specifically designed EJ200 engines and two with ECR90 radar.

The aircraft is already flying at mach 1.8. Reports from our test pilots and those of other countries who have flown the aircraft confirm that they are delighted—the aircraft is simple to fly and its performance closely matches predictions. The field of view from the cockpit is excellent. I am surprised that some press comments underrate that consideration and the importance of it. Pilot work load during the normal operation is low. That is particularly important for a single-seat fighter, as I am sure we are all aware.

One of our test pilots said that Eurofighter

"is ahead of anything I have ever flown before."

That is clear testimony to the value of involving pilots at an early stage in the design process. That was a valuable contribution by the Ministry of Defence, the Royal Air Force and British Aerospace.

As my hon. Friend the Member for Chorley has said, there have been recent newspaper reports criticising technical aspects of the Eurofighter programme, focusing especially on the radar and flight-control system. One does wonder where this knocking copy comes from. I think that the right hon. Member for Fylde was right to identify the possible sources.

First, I shall mention the specially developed radar system for the Eurofighter and the article that has been much quoted, which appeared in Der Spiegel. The real situation concerning the radar system, the ECR90, is that it is newly designed by a consortium led by GEC involving electronics companies from the other Eurofighter partner nations. Those companies are European and world leaders in radar technology. The ECR90 is the latest design. It comprises modern high-performance, high-reliability electronic technology with automated digital processing and reconfigurable software. In short, it is a world-beating airborne radar system and we should be proud of it.

Progress on the development of the ECR90 radar has been very satisfactory. It has successfully undergone flights in two of the Eurofighter development aircraft. It is in line with the scheduled programme and our expectation is that the radar will meet its full specifications. Those specifications include the ability, contrary to various articles, to counter clusters of closely spaced aircraft and to discriminate precisely the high-priority target or targets.

I move on to the flight-control systems. It is important to stress, as has already been done by the hon. and leaned Member for North-East Fife (Mr. Campbell), that the Eurofighter is aerodynamically unstable by design to enhance its extremely high levels of agility, reducing drag and enabling enhanced lift to be achieved. That makes it impossible to fly the aircraft by conventional means. The pilot controls the aircraft through a computerised digital flight-control system. That eases enormously the work load on the pilot. Among other things, the flight-control system is designed so that, in the event of pilot disorientation, rapid and automatic recovery is achieved by the simple press of a button.

The flight-control system is clearly critical to the performance and safety of the aircraft. Accordingly, flight clearance for such a safety-critical system has been approached with great caution and rigour. In two official flight assessments so far carried out, satisfactory handling has been demonstrated.

The engine, the EJ200, fitted to five of the development aircraft, has accumulated more than 1,000 hours of successful running time, including 300 hours in flight, as well as excellent test-bed performance. That is a tribute to the builders at Rolls-Royce.

There has been unhelpful speculation in the media that we are seeking to cancel the Eurofighter programme or reduce the number of aircraft to be purchased. In answer to the right hon. Member for Fylde, I never cease to wonder where those stories come from. Are journalists sometimes looking for a story to file so that they can get off home? We recognise, of course, that such speculation causes difficulties. That is why I very much welcome the opportunity today to set the record straight once more.

In 1995, two parallel studies were conducted into the number of Eurofighters required. Allowance was made for training, support and attrition. It was concluded that 232 Eurofighters would be required to replace the Tornado F3 and Jaguar fleets. Of the 232, 35 will be twin-seaters and used for training purposes, although they would also have an operational capability.

My right hon. Friend the Secretary of State for Defence has made clear the Government's intention to order Eurofighter according to the conditions and numbers established by the previous Administration. We made that clear also when we were in Opposition. We are therefore committed to the purchase of 232 Eurofighters. I made that clear in a written answer to the right hon. Member for Fylde as recently as 26 June, and I reinforced that answer in my intervention. I regret, therefore, that the hon. Member for Salisbury sought to cast doubt on this matter, which can cause only confusion elsewhere, especially with a critical decision being made this week.

I understand that there have been criticisms of the cost of Eurofighter, and suggestions that alternative aircraft could be purchased instead. One wonders which aircraft, and that issue has been dealt with in previous speeches. Extensive operational analysis has been carried out to compare the cost-effectiveness of Eurofighter with a variety of other potentially available aircraft types and, of course, combinations, in a range of scenarios against opposing aircraft. The analysis demonstrated the excellent technical capability that Eurofighter will provide in the air-superiority and air-defence roles, and in ground-attack missions.

When costs and the multi-role capabilities of Eurofighter were taken into account, it was clear that an all-Eurofighter fleet would be substantially more cost-effective than any of the alternative aircraft options or mixes. Compared with other solutions, the potential cost savings are considerable. Logistic costs for a single type are significantly lower. In addition, pilot training costs are reduced. A single type of full-mission simulator covers all training requirements.

What I have said so far sets the scene on the justification for Eurofighter and the progress achieved in development phase, the numbers required and the technical position. The Government's position on the commitment to future phases is well known, and I have reinforced it this morning. We are now ready to sign the memorandum of understanding for the production of Eurofighter. We earnestly hope that our partners will also be in a position to proceed very shortly.

We understand—this has been mentioned by a number of hon. Members, including the hon. Member for Salisbury—that there are domestic pressures in Germany. In the interests of the programme, however, decisions must be made and priorities set. We are doing all we can to urge our German counterparts to proceed with the project as soon as possible. My right hon. Friend the Secretary of State met the German Defence Minister, Mr. Ruhe, last month. He confirmed that Germany both wanted and needed Eurofighter. When my right hon. Friend the Prime Minister met Chancellor Kohl on 6 June, the Chancellor made clear his personal commitment to Eurofighter.

We were greatly encouraged, as, I am sure, were all right hon. and hon. Members, by the announcement last Friday by the German Finance Minister, Dr Waigel, that funding for the production phase has been included in the draft 1998 budget. We are hopeful that, when it meets to discuss the 1998 federal budget on Friday, the German Cabinet will take the decision to proceed to the production phase. Bundestag approval would be sought in September. I take on board the suggestion of the hon. and learned Member for North-East Fife that there is a need to involve Members on both sides of the House in lobbying in support of that decision.

Eurofighter is the largest European collaborative defence programme. I am confident that Germany, along with Italy and Spain, will join us in the production of this highly capable aircraft. As has been said, Eurofighter will sustain tens of thousands of high technology jobs in the four Eurofighter partner nations. The UK's Eurofighter will be assembled at British Aerospace's Warton site in Lancashire from components manufactured by industries of the four partner nations, with work on the EJ200 engine concentrated at the Rolls-Royce plant in Filton, Bristol.

The export potential for Eurofighter has been mentioned by my hon. Friend the Member for Leigh and others, and it is good. A number of countries have already expressed interest in Eurofighter. Further delays to the production phase of the programme run the risk of jeopardising Eurofighter's export potential, especially in the face of fierce and fairly ruthless competition.

Eurofighter is also an important element of European defence co-operation. That was stressed by my hon. Friend the Member for Leigh. It is central to the future of European defence and crucial also to the future of the European aerospace industry because of the key skills, particularly those relating to systems integration, that are supported by defence investment. In short, I confirm once again that the Government are totally committed to the Eurofighter programme and are determined that it will succeed.

Air power is an essential component of the United Kingdom's defence capabilities, and it will remain so into the future. The Government are committed to providing our forces with the best equipment available to meet the role that we demand of them on behalf of the British people as a whole. It would be indefensible to ask our brave airmen and women to undertake the hazardous missions that we may demand of them without giving them the tools for the job. We must act now for the replacement of aircraft that will reach the end of their lives in the next decade. Eurofighter is demonstrably the most cost-effective and capable solution to the clear requirement for a new fighter aircraft to meet the challenges of the next century.

It is incumbent on us to provide this aircraft for the Royal Air Force. It will give it the aircraft that it wants and needs and help to guarantee the future of the European aerospace industry and the maintenance of tens of thousands—

Order.

On a point of order, Mr. Deputy Speaker. It is listed in the Register of Members' Interests that my family trust is a shareholder in Boeing aircraft. I believe that by no stretch of the imagination could Boeing be considered as an alternative supplier to EFA. The House may feel that I should have declared that interest at the outset of my speech, and I apologise for not having done so.

I am sure that the House is grateful to the right hon. Member.

Fishing Fleet

11 am

This is the first fisheries debate of the new Parliament. I am pleased to be introducing it, and I welcome the new Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food, the hon. Member for Scunthorpe (Mr. Morley), to his place. When he and I were both in opposition, we often bemoaned the lack of time allocated to this important industry. It was not just the number but the duration of such debates that made it difficult for all hon. Members with fishing interests to contribute. Now that he is in a position of absolute power—or relative power, anyway—I am sure that he will respond by saying that he will do his bit to ensure that hon. Members representing fishing constituencies around the coastline have more opportunities to debate the fishing industry in this Parliament than they had in the previous one.

I shall direct my remarks to quota hopping, because that is the first parliamentary opportunity since the statement on the Amsterdam summit to consider the Government's claims of achievements at that meeting in detail, and to find out what progress the Minister thinks has been made since then and what hopes he has for resolving this long-running and bitter issue.

The House will forgive me if I begin my remarks by making a couple of constituency points related to the fishing industry. I pay tribute to J. D. Buchan, who died at the weekend. He was the former chairman of the Peterhead harbour board. John was a very special man, and was a dominating influence on the development of Peterhead harbour. He was involved in the fishing industry for fully three quarters of a century, and had his skipper's ticket before the second world war, which took him into service with the Royal Navy.

J. D. was gilled with enormous vision in all the many activities that he undertook in the fishing industry. He will be sorely missed by his family and his wide circle of friends. As a Member of Parliament, I shall miss him for the wise advice and encouragement that he gave me in the past 10 years. I should have greatly wished to be at his funeral in Peterhead today to bid him farewell, but I know that he would have insisted that I be here in my place to debate the future of the industry that was his life and work.

I shall also to refer to a company in my constituency. International Fish Canners, which is the last canning facility in the whole of the United Kingdom. I received a fax yesterday from its managing director, Mr. Michael Clark, who wrote:

"I am the Managing Director of the last remaining fish canning plant in the UK, based in … Fraserburgh. It is one of the key components in our group of family owned companies in the fishing industry, centred in North-East Scotland. The business was acquired in 1990 from Norwegian ownership and, since then, we have put substantial investment in to the plant and have achieved considerable success in building the business up, both in the UK and, more critically, in export markets all over the world.

Our success led to us creating an additional evening shift of workers some 18 months ago, but regrettably, we have now had to lay off that shift.

With the Government's recent decision to hand over control of interest rate policy to the Bank of England, and that body's well-known obsession with inflation, we can only see the pound strengthening further. This will inevitably have further drastic effects on businesses such as ours. Not only does it effect our ability to export, but it also makes it much easier for foreign companies to dominate the UK market. We feel it is time everyone woke up to"

the implications of that.

Mr. Clark draws attention to the direct impact of the present strength of sterling on jobs in the processing sector. The Minister will be well aware that the catching sector of the industry is highly vulnerable and sensitive to high interest rates. I hope that he will express some concern and tell us what representations he will make to Treasury Ministers about this severe combination of potentially high real interest rates and an extremely high value of sterling, and its impact on the catching and processing sectors of the industry.

I hope that the Minister will forgive me for making those two constituency points at the outset of my remarks. I shall keep my speech brief, because many hon. Members from fishing constituencies are present and may wish to speak. As I said, I often bemoaned the fact that not everyone had the opportunity to contribute to debates so, although this is an involved issue with a long history, I shall try to set an example.

It is sometimes said that we have ended up with 25 per cent. of UK tonnage in Spanish and Dutch hands because individual fishermen have sold their licences to Spanish and Dutch influences. There is an element of truth in that—some licences have been sold, especially in recent years—but the House should remember where the key responsibility lies for strategic building up, particularly of the Spanish interest in the UK fishing fleet.

The licences of about 90 elderly trawlers were initially acquired by Spanish interests. The trawlers were allowed into the "non" sector—not the producer organisations sector—and from there they built up their track record of quota, and have emerged as a significant and often dominating influence in the UK fishing fleet. The key responsibility did not lie with the individual fishermen who haphazardly or for selfish reasons sold their individual licences, but with the Ministry that allowed the licences of elderly, and in many cases, non-fishing, trawlers to be bought or acquired and a strategic interest in the fishing fleet to be built up.

If the Minister acknowledges that key point on the line of responsibility, he must acknowledge the successor Government's responsibility to deal with the problem. It is a matter of public policy, and mistakes were made that allowed strong strategic interests to threaten the livelihoods of Scottish, English, Welsh and Northern Irish fishermen.

Is it not fair to point out that, as it is impossible for British citizens who own licences to discriminate against nationals of other countries, they have no means by which to refuse to sell their licences to a potential owner in another European Union country? That would go against the spirit of the treaty of Rome.

I am not sure that the hon. Gentleman is right about that. When a private individual sells a licence—or a house for that matter—what he does is for him to decide. He is right to say that there are non-discrimination clauses for public policy, but not for private decisions made by individuals.

Perhaps the hon. Gentleman will be interested in my next point, because it brings us forward in time to the Merchant Shipping Act 1988. That Act was the most significant attempt to deal with this problem. The then Government acted on the beneficial ownership of the flagships and tried to head off the developing problem. I was on the Committee considering that legislation and, as a relatively new Member of Parliament, I moved an amendment to extend to the crews of fishing vessels the powers that the Government were seeking to give those with beneficial ownership. The amendment tried to ensure that crews had an economic interest—the Minister will recognise that phrase—in the boats on which they were fishing.

The then Government told us that there was nothing to worry about—that everything was in hand. Clauses that they were tabling would deal with the issue; my amendments—which were supported by the Labour spokesperson on the Committee—were not only unnecessary, but troublesome in their intent. Several legal cases and many millions of pounds later, we are now reaping the dividend from that Government's arrogance.

I do not know what Opposition Front Benchers will say in this morning's debate, but I suspect that they will not dwell too much on the history of the problem, which is littered with foolish decisions and subsequent inactivity. It would be reasonable for the Fisheries Minister to allocate to them a large measure of responsibility for the present position. Nevertheless, regardless of how that position evolved, responsibility for finding a way out of it now falls on the Minister.

As I have said, the history is important, but some recent history might also concentrate the Minister's mind. I was interested to note that, on his return from the Amsterdam summit, the Prime Minister apparently ruled out as ludicrous any treaty amendments or changes in legislation, because, as he put it, they were not supported by any other European Union Government. That was not quite the message that the Labour party was conveying to the fishing industry before the general election, when it was still in opposition.

On 14 March this year, Fishing News reported on a meeting between the Foreign Secretary and fishing interests at the Scottish Labour party conference in Inverness. The first paragraph states:

"A Labour Government would have more chance of getting the treaty changes at the intergovernmental conference (IGC) to end quota hopping than would the present Government, because it has a better relationship with the European Union and fewer disputes to resolve."

I see that some Labour Members think that that is true, but it seems that "more chance" actually meant "no chance" when the Prime Minister returned from the IGC. According to his analysis, any treaty change was out of the question—although that was not the analysis of the Foreign Secretary when he spoke to fishermen before the election.

Writing to the Scottish Fishermen's Federation before the election, the Prime Minister said that he "would not rule out" blocking the IGC in order to resolve the issue effectively and properly. That contrasts sharply with the words of the Minister of Agriculture after the election. On 13 May, he told The Scotsman:

"Quota hopping is not a major issue at the intergovernmental conference."

Before the election, the Prime Minister was saying that he would not rule out blocking action to halt the IGC; after the election, a Minister in his Cabinet was saying that it was not a major issue at the intergovernmental conference. Before the election, the Foreign Secretary was saying that a Labour Government would have more opportunity to resolve the issue, because of their better relationship with our European partners; after the election, the Prime Minister told the House that effective treaty change was out of the question, because it lacked support.

Because of the Spanish Government's determination on a number of fisheries issues—particularly the issue of accelerated access to western waters—they have managed, over the past few years, to secure unanimity on issues on which they should certainly not have been supported, because they made those issues their main or sole objective at intergovernmental conferences on European Council meetings.

The British Government had a range of objectives at the IGC. They had an objective on immigration and border controls, and they had the objective of stopping the embryo development of the European defence policy—I do not know why, and the Prime Minister said that he had achieved a major triumph in that regard when he returned from the conference. The House is entitled to ask why the Foreign Secretary was not as good as his word. Why did he not concentrate on the resolution of this long-running problem at the conference, rather than scattering the Government's objectives across a range of issues?

Following the IGC, there was a celebrated exchange of letters with the President of the European Commission. The first word from Amsterdam was that the Government had achieved another extraordinary victory. There was no doubt in the minds of the spin doctors that the Prime Minister had triumphed yet again over foes both foreign and domestic. The Prime Minister was rather more guarded when he came to the House on 18 June. He said that modest progress had been made. Today's debate will, I hope, reveal a lesson: we do not win on spin. Real victories must be based on substance—not just on good public relations, but on legislative or substantive change.

The obligation is fairly and squarely on the Government. The Fisheries Minister was an earnest and effective spokesperson in opposition. He and I have attended more fisheries debates than we care to remember. He was genuine and sincere in his attitude to the industry—but he is now responsible for that industry, and for telling the House today that the new licence obligations that will, or could be, placed on quota-hopping boats will be effective. That is now the policy, not a substantive change in legislation.

I note from the European brief on sea fishing that was issued last week that the President of the Commission has written not only to the Prime Minister, but to the Spanish Foreign Minister. According to the brief,

"Writing to the Spanish Foreign Minister, he"—

the President, that is—

"emphasised that his support was for measures which secured a real economic link between fishing vessels and their flag state. This did not necessitate changes or waivers to the European Union treaty.

The suggestions that minimum landing requirements or crew residency requirements were optional means vessel operators might use to prove economic links with their flag state, but the UK cannot impose"—

according to the President—

"a landing requirement in isolation on vessels flying the British flag."

The Spanish Foreign Minister, in reply, has

"intimated that Spain might turn again to the European Court of Justice if it feels its rights are being weakened,"

Let me crystallise the essential difficulty. If the measures that are taken are effective enough to achieve the objective of removing the flag boats, or "hassling" them off the UK register, they will be open to challenge in the European courts. If they are not effective, of course, they will not be challenged, but we shall be no further forward. That brings us back to the question of whether a treaty change is necessary to secure the position.

I have a number of specific questions to ask the Minister. First, if the new obligations on licence requirements do not achieve their objective of removing the flag boats within a reasonable time scale, does the Minister rule out seeking a treaty change in further negotiations at further IGCs on Council meetings? Secondly, will the Minister give an undertaking that, until we can evaluate the success or otherwise of efforts to remove the flag boats from the UK register, the 30 per cent. capacity reduction will not be implemented? As he will appreciate, if that 30 per cent. fell on the 75 per cent. tonnage that remains in Scottish, English, Northern Irish and Welsh hands, the impact on our domestic fishing communities would be very severe.

Thirdly, will the Minister guarantee that funds will be available to decommission quota-hopping boats? Will funds be available to offer incentives to flush out the quota hoppers from the UK industry? Fourthly, what balance does the Minister expect to achieve between decommissioning or effort limitation in the flags-of-convenience fleet and those in the domestic fishing fleet? What would be a satisfactory percentage reduction in either fleet, from his point of view?

As the Minister knows from parliamentary questions and conversations, I have supported the view of the Mallaig and North-West Fishing Association that many, perhaps the overwhelming majority, of flagged vessels have not met the Marine Safety Agency's regulations and courses on safety certification. Can he update the House on the progress of implementing measures on those vessels that would most certainly be implemented on domestic vessels? If any of my constituents, those of my hon. Friend the Member for Moray (Mrs. Ewing) or those of any hon. Member in a fishing constituency were so flagrantly in breach of MSA certification, I am certain that the agency would come down on them like a ton of bricks and stop their fishing effort forthwith. I understand, that in the past few weeks, the MSA's attitude has changed. Perhaps the Minister could update us on the success or otherwise of implementing effective changes in terms of coming down on flags of convenience boats.

I accept that the Minister is not responsible for the situation in which we find ourselves. That responsibility lies heavily on the Conservative party. The Minister and I and other hon. Members with fishing constituencies have rightly been severely critical of the Conservative Government's attitude over a long time. I hope that, in government, the Minister will live up to the views that he held in opposition.

I understand from the Prime Minister that the difference between the present Government and their predecessors relates to trust. The fishing communities are by no means convinced by the deal that was sealed in Amsterdam and the exchange of letters. They are looking to see whether their trust in the new Minister and Government is justified. For that to happen, there must be effective measures backed by real action, and we could start with a strong speech by the Minister today, in which he must convince the House that the measures agreed at Amsterdam will be more effective than past attempts.

11.21 am

This is my first speech in the new Parliament after being between seats for the past five years. People continually ask me what changes I have noticed in the House since I returned. Fishing debates used to take place late on cold, wet November or December evenings. It is a pleasant change to be here on a sunny July morning for such a debate. I congratulate the hon. Member for Banff and Buchan (Mr. Salmond) on securing the debate. Fishing is an important matter not only for those who have fishing constituencies but because fish is widely consumed, an aspect of the industry that is rarely attended to. Fish is a healthy food, and we want to increase consumption of it.

The hon. Member for Banff and Buchan rightly focused on the issue of quota hoppers, which concerns us all. However, it is only one of the problems that the industry faces. I agree with the hon. Gentleman's analysis of the problems, and it is accepted throughout the industry and by those who have interests in it. The National Federation of Fishermen's Organisations and the Scottish Fishermen's Federation sent a joint letter to the new Minister of Agriculture, Fisheries and Food on 24 June. It baldly stated:

"There is no dispute that the previous Government repeatedly failed to take steps to halt the expansion of the flags of convenience fleet."

That is certainly accepted by Labour Members, and is a major cause of the problem. The hon. Gentleman spoke about the run-up to the recent intergovernmental conference. From where he sits in the House, he will make what he can of that. It was interesting to note that he did not attack the package that was secured at Amsterdam but spoke about its implementation and asked what the Government would do if what had been achieved at Amsterdam did not meet the problem and was ineffective in tackling quota hoppers.

During my years in opposition, we were utterly frustrated by the way that the Conservative Government tackled the problem of quota hoppers. There was always much publicity before the annual fishing debate, which as I have said was usually held in November or December, about how hard the Government were batting for us in Europe. It was said that, in discussions with the Norwegians, the cutlass would be taken out, and there was a meeting in Brussels. However, rarely was anything achieved. There was tremendous frustration because all the positive measures that we knew were being implemented in other European countries, such as decommissioning, adjustments to tackle and proper conservation measures, were never accepted here because they cost money, which seemed to be the bottom line.

We never seemed to make any progress. The Government always returned from Brussels with a meek acceptance of the deal on the table, and there was never any real sign of batting for Britain. The mess that we are in is a direct consequence of the way that the Conservative Government over 18 years failed to fight properly for the fishing industry.

Like, I hope, all those who are not Conservatives, I was extremely sceptical about Conservative pre-election claims on how they would hold the IGC to ransom. That is probably not the word that they used, but it was certainly the implication. It was said that there would be no deal at Amsterdam unless quota hopping was dealt with. Those of us who saw over the past couple of decades how the Conservatives manifestly failed to deal with the real problems were sceptical about that claim. That electioneering had a significant effect on the industry because it raised expectation.

In the light of what was achieved over the past 18 years and what has been achieved in the first few weeks of a Labour Government, there should have been much greater acceptance of what was achieved in Amsterdam. It is the first positive move by a Government on behalf of fishing in that time. The pre-election hype has certainly affected the view of what was achieved in Amsterdam. Of course there will be difficulties in the implementation of that agreement, and no one can guarantee that there will not be a legal challenge by Spanish or Dutch fishing interests. My understanding of the agreement between the President of the Commission and the Prime Minister is that letters have been exchanged in such a way and in such terms as to attempt to pre-empt any legal argument. There has been an attempt to clarify the legal position so that, if a case is taken to the European Court, our position will be strengthened.

It is important to implement all the steps that have been announced by the Minister for Agriculture, Fisheries and Food. The hon. Member for Banff and Buchan rightly reminded the House of his strenuous efforts to ensure that the safety regulations are properly applied and implemented. That has been an issue in these debates over the past 10 years. There was an apparent reluctance by the Conservative Government properly to police safety in the North sea. I have been greatly concerned about safety there in the context of the oil and gas industry. There was an overflow because many old fishing boats became safety vessels and we were aware of the quality of those boats and the problems that they faced. There must be a firm commitment properly to apply safety regulations. Enforcement must be common throughout the UK fleet and among the flagged-out vessels.

Another area of enforcement that has caused me much concern is the "black fish" that are distorting some of the economics of the North sea. My major constituency interest is not so much in catching as in processing and in the activities of fish merchants. More than 3,000 jobs in Aberdeen city, many of them in small companies, depend on the sale and treatment of fish. The information that I have is that the Scottish Office, through its fisheries inspectorate, is extremely rigorous in checking fish that comes into the Aberdeen and Peterhead markets, ensuring that it comes from legitimate catches, that it is properly recorded and that there is no opportunity for black fish to get on to the market. Allegations were made to me by some of my constituents that there was no similar treatment at English ports, particularly in Grimsby.

I tabled a couple of parliamentary questions to find out just how severe the checks were. I was told by the Scottish Office that the Scottish Fisheries Protection Agency checked 1,670 overland consignments of fish to the Aberdeen and Peterhead markets in the 12 months to May 1997, and was told by MAFF that, in the same period, only 14 overland consignments to the Grimsby market were checked.

That is a serious discrepancy. It backs up my constituents' allegations that MAFF in England and Wales is not doing the job that Scottish officials are doing to try to eradicate the problem of black fish. That is consistent with the lax treatment of the safety rules on fisheries vessels. I hope that the Minister can ensure that all those procedures will be tightened, because, unless we tackle all those problems—including black fish and fish conservation in the North sea—we shall face serious difficulties.

When I was attending those fisheries debates in the House, I was conscious that, perhaps like the farmers, fishermen and fishing interests were always crying wolf. Every year, we were facing another crisis and another disaster. As the years rolled by, the same message came across and the same language was used, yet the industry survived and moved on, although perhaps slightly altered.

Things have changed. Not only do we have a change of Government, but there is pressure, particularly from environmental interest groups, which include all of us now. Over the next few years, there will be serious changes in the industry. The whole issue of food safety and of the environmental protection of our natural resources means that the industry will face serious challenges as it moves into the next millennium.

Through my own relationships with the Scottish Fishermen's Federation, I know that there has been a change in the way in which the dialogue is conducted. Although it is critical of the deal that was struck at Amsterdam, and I understand its reasons for that, it is engaging constructively with Government to try to find a way forward. I like to think that that is because it knows that it has a Government who want to listen.

The fish merchants are taking the same view, and I have regular meetings with the Aberdeen Fish Curers and Merchants Association Ltd. in my constituency. The association has recently introduced a conservation policy, which would have been unthinkable a few years ago. Again, it is the beginning of a recognition of how serious the industry is threatened by these other problems. As I say, I think that that recognition is shared by all of us. It is important that the industry begins to speak in a different way and in a different language.

I know that some sections of the industry use a different tone. We are all concerned about some of the language that we hear from certain sections, which seem to take a more fundamentalist Eurosceptic line, but I make a plea to the whole industry that it is time that it pulled together to recognise that there are common problems and issues, on which the industry should be looking to find a common voice.

I was pleased with the response of my right hon. Friend the Minister of Agriculture to the deal struck at Amsterdam. He announced that there would be a summit of fishing interests. I hope that that will be taken as an opportunity to come together to find a common voice. The industry relies not just on fish catchers and fish merchants, but on consumers. I know that there are economic and practical difficulties in the sectors of the industry coming together to find a common voice, but it is in all their interests that they should do so.

11.36 am

May I, first, welcome the new Fisheries Minister to his new post? He was an extremely conscientious Opposition spokesman, and I have no doubt he will be an extremely conscientious Fisheries Minister, although he may already have discovered not just the complexities of the issue in government but the constraints on any Minister as a consequence of collective responsibility and of actions by the Foreign Office and the Treasury. We have seen some of that since Amsterdam. It was a great privilege to be the Fisheries Minister, and I rise in the debate not out of any sense of self-justification but because it is important to place some comments on the record. The somewhat partial view of the hon. Member for Banff and Buchan (Mr. Salmond) should to a certain extent be challenged.

The UK has always had an extremely liberal regime—for understandable policy reasons—for foreign merchant marine registering on our Register of Shipping. There were good reasons for that. We wanted to maintain a large merchant marine. It encouraged employment by our merchant navy and ensured better safety standards. However, it meant that, in the mid-1980s, when decommissioning was introduced as a policy throughout the European Union to restrict catches in Community waters, it was easier for foreign nationals to register their vessels over here, effectively as UK vessels. Then, as we know, they were successful in purchasing licences from UK fishermen. Therefore, to all intents and purposes, under international law, they were UK-registered boats with UK-held licences.

As soon as that was recognised, the House and the Government sought to take steps to deal with it in the merchant shipping legislation of the late 1980s. Clearly Parliament thought that that legislation was effective and sought to enforce it as effective legislation. What we could not have anticipated—I do not think that Westminster could ever have reasonably anticipated this—was the attitude and approach of the European Court of Justice. In the Factortame case, it struck down that legislation on the basis that it was contrary to Community law and that it failed appropriately to give sufficient weight—

Will the hon. Gentleman give way?

I will give way in a second. I see the hon. Gentleman. Let me finish just this part of my speech.

The court believed that the legislation failed to give appropriate weight to the concept of the single market and that it was thus contrary to Community law.

The court misdirected itself, because fishing is the only area in the EU where we have national quotas, and it must make sense, if there are national quotas, for those to be for the benefit of the fishermen of that nation. If there is going to be a UK fishing quota, it must be for the benefit of UK fishermen.

One of the things that the House cannot get away from is that it is crazy for a substantial part of the UK fishing quota to be in the hands of foreign fishermen. That was clearly something on which action had to be taken. Before I tell the House what action we sought to take, I happily give way to the hon. Member for Banff and Buchan.

The House probably wants to concentrate on where we are now, without going too much into the past—

The hon. Gentleman did it too.

The hon. Gentleman is right. I did lay out the history of the matter; but, if he considers the Committee proceedings on the Merchant Shipping Act 1988, he will find that whether the Government's attempt to deal with the issue would fall foul of the European Court was thoroughly debated. Indeed, amendments were moved by me and the Labour party to strengthen the crews and residential requirements. The previous Government argued that those amendments would fall foul of the court which, in the light of what happened, was ironic.

I share one piece of advice with the new Fisheries Minister. He can guarantee that the Scottish nationalists and the Liberal Democrats, who have never had—and who are never likely to have—the responsibility of government, are always blessed with the benefit of both hindsight and foresight. That is a characteristic of all fishing debates. I, too, want to deal with the present and the future, but it is important to work out how we got here.

Following the Factortame case, it was clear to everyone that the only way in which we would make substantial progress on quota hoppers was by treaty changes. The most convenient—and only—opportunity for treaty changes was at the intergovernmental conference. That is why we made it clear that we would not allow the IGC to conclude until the issue had been resolved.

The quota licences could not simply be confiscated, as they had been acquired legitimately, but it was our view that once our Community colleagues appreciated that we would not allow the IGC to conclude until the matter had been resolved—the then Prime Minister and Foreign Secretary made that clear—they would start to negotiate on ways in which those licences could be decommissioned, on compensation and on how we could move forward. We made that clear in the run-up to the general election and at the Council of Ministers meeting in Luxembourg.

The Labour party in opposition sought to give support to our approach and, at the time of the Fisheries Council, the then Leader of the Opposition, now the Prime Minister, said that the Labour party would consider not allowing the IGC to conclude. He gave the impression that he was taking a similar approach. That approach lasted until 1 May, when the Labour party changed its tune. Effectively, what was achieved in Amsterdam was no more than a restatement of the existing law. The exchange of letters is no more than what existed before 1 May. If Labour Members believe that something new was achieved at Amsterdam, they have been misled.

The fishing industry is now in the worst of all possible worlds. Unless the Minister tells the House today that the Treasury will give substantial new money to the MAFF public spending line for decommissioning, the Government will shortly have no alternative but to introduce a very tough effort control system and a tough days-at-sea policy. No one with any understanding of this issue believes that the measures that will arise from decisions at Amsterdam will have any effect on quota hoppers. There will be no reduction in the number of existing quota hoppers, and there is nothing to prevent further quota hoppers from coming on to the United Kingdom register.

Given the decisions taken at Luxembourg about reducing the catching capacity in the European Community—they apply equally to the United Kingdom as elsewhere—the future for the United Kingdom fishing industry is extremely bleak. As I understand it, there will be very little extra money for decommissioning and, as I have said, we are about to see tough policies on effort control and days at sea. The frustration is that such policies would bear down on those parts of the industry which are effective, profitable and competitive.

My shoulders are broad, and I am prepared to be judged by the fishing industry for my stewardship as Minister. I think that the industry's judgment may be kinder than the hon. Member for Banff and Buchan sought to give on the industry's behalf. We can say beyond peradventure that the Government have failed the fishing industry lamentably. There was an opportunity at Amsterdam, probably the only one this decade, to really sort out the problem of quota hoppers. That opportunity was missed and the fishing industry will pay the price for decades to come.

The hon. Gentleman talked about his stewardship and mentioned the Luxembourg Council of Ministers, which was probably his last major involvement as Minister. In the run-up to that meeting, it had been expected—indeed, Ministers had said it—that Ministers would try to put together a blocking minority to stop multi-annual guidance programme IV going through. That did not happen, despite the fact that we had the support of the French. Can the hon. Gentleman tell us why the expectation of a blocking minority was not fulfilled?

I do not think that the hon. Gentleman will find any reference to my putting forward such a proposition in any debate or in notes of any meeting that I held with the Scottish Fishermen's Federation or the National Federation of Fishermen's Organisations. It was always clear to me that it would be possible for the Commission to buy off sufficient other member states for it to be impractical to put together a blocking minority.

I made it clear to the NFFO and to the SFF that our policy was that over a quarter of the United Kingdom fleet was in the hands of quota hoppers and that, if we could sort out that problem at the IGC, we would then have some leverage and could meet our decommissioning targets. No one ever pretended that that would be cost-free, but we had to ensure that our colleagues in Europe recognised that we were serious. I believe that they did recognise that the Conservative Government were serious, but the election intervened before we had an opportunity to implement our policy.

I fear that the United Kingdom fishing industry will pay dearly for what happened at Amsterdam. Nothing can hide the fact that it was a missed opportunity. I predict that, come the December fisheries debate, or even before then, the new Minister will have to come to the House and announce a strict days-at-sea policy. It will be interesting at that time to see whether all those Labour Members who cheered the Prime Minister on his return from Amsterdam are prepared to go into the Lobby to support the Government in introducing that policy, which will be a direct consequence of their lamentable failure to capitalise on the opportunity they had at Amsterdam.

11.46 am

I congratulate my hon. Friend the Member for Aberdeen, Central (Mr. Doran) on his second maiden speech. It was different from a normal maiden speech, but it showed a great depth of knowledge of the fishing industry.

It is a great privilege to deliver my maiden speech as the first ever Labour Member of Parliament for Ayr and the first woman Member for the Ayr constituency. However, I am not the first woman to have carried the Labour standard for Ayr. In the past we have had excellent candidates in Jenny Auld and Jean McFadden. Several male Labour candidates in Ayr have gone on to serve as Members in other constituencies. They include the late Willie Ross, former Secretary of State for Scotland, Alex Eadie and Jim Craigen. Since I live in my constituency, both my immediate predecessors were my constituency Members of Parliament.

Phil Gallie and I were light years apart on almost every political issue, but I have no hesitation in praising his record as a hard-working Member on behalf of all his constituents. He was gracious and courteous during the election campaign and was particularly gracious in defeat on the night of 1 May. His predecessor had a somewhat different style from Phil Gallie. He was George Younger, the former Secretary of State for Scotland and Secretary of State for Defence, now Lord Younger of Prestwick. He may enjoy Prestwick as a title, but I enjoy Prestwick as my family home. In a short time, thousands of others will be desperate to become temporary residents of the Ayr constituency, albeit for only a few days, as we host the British open golf championships at Troon. I might have a spare room available if anyone is interested.

My constituency has golf courses, 15 miles of sandy beaches and lovely countryside, which are all important, but there is a great deal more to it than that. Prestwick is home to British Aerospace, which is going through a difficult period with the announcement of an end to the production of the Jetstream aircraft, which will lead to 380 redundancies. It is also the home of the air traffic control centre which the Government have recently confirmed as the new Scottish centre, securing 700 highly skilled jobs. There is also Prestwick airport, where freight and passenger traffic is forecast to grow considerably over the next few years. Not many hon. Members can get from their homes to the nearest airport in less than five minutes, but I have that advantage.

The other towns in the constituency include Ayr, which is a major shopping centre and the location for the South Ayrshire council, now happily under Labour control. It is both a seaside and a fishing town and it has a fine racecourse. In 1913, suffragettes burned the grandstand to the ground in support of votes for women. During the election, I went to the races with my right hon. Friend the Foreign Secretary. I backed a horse called Shadow Leader, ridden by a jockey called Osborne. It won and the grandstand survived.

The constituency also includes the town of Troon. It is not just a seaside and golfing resort: it is home to Ailsa Shipbuilders. Fishing, too, remains an important local industry. Since my predecessor made his maiden speech on the same subject, the local fish market has been transferred from Ayr to Troon.

Wherever we go in the towns and villages of the constituency, we are never far away from the links with Robert Burns, Scotland's national poet, who was born in Ayr. Thanks to the Boundary Commission, his birthplace is now in the constituency of my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes).

One of the first things I had to do after the election was give up my job, after 13 years in the voluntary sector, with Kilmarnock and Loudoun women's aid. Voluntary work often goes unrecognised, so, with the indulgence of the House, I want to pay tribute to all the women who work to support abused women and their children.

When people ask me, as has happened frequently over the past few weeks, "Why did you decide to become an MP?"—a question that many hon. Members may ask themselves from time to time—I replied, "I was too small and too old to become a firefighter." However, now that my hon. Friend the Scottish Office Minister for Home Affairs and Devolution has announced a relaxation of the rules on height and age qualifications for the fire service, I may reconsider in five years' time.

I suppose that being a Member of Parliament is not so very different from being a firefighter. We need a head for the commanding heights of the economy; we have to deal with all the burning issues of the day; and our constituents look on us as an extension of the emergency services, to be contacted in a crisis—although they cannot yet reach us on 999.

By tradition, maiden speeches are non-controversial. However, I must say that during the short time that I have been here, one feature that I have noticed is that the fishing industry is among the most contentious subjects. There are long-term and seemingly intractable problems, and I get an impression of an indigenous industry in a state of low morale. It is therefore to be welcomed that my right hon. Friends the Prime Minister and the Minister of Agriculture, have sought to deal with the problems with a sense of urgency and suggested summit talks with the leaders of the United Kingdom fishing industry—something that was not characterised by the previous Government, as was illustrated by the somewhat defensive speech of the hon. Member for Banbury (Mr. Baldry), a former Fisheries Minister.

My constituency is illustrative of the fact that the industry does not start and finish with fishing vessels—it includes related industries such as fish processing, which employs many people in Ayr. I pay tribute to the all-party fisheries group. In the short time that I have been involved, I have been impressed by the commitment of all hon. Members with a fishing interest to working towards building a positive future for the industry. I have also been impressed by their strongly held views and depth of knowledge.

I thank the hon. Member for Banff and Buchan (Mr. Salmond) for securing this debate this morning and thereby enabling me and other new Members to further our knowledge of and interest in the fishing industry. Most of my hon. Friends have been able to pepper their maiden speeches with anecdotes from their first few weeks in Parliament. However, as I am making my speech after many of my colleagues have made theirs, most of my best stories have already been told. New Labour still believes in the common ownership of a good story. Perhaps that is no bad thing, as many hon. Members wish to contribute to the debate and I am interested in hearing their speeches.

I shall end my speech by saying how proud I am to have been allowed the indulgence of the House to make my maiden speech as the first ever Labour Member of Parliament for the Ayr constituency.

11.54 am

I congratulate the hon. Member for Ayr (Mrs. Osborne) on her maiden speech. She spoke of her constituency with great pride and the House is left in no doubt that she will be a bonny fighter for the Ayr constituency in the years to come. The House will also appreciate her generous tribute to her predecessor, Phil Gallie.

I congratulate the hon. Member for Banff and Buchan (Mr. Salmond) on obtaining this debate, which he opened by congratulating the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food, the hon. Member for Scunthorpe (Mr. Morley), on having achieved absolute power. Later in his speech, the hon. Gentleman qualified that remark by pointing out that the Minister has responsibility for the fishing industry. I must point out that, while he has that responsibility, he has very little authority with which to discharge it. As we all know, in these matters competence rests with the European Union, not with the Westminster Parliament. That is wholly unsatisfactory to many of us, and it is a negation of parliamentary democracy.

On 23 July 1996, when the Minister was the Opposition spokesman, he said about the common resource aspect of the common fisheries policy:

"We must deal with that issue and remove that term from the CFP."

Those were brave words. Later, he said:

"We believe that the CFP should be radically reformed to allow us far greater autonomy and national control of fishing waters within our country's limits."—[Official Report, European Standing Committee A, 23 July 1996; c. 24–25.]

It would be reasonable to suppose that by "our country's limits", the hon. Gentleman was referring to the 200-mile zone established by the last Labour Government under the Fishery Limits Act 1976.

All that was 12 months ago. As the hon. Gentleman must realise, the only significant change in the interim was not, as I shall show, to the CFP, but the fact that he has become the hapless Minister responsible for fisheries. Nothing else has changed. Ample evidence of that is contained in the exchange of letters between the Prime Minister and Jacques Santer, the President of the European Commission, on 17 June.

In spite of all the huffing and puffing in opposition—something to which the hon. Member for Banff and Buchan referred—and in spite of all the heady rhetoric post Amsterdam, the reality is that, as is made clear in the opening paragraph of Santer's letter, we are where we always were: on course for the eventual and total realisation of Council regulation No. 101/76, which lays down a common structure for the fishing industry. It is not a structure for national fishing industries, but a structure for a European fishing industry, fishing in European waters and catching European fish. In other words, it is the old cry of equal access to a common resource.

Time does not permit an exhaustive analysis of the President's letter, so I shall confine myself to the first paragraph, in which he says, inter alia:

"The Common Fisheries Policy … provides for the conservation and management of fisheries resources throughout the European Community".

That simply confirms what many of us have long known: each member state has ceded exclusive competence for Fisheries to the European Union.

The same sentence in Santer's letter continues:

"to assure the long-term development of the fishing industry".

It mentions the EU fishing industry, in the singular, but not the fishing industries, in the plural, of individual member states.

In his letter, Mr. Santer went on to mention

"the well-being of fisheries-dependent communities",

but that is simply a recitation of article 9 of Council regulation No. 101/76. He also mentions "the interests of consumers", which is referred to in article 1 as the "general economy".

The so-called "special letter" does not provide any new safeguards or concessions. It simply restates something that I and others already know but which successive Governments have refused to realise: in 2002, we will reach the end of the current discriminatory transitional period, at which point part 1 of article 2 of 101/76 will come into full effect:

"Rules applied by each Member State in respect of fishing in the maritime waters coming under its sovereignty or within its jurisdiction shall not lead to differences in treatment of other Member States.

Member States shall ensure in particular equal conditions of access to and use of the fishing grounds situated in the waters referred to in the preceding subparagraph for all fishing vessels flying the flag of a Member State and registered in Community territory."

Therefore, as my hon. Friend the Member for Banbury (Mr. Baldry) said, the Prime Minister achieved nothing at Amsterdam, and Mr. Santer's letter tells us precisely nothing that we did not already know. All the exchange of letters confirms is that Parliament has given away the nation's greatest renewable resource. The Government, for all Ministers' rhetoric and messianic zeal, have failed to defend a vital national interest.

Will my hon. Friend give way?

I am on my peroration now; I am so sorry.

The brave new Labour Government went to Amsterdam but, on fisheries and other issues, they went belly up.

12.1 pm

I thank the hon. Member for Banff and Buchan (Mr. Salmond) for providing this opportunity to debate quota hopping, which is a major issue in Lowestoft, in my constituency. Fishermen undoubtedly want those lost quotas returned and feel that they have suffered from the effects of multi-annual guidance programme IV before it has even been introduced. There is also no doubt that, during the general election, fishermen counted on recovery of those quotas to enable them to deal with forthcoming fishing reductions. One can therefore understand the disappointment that they must feel.

All hon. Members realise that the problem facing the Government is how to get the quotas back. As has already been said, one cannot confiscate something that has been bought legally. We can try to buy the quotas back, but other countries will not sell them, and that is the significant point. Of all European Union member states, only the United Kingdom has a serious problem with quota hopping. I asked fishermen in Lowestoft, "Can't you retaliate and hop on other people's quotas?" They replied, "You just try. You can't—they're not for sale." That is the problem. We should be asking how we got into that situation.

There was no support for a protocol in the lead-up to Amsterdam. I believe that both the previous and the current Governments had either to make the best of a bad situation or to block the intergovernmental conference, thereby probably quitting the European Union altogether. I know many fishermen who would like to leave the EU, but that will not happen, because, as we know, it would be a complete disaster for most other UK industries.

I am sure that most of my hon. Friends in the Scottish National party would accept those consequences of leaving the EU. Let us suspend disbelief for a moment and imagine that, on 1 May 1997, the Scottish nationalists swept to power in Scotland and achieved their aim of independence in Europe. I am sure that, at the IGC, they would not have wished to leave the EU because of the fishing issue.

There is a difference between blocking an intergovernmental conference and leaving the European Union. I draw the hon. Gentleman's attention to the number of times that the Spanish Government have blocked intergovernmental conferences or Council of Europe meetings to gain advantage for their fishing industry. Does he appreciate the distinction?

There may be a distinction. I believe, however, that—because of the history of the previous Government's attitude to Europe and the almost total breakdown in our relationship with our European partners—the type of obstruction that was considered would have had serious consequences for our membership of the EU and for progress in other policy spheres. The new Government have made the best of the situation in which they found themselves. Statements have been made on this subject, and I hope that more fish will be landed in British ports and that more jobs will be available on those boats for British fishermen.

As I am the vice-chairman of the all-party group on fisheries, and have the second largest port in England and Wales in my constituency, may I ask the hon. Gentleman a question? Is he aware that my fishermen say that, despite Amsterdam, no more fish will be landed in British ports than are currently landed? They say also that those landed fish will not go into British fish markets and the British fish industry but will be packed on a lorry and sent to Spain or to Holland. That is not much of an achievement, is it?

In Lowestoft, there is a trawler—which is a Lowestoft trawler with a Lowestoft company—that, purely and simply, is a quota hopper. It does not land any fish in the port of Lowestoft, although it is registered there. Proper enforcement of the agreement reached in those letters will require that that ship lands a significant proportion of its catch in the United Kingdom. It therefore seems reasonable to have every hope that the ship will land its catch either in the port of Lowestoft or in another UK port. The ship is fishing the same fishing fields off Lowestoft that it fished before it became a quota hopper.

Lowestoft fishermen also want proper regulation of quota hoppers and for quota hoppers to be as severely inspected as the British fleet. The Government have said that they will achieve that objective, and they have started to do so, as I am sure fishermen will appreciate.

We must also achieve an agreement between scientists and fishermen on what stocks are in the sea. I speak to scientists, who tell me one thing, and to fishermen, who tell me something else. Both groups are adamant that they are right, but they cannot both be right. I am pleased, however, that we have made some progress in Lowestoft in getting the two sides together and finding a means by which they can agree what can safely be caught to sustain stocks.

I agree with other hon. Members that there is a fundamental contradiction between the principles of the single market and the entire basis of the common fisheries policy, which is fixing member states' allocations. The contradiction should have been dealt with at the beginning, when the common fisheries policy was drawn up, but it was not. Why was the contradiction not discovered then? It should also have been dealt with in the most recent review of the common fisheries policy, but it was not. The previous Government have told us nothing about what happened.

We must examine those issues in preparing for the next review of the common fisheries policy, when, I think all hon. Members will agree, there will have to be radical reform. It is painfully obvious that the common fisheries policy has not worked, because it has not conserved fish. People in my constituency, like people across the UK, become very angry when they see the spectacle of fishermen throwing back dead fish, which they have to do if they are not to become criminals in their daily work. The public are outraged about such waste.

As we work towards a new agreement, we will have to accomplish some crucial goals. We will have to ensure that, in implementing MAGP IV, fish markets can survive. If our fish market in Lowestoft collapses, for example, our entire fishing industry will collapse. It is therefore essential to maintain the markets. I look forward to the Government supporting our fishing industry and working with it, as the Spanish, Dutch and other Governments have clearly done. Such support is why their fishing industries are strong and why we have inherited a situation in which our industry is weak.

12.9 pm

I congratulate the hon. Member for Ayr (Mrs. Osborne) on her maiden speech. It is good that she chose to make it on the subject of fisheries, which used to be something of a minority interest in the House, which meant that debates On it took place late at night. The hon. Lady spoke with clarity, humour and commitment, although she appeared to announce her possible resignation four years from now; we shall have to wait to see whether her appreciation of the House improves as the years go by.

I have very pleasant memories of Ayr. My wife and I stayed in a bed and breakfast there; when the landlady asked whether I wanted one egg or two—

This is irrelevant.

I am merely following the courtesies of the House, as I am sure the hon. Lady understands. I said that I would have two eggs, and my wife said that she would have the same, but the landlady said that that was only for gentlemen.

I hope that the Parliamentary Secretary and I will find some common ground. We have frequently faced each other across the Dispatch Box and often found ourselves in agreement. He will find, as my hon. Friend the Member for Banbury (Mr. Baldry) and I found, that dealing with issues in practice is a great deal less easy than speculating on how they might be dealt with in theory.

Fishing is a difficult industry and a difficult environment. My concern is that the Government are seeking to tackle the problem of quota hopping with measures that could have little effect in practice and could well be unsustainable in law. My fear is that licence conditions will simply not do the trick—we know, because we tried them. That is the history of the Merchant Shipping Act 1988 and the Factortame case, to which reference has already been made.

The alternative approach is not easy. I do not pretend for a minute that the business of treaty amendment will be obtained easily or at the first attempt, but I am disappointed that the Government appear to have written it off without even giving it a serious outing at summit level, despite remarks made by various representatives of the Labour party in the run-up to the election. Also, the Government's proposals are so tentative in construction and legality that it is not surprising that the industry regards them as showing a lack of commitment.

We have first to examine the practical utility of the measures. Three new licence conditions are proposed, which the letter from the President of the Commission to the Prime Minister suggests are either/or, not cumulative. That is the interpretation that has to be put on that letter. The first measure is the requirement to land 50 per cent. of a catch in the United Kingdom. Of course, there is already a category A pressure stock licence condition concerning visiting conditions if less than 50 per cent. is landed. The second is the requirement for the majority of a crew to reside in the UK, and the third is the requirement that most fishing trips should start from the UK.

Will my right hon. Friend give way?

Very quickly.

Is my right hon. Friend aware of another letter from Jacques Santer to the Spanish Government in which he said that any country that did not want to land fish in another country did not have to do so?

I assure my hon. Friend that I was going to refer to that letter.

We have to be careful about the first of the proposed conditions—that 50 per cent. of a catch should be landed in the UK—and must ask to what extent it will affect British fishermen, because Scottish pelagic fleets land in Holland and Norway, and English east coast vessels land in Holland. There is no point trying to introduce measures that are designed to catch quota hoppers but end up causing difficulty for our own vessels. Also, as my hon. Friend the Member for Totnes (Mr. Steen) said, products can be shipped practically straight from the dockside on refrigerated lorries to onward overseas destinations, thus bringing precious little local benefit.

As for starting journeys from the UK, I wonder what practical impact that would have. I suspect that many quota hoppers would simply clock in at Milford Haven as they went past and that that would count as having started their journey from the UK. If the conditions are to be more rigorous, and if there is to be more substance to them, the Parliamentary Secretary will no doubt spell it out when he responds to the debate.

The only condition that might yield some interest is the residence requirement—I suspect that it is intended to give British vessels a let-out. If it stood alone, it might produce some useful pressure but, even then, verification and control present obvious difficulties.

Do the Government envisage further conditions—for example, a requirement that vessels be inspected as they leave fishing grounds when they are under British registration? The hon. Member for Banff and Buchan (Mr. Salmond) asked the relevant question whether the Government intend to reinforce the proposals with decommissioning measures aimed at quota hoppers, thus introducing the carrot and the stick.

I am concerned about the legality of what is proposed. When in government, we had the experience of trying to deal with the problem by introducing legislation but then running foul of international law in doing so. That is bound to be a preoccupation.

We have a tale of several letters. The Prime Minister set out measures to demonstrate that quotas

"are contributing substantial economic benefits to populations dependent on fisheries … in the flag states".

He asked the Commission to

"look constructively at and give its opinions on any draft UK measures"

in respect of the three conditions.

Jacques Santer's response was very guarded. He stated:

"With regard to the measures designed to get economic benefits for populations dependent on fisheries and related industries I should clarify that such measures may imply—"

that is a curious word in this context—

"requirements to be met on an alternative basis and concerning, inter alia".

and he then mentioned the three conditions. He signed off by saying that the Commission

"remain ready to further clarity our view on possible measures which your Government may envisage in this respect."

If that is a sort of "come hither" message, it does not seem to burn with the unrequited passion attributed to it.

Even that letter, however, got Mr. Santer into a certain amount of trouble. This brings us to the third letter—that from the Spanish Foreign Minister, Mr. Abel Matutes, to Mr. Santer on 19 June. It comprises five pages of fairly indignant protest. For example, he stated:

"during the IGC the Commission representative supported my country's position, presented in various memoranda, where we stressed among other things that to place any restriction on the activity of any Community-registered vessel, such as an obligation to unload or for the crew to reside in the flag country, was incompatible with the Treaty and with jurisprudence. In the meeting of 30 September 1996, the Commission representative stated that he followed the line agreed in the College of Commissioners. Moreover, even the British request for amendments to the Treaty was expressly based on the impossibility of introducing the desired restrictions with the existing acquis communautaire."

The Spanish Minister gave a detailed analysis of the judgment of the European Court of Justice in the Jaderow case, one of the celebrated cases in fisheries history. He continued:

"From this it follows that a member state, on fixing the way in which it will use its quota, in accordance with Art 5 part 2 of Regulation 170/83, cannot demand that catches or parts thereof should be unloaded in its own ports,"

He quoted extensively from the judgment and argued that any conditions with which the British Prime Minister returned from Amsterdam would be very difficult to reconcile with European law. Jacques Santer then replied in the terms presented to the House by the hon. Member for Banff and Buchan and my hon. Friend the Member for Totnes. That seems to leave a very thin thread linking the proposed measures with effective control of quota hoppers.

I hold no brief for the Spanish. We faced the same difficulties, and the Minister will come back to the House with the next batch of measures before long, but I am entitled to share the view of the fishing industry that the Government's proposals are likely to come under intense legal scrutiny and could well fall foul of the treaty as interpreted by the European Court of Justice. That would take us back to square one.

I seriously doubt that the Government's proposals have the legs to finish the course, but I hope that they do. I do not want the Government to fail. We have tried to crack the problem for many years, and I have bitter experience of trying to make things work.

Does it matter if the proposals do not work? Yes, it does. First, it matters because we have all been looking for a way to enshrine the spirit of the 1983 agreement by adding nationality criteria to beneficial ownership—in other words, to reconcile the treaty provisions on free trade and the movement of people and capital with the concept of fishing for the benefit of coastal communities in the flag state.

Secondly, it matters because the new multi-annual guidance programme, or fleet limitation exercise, is upon us. It is crucial that it should take account of the problem of quota hoppers, and I want to know from the Parliamentary Secretary whether he intends to proceed with it if it is demonstrated that the formula will not deliver the benefits he seeks from it. It is a complicated MAGP, and I look forward to his coming back to the House and explaining how he will make effort control and days at sea work. If that is the route that he goes down, it will be a trip down a nostalgic byway, which many hon. Members will remember, having been through that debate before.

I hope that the Government's proposals—minimalist though they are—will work. I hope that the statements about the involvement of local communities will have substance. I hope that the element in the agreement about better enforcement will be given effect. However, I have the right to doubt seriously whether the proposals are more than the tiniest incremental improvement, which may well be challenged. I wish the Government luck, but I suspect that the Minister will be back to tell us that this attempt did not work and what is to be the next wheeze.

12.19 pm

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food

(Mr. Elliot Morley)

I am grateful to the hon. Member for Banff and Buchan (Mr. Salmond) for providing the House with this opportunity to discuss in depth the issue of flag-of-convenience vessels, together with the Government's action to address the issue. He is right to say that, in the past, we have made common cause in arguing that we should have more time for debating fisheries. Fishing is an important industry in this country and there are many hon. Members from fishing areas who want to make their points.

I sympathise with the hon. Gentleman's constituents and also with his comments about the effects on exports of the high pound. That is an issue for my colleagues in the Treasury, but they are well aware of the effects on exports of the high pound and of high inflation. It is ironic that the pound is so high, because people see this country as having sound fiscal management under the present Government. Nevertheless, there were measures in the Budget designed to reduce the pound's value, although it may be some time before they take effect, and I know that my right hon. Friend the Chancellor is aware of the issue.

The importance of this subject is borne out by the large number of hon. Members who have participated in the debate. We heard from my hon. Friend the Member for Aberdeen, Central (Mr. Doran), who has made a welcome return to the House. We value his knowledge, especially of the processing sector, and the fact that he plays an active role as secretary of the all-party fisheries group. The hon. Member for Banbury (Mr. Baldry) outlined the previous Government's position. He was fair, albeit somewhat selective in his use of historical quotes. My hon. Friend the Member for Ayr (Mrs. Osborne) made a maiden speech which was witty, informative and, with offers of racing tips and accommodation for golf tournaments, extremely generous. We welcome her valuable contribution to the debate.

The hon. Member for Ludlow (Mr. Gill) is always consistent in debates such as this—he may be consistently wrong, but he is certainly consistent and he is a long-standing contributor. He made an important point about equal access. I am on record as saying that equal access is not valid in relation to the modern common fisheries policy; in addition, it is not now relevant, given that relative stability has now been accepted by the Commission and all the other member states. We should move away from it, and the review in 2002 will give us an opportunity to do so. I, too, have been consistent and I have not changed my position on equal access.

My hon. Friend the Member for Waveney (Mr. Blizzard) was one of the first Members of Parliament I saw as Fisheries Minister, which shows that he is a great champion of his fishing port. I take his comments on behalf of his fishermen very seriously indeed.

I shall try to respond to the points raised in the debate, but that will be difficult to do in just 10 minutes.

Flags of convenience are important in relation to quota hopping. The issue has been raised many times both inside and outside the House, but it has been somewhat distorted and, in some cases, used as a stick to beat the European Union by people who have agendas other than the interests of the fishing industry. Over the years, that has damaged the United Kingdom's interests and our fishing industry. To some extent, the fishing industry has been misled, for example, in respect of the protocol and the intergovernmental conference.

The previous Government's position on the IGC and the protocol was entirely bogus, as events have proved. Whether or not that action would have worked can be seen in the Government's position on the beef war. They threatened all sorts of non-co-operation, but in the end they made no progress toward getting the beef ban lifted. The same would have been true in respect of the IGC. It is true to say that, in opposition, Labour party spokespeople did not rule out the approach advocated by the Government. It would have been wrong for us to do so, because it is sensible to consider all approaches and any way to make progress. Of course, in opposition we were not in possession of the full details of our chances of making progress in that way.

As the Parliamentary Secretary knows, expectations were raised. The hon. Gentleman says that nothing was ruled out, but the industry feels that certain obligations were undertaken. The Government have chosen to go down the road of the protocol and licence conditions, but the industry is sceptical about the efficacy of that approach. Given that raising of expectations before the election, does the hon. Gentleman accept the obligation? The route chosen by the Government will have to bear fruit, or the industry and many Members of Parliament will be very disappointed indeed.

I do accept that point. We made it clear that we would not rule out any approach; what we were concerned about was making some progress. We believe that the route we have taken has delivered some improvements, to which I shall refer.

When we examined the facts and calculated the chances of our obtaining a protocol, it became clear that it was not a realistic option. As hon. Members, especially former members of the Government, know only too well, a protocol in the IGC would have needed the unanimous agreement of every single member state. It was clear to us that at least two member states—Spain and Holland, which both have an interest in quota hopping—were certainly not going to agree to any protocol that would have a meaningful effect on dealing with quota hoppers. It was not, therefore, a runner. We made it clear that we would explore all the various routes.

Will the Parliamentary Secretary give way on that point?

Yes, but very briefly, because I want to respond to some of the points raised.

Does the hon. Gentleman accept that the protocol could have been obtained if the Government had held up the progress of the whole intergovernmental conference? That was my point, which he has avoided answering.

Absolutely not—I will come to it in a moment.

Unanimous agreement was needed, but it was clear that it would not be forthcoming. We wanted to look at other ways of tackling the issue. I should make it clear that, even under the Government's proposals, the protocol would not, in itself, have removed a single quota hopper or retained any quota to the UK fishing industry, because the quota hoppers were the legal owners of their quota.

rose—

I cannot give way—I must make progress and time is extremely limited.

The right hon. Member for Skipton and Ripon (Mr. Curry) made a very intelligent contribution, but I disagree with him on whether licence conditions would be effective. I do not believe that they have been properly tried. We are applying licence conditions that are far more effective than previous ones, whereby quota hoppers had the choice of either landing 50 per cent. of their catch at a UK port or calling into a UK port, eight times a year for a minimum of eight hours. Of course, they opted for the lesser requirement, and the system was not effective.

We believe that what we propose is effective. We also believe that it is legally enforceable, because we have the President of the Commission's interpretation. The Commission—the guardian of the treaties—took legal advice, and the fact that that advice was put in writing by the President of the Commission is important and will count for a lot in any future legal dispute over interpretation.

The hon. Member for Banff and Buchan asked whether MAGP IV could be used if we felt that no progress was being made with licence conditions. MAGP IV is a separate issue; it is about sustainability and the proper management of our fish stocks. It is not credible or realistic to say that we will not implement MAGP IV if we do not see any progress. It is also a weak lever, because, when the previous Government said that they would not implement MAGP IV, grants for safety improvements and modernisation were stopped and we were unable to access decommissioning grants. We were not in a strong position. It was not a strong bargaining point. We cannot use funds for decommissioning in a discriminatory way, but we do not rule out a targeted decommissioning scheme. We shall be only too happy to discuss that with the industry.

No central record is kept that would tell us how many fishermen comply with the safety training regulations. The database of the Sea Fish Industry Authority includes only fishermen who have completed courses run by a member of the Group Training Association. Many fishermen will have undertaken training from other approved training providers. The onus for complying with the regulations rests on individuals and on the skippers and owners of vessels.

The Marine Safety Agency monitors compliance with the regulations during inspections of registered vessels. If any of the crew members do not comply with the regulations, the skipper, the owner of the vessel and the individual concerned can be prosecuted—

Order.

Middleton, Norfolk (Bypass)

12.30 pm

I am pleased that, in this debate on an issue crucial to some of my constituents, I have been joined, for moral support, by several other Norfolk Members who share my interest in the strategic development of our roads in East Anglia.

Before I talk about Middleton, I shall set the scene by saying that East Anglia is the Cinderella of our road network: a Cinderella who has been forced into shoes that have been too tight, which have hurt her increasingly as she has grown. Our Cinderella of a region needs to grow, so that our prosperity equals that of other regions.

Cinderella is not dressed in the baubles of monster motorways. We are not looking to six-lane highways or bypasses to bypass the bypasses of the 1970s. East Anglia has not caught up with the 1960s and 1970s, and that is the underlying problem confronting people in Middleton. The lack of investment in our road network causes fatal injuries and damages the local economy; moreover, it could undermine the prosperity of our region.

Middleton is close to King's Lynn, which is the heart of my constituency. It has a large and broadly based manufacturing sector for a town of its size. Road communications are increasingly important factors when many businesses take decisions on expansion and contraction.

Although road improvements have been promised since the 1970s, they have not arrived. The managing director of a large and important local company said of King's Lynn:

"The current local road network does not make it. The A47 is slow. It is dangerous and it inhibits commuting. The result costs us money and it costs us high quality people. Our analysis indicates if we were to build today in the UK, it would not be in King's Lynn and road access is the No I reason … the A47 stays as it is, the questions will continue."

That worries local people. Given the history of Government broken promises on the timing of improvements, we believe that our local economy in East Anglia has already been damaged.

We know that our ports of East Anglia are being prevented from fulfilling their potential by inadequate road links, and throughout the county—from King's Lynn, through Norwich to Great Yarmouth and Lowestoft—those road links are hurting. Cinderella is hurting. She is not looking for the richness of motorways, just dual carriageways—major arteries of the type that were routinely built in the 1970s. The A47 is obviously such a major artery.

I did not want to devote my speech to economic issues. This debate was triggered by yet another tragic accident on the A47, almost two weeks ago. The timing of that accident and its seriousness—there was yet another fatality—led me, as the new Member for the constituency, to study the history of the broken promises of a bypass for Middleton.

In doing so, I have been helped by several people. I have been pleased to have the personal support of Colin Skipper, who, as chairman of the parish council, has written to me at length and helped me to piece together a history of promises stretching back to the 1940s. He was especially helpful because he has campaigned on the issue for more than a decade. Eileen Sheridan, the local councillor, allowed me to piece together newspaper cuttings, which tell a sorry tale.

The Lynn News, which has campaigned on the issue, has correctly identified the mood of the people. I should be pleased to show the Minister pictures of the accident. We know that we have a new Government who need time to consider things, but we want to ensure that they have before them, as they consider what action to take, the information—

Does my hon. Friend agree that many accidents occur as holidaymakers return along that road from other parts of the country to the coast—Great Yarmouth, Hunstanton, Cromer and so on—and that the nature of the accidents there has been an increasing problem in the summer months?

My hon. Friend makes a valid point. One problem with our roads that the statistics do not show is the mix of the traffic, in which thundering lorries, caravans and vehicles driven by holidaymakers are mingled.

I admit that some of the thundering lorries that pass through Middleton are on their way to or from the port of Lowestoft, in my constituency.

It is disappointing that not one Opposition Member has deigned to attend the debate and listen to discussion of an important issue in an important part of the country—

Interventions must be very, very brief.

Thank you. Mr. Deputy Speaker. I just wanted to emphasise the strategic importance of the A47 to my constituency, which suffers from extremely high unemployment. The only possible reason why its unemployment is double or treble that in other parts of the region is the isolation resulting from the lack of adequate road and transport links.

My hon. Friend has made valid points.

I shall now move on to the history of Middleton, and concentrate on the immediate facts that led me to seek this debate.

The earliest campaign that I found recorded was mounted in 1946, when the Middleton vicar referred to the need for a bypass for the village. The reason is obvious to any visitor. The A47 cuts through the centre of the village. It divides much of the residential area from the social area. If one wants to go to the pub or the school, one must cross that road.

Twice a day, young children of all ages must cross that road, down which thunders the traffic on the way to the ports, as my hon. Friend the Member for Norwich, North (Dr. Gibson) said, the caravanners, and the travellers, who are sometimes slightly tired, for the route they travel is not easy, and their attention is not always what it should be. I understand why the people of Middleton wanted a bypass.

In June 1971, the Government announced that the A47 would be comprehensively improved. I have in my hand a document issued by the Department of the Environment in June 1974. It stated that the bypass was to be built, and asked the villagers which route they wanted it to take. Clearly, at the time of that consultation, the unsuitability of the road and the need for improvements to it were acknowledged. The villagers were told that the bypass would not be built until 1977, however.

In due course, that promise was delayed time and again, and was ultimately broken. Since then, there have been campaigns from time to time for a bypass to be built—often triggered by the sort of horrific accident that occurred again two weeks ago. One of the worst was in 1991, when another campaign was mounted following the death of the "village Gran", May Key. The vicar was quoted at the time as saying:

"We had all been thinking about a wedding, yet there we were standing in prayer in the middle of the road waiting for the ambulance and the police to arrive."

The lady in question had been crossing the road to go to church for her grandson's wedding. She was a lovely Christian lady, and Gran to the whole village.

In the past 14 months, there have been six fatal accidents in the village. In March 1996, a lorry driver was killed in a head-on crash with a Volvo. In June 1996, two people were killed in a collision between a Sierra and a lorry. In April 1997, two pensioners returning home to the Wirral, possibly from their holidays, were killed when their Fiat Uno collided with a lorry—very possibly from Lowestoft. In June 1997, there was a multiple vehicle crash in which the driver of a Ford Transit was killed. That accident, involving four vehicles—I have the pictures with me—took place yards from the school crossing.

The villagers find it hard to understand why officials say that our accident statistics are not especially high. That must be because officials gather their statistics for rather longer stretches of road than the immediate environs of the village. Naturally the villagers believe that the number of accidents is wholly unacceptable; and that something must be done soon.

Three times in the past two weeks, I have visited the village. On the last occasion, I went to see the children arriving at the school. About 40 of them had to cross the road. While I was standing there, a Transit van travelling towards King's Lynn came to a rather sudden stop, because the driver had just spotted a left turn in the centre of the village, which presumably led where he wanted to go. He also had to stop suddenly because a young woman was crossing the road with a pram—so he could not just turn the corner.

Behind the Transit driver was an eight-axle lorry travelling at least as fast as the speed limit. It had to slam on its brakes, and all the rear wheels locked up. I stood with my heart in my mouth watching the lorry slide towards the Transit van. It was a bright summer's morn—thank goodness for that. I dread to think what would have happened if there had been a spot of rain on the road. The lorry would not have stopped in time, and I would have witness fatality No. 7. The lorry involved in the collision two weeks ago was carrying seven-tonne pipes—not the sort of load we would want to come off in an accident in the middle of a small village.

I therefore understand the villagers' complaints. They have written to the local media and to Ministers in recent times with a number of important things to say. For instance:

"Imagine the fear that goes through your mind as you struggle with a buggy and a walking toddler across such a road, and the dread that a parent has when their 10-year-old goes out to play with their friends who live on the other side of the road."

Another lady wrote:

"The crossing patrol lady is there at school times and I must add what a brave lady she is. Nobody else would do it."

I for one certainly would not.

I pay tribute this morning to Margaret Rye, who has been doing the job for eleven and a half years, and who takes her life in her hands each time she carries her lollipop sign out in front of those lorries. I am told that people have to wait for 10 minutes, when the traffic is at its heaviest on a Saturday morning in the summer, before being able to cross. In the hands of this lady have been the lives of 40 children every school day for eleven and a half years.

The Government must take my story into consideration when they conduct their roads review. We have been promised a fresh start. We have a new Government, so let us have a new look at the situation. Let us forget the history of the 1970s, and get it right in the 1990s, so that the bypass can be built, not talked about, in the next millennium.

By all means let Ministers take whatever time they need. Today I seek an assurance that the Middleton bypass, which was deleted altogether from the roads programme last year, will be reconsidered; and that Ministers will keep a fresh and open mind. In that way, Cinderella will eventually get to the ball clad in shoes that fit her, even if they are not in the highest fashion.

I know that we may have to wait a number of years. I do not want to hold out to the villagers a timetable which I know to be impossible. There will have to be time for planning, consultations and doing the job properly—we shall have to wait several more years. But the accident problem cannot wait.

I know that officials of the Highways Agency have expressed a willingness to look again at ways in which the safety of the villagers and of those who drive through their village can be enhanced. I trust that the Minister will ensure that that is done with sensible speed and care. Consultation will be required, but the outcome must be action, not words. I do not want ever to have to come back to this Chamber again following another tragic accident of the type which, two weeks ago, led me to seek this debate.

I thank the House for its patience, and I hope that the Minister will be able to acknowledge the two simple requests that I have made.

12.47 pm

I congratulate my hon. Friend the Member for North-West Norfolk (Dr. Turner) on securing this debate, although I am sure the whole House will sympathise with the concerns that occasioned his seeking it. He has dealt in some depth with the problems faced by his constituents in the village of Middleton on the A47 trunk road.

The A47 is a significant inter-regional route between the midlands and East Anglia, highlighted by its classification as part of the trans-European road network connecting the heart of England to the east coast ports. At King's Lynn several major routes converge: the Al7 from the north and the A47 from the midlands; and, at the notorious Hardwick roundabout, the A149 to Hunstanton, the A47 to Norwich and the A10 to Cambridge and London.

The village of Middleton is a few miles east of the Hardwick roundabout on the A47 between King's Lynn and Swaffham. Clearly, a route linking Peterborough, Wisbech, King's Lynn, Norwich and Great Yarmouth is of considerable significance to the region. Many consider that high unemployment and poor economic prospects are at least partly due to the inadequate nature of the A47 as a major route serving a large, relatively remote area. In a recent Adjournment debate on transport in his constituency, my hon. Friend the Member for Waveney (Mr. Blizzard) made that very point, as he did again today.

Considerable progress has been made in improving the A47 over the past four years. Nine road schemes, including six bypasses, have been opened. Of particular significance is the £80 million Norwich southern bypass, and, most recently in 1996, the Walpole highway and Tilney High End bypass opened in the constituency of my hon. Friend the Member for North-West Norfolk. More than £150 million has been invested in A47 improvements in Cambridgeshire and Norfolk in the past 10 years. That is considerable investment by my Department, indicating the importance attached to the route.

None the less, as my hon. Friend defined in historic detail, those seeking major improvements to the A47 had their hopes raised and then dashed by the previous Administration. In 1989, "Roads for Prosperity" announced a major expansion of the road-building programme, including full dualling of the A47, but, before most of those projects even reached the public consultation stage, reviews in 1994, 1995 and 1996 reduced the A47 programme to just two schemes: the Hardwick flyover and the Thorney bypass.

The process for the people of Middleton was made even worse by the two-stage cuts, in which the major dual carriageway improvement was replaced by a local Middleton and East Winch bypass, to which my hon. Friend referred frequently, only for that scheme to be withdrawn two years later. I well understand the frustration of the local community, expressed on their behalf by my hon. Friend.

On 19 June, my right hon. Friend the Minister of Transport announced the Government's proposals for a thorough review of the national road programme. Its objective will be to determine what role roads should play in an integrated transport policy. Unlike the position under the previous Administration, this review will not take place behind closed doors, looking on an ad hoc basis at what schemes could be added or deleted from any proposed programme.

We shall consult widely between July and October, and we intend to announce the results in the spring, thus giving the opportunity for communities, local authorities, businesses and transport and environmental groups to give careful thought to the role of the trunk road network and the type of improvements that should be made.

"East Anglia—Roads to Prosperity" and the A47 Alliance have already consistently lobbied for improvements to the A47, and will make a major contribution to the review. They see an improved A47 doing for the north of East Anglia what the A14 has done for the south. However, others consider that Norfolk's central attraction is not only its countryside, coast and broads but its remoteness from major roads and motorways—[Laughter.] My hon. Friend the Member for Waveney laughs. Given his perspective, I well understand his mirth.

One of the key issues from the review will be balancing the demands for trunk road improvements to aid economic development and regeneration with the pressures for extra environmental bypasses to communities such as Middleton. Resources for trunk roads will continue to be limited, and we will also look at the overall balance of transport spending under all headings. We need to find a co-ordinated approach to the provision of transport infrastructure that is sustainable in the long term.

My hon. Friend has already described the considerable worries of his constituents about the environmental problems caused by heavy traffic in Middleton and the even greater concerns—which he described in graphic and disturbing detail—about road safety following the recent series of fatal accidents. My hon. Friend the Member for Norwich, North (Dr. Gibson) highlighted the fact that those concerns are not exclusive to Middleton, given Norfolk's attractions for holiday makers, and the contingent increase in traffic on its roads.

The constituents of my hon. Friend the Member for North-West Norfolk are clear that a bypass is the only answer that can solve their problems. However, none of the recent schemes even reached public consultation stage, so there is no prospect of a bypass being built in the next few years, even if such a scheme were to be included in the Government's new trunk road programme.

Middleton lies on the 16-mile Hardwick-roundabout-to-Swaffham section of the A47. A local bypass for the village of Narborough opened in 1992, but the remainder of the road is unimproved single carriageway. Middleton lies transversely across the trunk road, with a built-up frontage of only 100 yards on the A47. The 40 mph speed limit in Middleton is considered appropriate, and is generally observed, following improvements to signing.

Traffic flows on that section of A47 are some 11,000 to 12,000 vehicles a day, with some 15 per cent. heavy goods vehicles. The A47 generally is renowned for delays behind heavy goods and agricultural vehicles. The accident rate over the whole section is typical for a rural A road of that type. However, that is of no comfort to my hon. Friend or his constituents. He has described the four fatal accidents on the A47 in Middleton, which occurred in the past two years. There appears to be no identifiable problem with the road that is causing those accidents.

The Government and the Highways Agency regard the safety of all road users as one of their highest priorities, and the agency monitors all accidents on the network to see if there are clusters where changes to signing, road layout or other safety measures could make the road safer. Although no local schemes are proposed on that section of A47 in 1997–8, the agency will continue to monitor the A47 closely to determine whether any effective improvements can be identified and brought forward in the future.

Over recent years, the Department has investigated safety in Middleton several times, and has implemented measures that have been identified as a result. The 40 mph speed limit has been extended twice; signing and markings have been improved; and kerbing has been raised. The 40 mph limit is generally complied with.

In January, officials from the Highways Agency met the parish council, police and others on site for an in-depth discussion about possible further measures and to examine ideas proposed by the parish council. It was agreed that the school crossing patrol—monitored, as my hon. Friend said, by a heroine—was located at the safest place to cross the A47, and a list of possible improvements, including improved visibility, flashing speed warning lights, village approach signs, textured surfaces, traffic lights, a footbridge and speed cameras, was considered. The village occupies a very short section of the A47, with properties adjacent to both sides, which limits the possibilities for improvement.

Although no improvements are currently proposed, the Highways Agency would be happy to have further discussions with the parish council about its concerns, and to look again at further ideas to improve safety.

My hon. Friend expressed the concerns of his constituents in Middleton about the environmental and safety problems caused by heavy traffic on the A47 through their village. The Government have embarked on a thorough review of the trunk road programme, and are consulting widely to ensure that the new programme makes a valuable contribution towards our integrated transport policy.

I can give no promises about the reinstatement of a bypass for Middleton and East Winch, although, as my hon. Friend is well aware, the Government have a particularly open mind. I can confirm, however, that the Highways Agency will continue to examine further safety schemes and monitor the situation on the A47, and to discuss ideas with the local community, so that, as my hon. Friend said, he never has to return to this House to give details of yet another fatal accident.

Freedom Of Information

12.58 pm

I am delighted to have the opportunity to raise the topic of freedom of information in the first debate on the subject in the new Parliament. It is an extremely important matter—the foundation on which the rest of our democracy is built.

Governments have so much power over ordinary people's lives. They have the wealth of the civil service, the expertise of legislators, access to whatever information they want, a public budget to sell their ideas and guaranteed exposure in the media—all to ensure that Britain is painted as they wish it to be.

What is the counter-balance to all that power? There is one fundamental prerequisite: access to information—the opportunity for individuals to check what Governments are telling them, to tap into alternative sources of information and to weigh up the arguments. How can ordinary people challenge the Government if they cannot find out what the Government are doing? The press cannot function properly without information, not even Matthew Parris, whom I thank for his surprising level of interest in my activities and to whom I apologise for the fact that I am again in the House representing my constituents rather than being wherever he thinks a Member of Parliament should be.

Over the years, successive Governments in this country have found attraction in shadows and solace in darkness. In many ways we have a less open society than anywhere else in the west. In the United Kingdom the presumption has been that everything should be secret unless a reason is produced for making it public, whereas the presumption should be that everything is open unless someone decides that it needs to be secret.

I am not advocating the publication of every Government document. Of course some matters must remain secret—sensitive diplomatic correspondence, matters affecting national security, much advice to Ministers—but surely we can open things up without bringing the house crashing down?

Some of the matters held as closed files are beyond belief. I refer hon. Members to an article in the Observer a while back, entitled "Secrets the state dare not tell", which lists some of the files of which we are allowed to know the title but not the contents. They include the following matters of national security: taxi drivers carrying fares without depressing flag 1935–1952; police fees for surgeons 1926–1953; dangerous driving conditions at humpback bridge in Beckenham road, London 1935–1951.

That article is now a few years old, but I have seen no evidence that the previous Government did anything to speed up the release of files, so I would not be surprised if those were still closed. Perhaps the Minister could find out. I find it difficult to believe that there was ever anything in those files that merited them being closed, but the presumption for secrecy meant that they were marked as closed, and remain so to this day for all I know.

Then there are the parliamentary questions to which I have received answers in respect of records held but not released for public inspection. The Public Record Office tells me that the oldest document it holds dates from 1873 on the grounds of commercial sensitivity. It is difficult to imagine how that can be justified. As those records are land records, I would argue that who owns what should be public anyway, as I believe it is in Scotland, although I stand to be corrected. Surely any values attached to the transactions are now irrelevant.

The Home Office holds files going back to 1876, as another parliamentary answer this week revealed. To his credit, the Home Secretary promised in his answer to review matters since I had drawn them to his attention.

Other examples of information being concealed are more serious. Why has so much manufacturers' data on pesticides been kept secret in the UK on grounds of commercial sensitivity, when such information is freely available in the United States? When tests were carried out on cows with the artificial hormone BST, the milk from those cows was collected and sold, and we, the public, were not allowed to know from which farms the milk had come. Why were we not told until recently? I acknowledge a step forward by the new Government, who revealed that radioactive material had regularly been dumped in the sea between Scotland and Ireland.

Does my hon. Friend agree that the Labour party was rightly critical of the previous Administration for hiding behind the old lies that information was not centrally held and could be found only at disproportionate cost? Is he aware that the new Government are trotting out the same excuses? In answer to me yesterday at column 408 of Hansard on specified bovine material, the same excuses were used. If we are to have true freedom of information, the Government must be prepared to find out the information and make it available.

My hon. Friend is right. Some of the answers that we have received so far have been in the same furrow as answers from the previous Government. I hope that that is a reflection of the fact that Ministers have yet to get hold of their brief. I shall cite further instances.

More controversially, we must try to be more open about matters that have been shrouded in secrecy. Until recently, Governments would not even admit that MI5 and MI6 existed, but Stella Rimington, the first publicly named head of MI5, showed that light can be shed even on that sensitive area without compromising national security. I hope that the Government will build on the example she set in that and similar areas.

I shall be interested to see, for example, the responses that I get next week from the Secretary of State for Defence to the questions that I have tabled about RAF Menwith Hill. We are entitled to know the basis of the arrangement between the Americans and ourselves for that base, and to an assurance that all is within the law and in the British national interest. Beyond that, there must be secrecy for operational matters, although I hope that even those will be the subject of public consideration in future.

I raise the matter in general because I believe that it is important, but there is another reason why today's debate is opportune. We must try to establish clearly what the Government's position is. At present it is not clear, and I shall explain why.

The Labour party has long been committed to a freedom of information Act, and produced a Green Paper on the subject as long ago as 1979. We have been told that such an Act is crucial, yet no such Bill appeared in the list of legislation for this Parliament. Why not? When I asked the Prime Minister, he told me in a written answer that he wanted to consult. Elsewhere I have heard it said that no Bill is ready. What nonsense that is.

A great deal of work has been done on potential legislation in recent years. There are Bills waiting to be plucked off the shelf, such as the Right to Know Bill introduced by a Labour Member in the previous Parliament. In January 1991, the then shadow Home Secretary, Roy Hattersley, said that freedom of information

"is not only suitable for early enactment. It is ready for early enactment. If a Labour Government was elected… I would be able to send the headings of a Bill to a parliamentary draughtsman on the following day.'''—[Official Report, 14 May 1997; Vol. 294, c. 106.]

In the interests of open government, I should reveal that my source for that quotation is the excellent speech made by the hon. Member for Cynon Valley (Ann Clwyd) on the first day of debate on the Queen's Speech. It was a privilege to follow such a contribution when I made my maiden speech to the House that day. I cannot understand why the hon. Lady is not in the Cabinet—or perhaps I can.

As there are no drafting problems, do the Government really need to consult further? Opinion polls clearly show a significant majority for a freedom of information measure, and the Government have a mandate for it. It is not necessary to delay any further for technical or democratic reasons, so why was such a Bill missing from the first Queen's Speech?

I believe that the Government are split between those who are clearly committed to such a measure and would happily introduce it tomorrow—I include the Chancellor of the Duchy of Lancaster, the right hon. Member for South Shields (Dr. Clark), in that list—and those who are more reluctant and who perhaps see benefits in, and less discomfort from, keeping things much as they have been. I suspect that that group includes some people who might be classed as the inner circle.

If I am wrong in my analysis, I hope that the Parliamentary Secretary, Office of Public Service, the hon. Member for Liverpool, Walton (Mr. Kilfoyle), will put me right. In that case, he must come up with a much more convincing explanation for the absence of a freedom of information Bill from the Government's first legislative programme. There has been no convincing explanation to date.

The Government must examine the practices that they have introduced and decide whether they are compatible with a culture of openness. How, for example, does the role of the Minister without Portfolio, the hon. Member for Hartlepool (Mr. Mandelson), sit with the professions of openness? He is clearly a powerful figure in the Labour party and in the Government. His fingerprints are everywhere, but in what way is he accountable? Through written questions, I was told in a written parliamentary answer from the Prime Minister.

Since then I have asked the Minister without Portfolio a number of written questions, from which I have learnt virtually nothing about what he does. He refuses to list meetings that he has attended. So far as I am aware, he has not spoken in the House since the election, despite his central position. I dropped him a note last week informing him that I intended to refer to him in this debate and that I should be happy to give way to him, should he turn up. He has not done so.

Is the Minister without Portfolio responsible for the millennium dome, or is the Secretary of State for National Heritage responsible? On 18 June I asked the Prime Minister for clarification of their respective roles, with a named date for response of 23 June. So far, I have received only a holding reply.

To give credit where it is due, the Minister without Portfolio provided me with a written answer earlier this week, stating that he would answer oral questions on the millennium exhibition—or experience, as I suppose we must now call it. I welcome that, but it deals only with the most visible issue.

What is the role of the Minister without Portfolio in determining the future of the royal yacht? He tells me in parliamentary answers that he has no responsibility, but an article in The Guardian dated 26 June states that the British Exporters Association has had "favourable noises" from him. What exactly is his role in that? My suspicion is that he is sorting out policies behind closed doors with the Prime Minister, and that Ministers have been put up in public to defend those decisions. I hope that the Minister can tell me that I am wrong. If I am not, the present arrangements are not in the spirit of a culture of open government and are not consistent with accountability to the House.

Then there are the responses that I have received to written parliamentary questions about public records. I asked each Department for information about documents that were passed to the Public Record Office. Some answers, such as that from the Foreign Secretary, were helpful. Others told me that the Public Records Act 1958 does not require information to be kept in the form requested and that to do so would "incur disproportionate cost". That famous phrase has been used over the years to avoid answering questions, and although it is sometimes justified, it is often abused.

That was a curious response to receive from the Department of Trade and Industry as my question was an exact replica—apart from the change of year—of that asked by my hon. Friend the Member for Southport (Mr. Fearn) on 2 July 1990. On that occasion, the question elicited a full response, and every category that my hon. Friend specified was given a percentage correct to one decimal place. I subsequently took up the matter with the Consumer Affairs Minister, who has been most helpful and who provided the information that I requested in a very full letter. However, that means that the official answer I was given—namely, that the information that I sought was not available and could be provided only at disproportionate cost—was clearly incorrect. In this case, the information provided originally by the present Government was of a lesser quality than that provided by the Conservative Government, which is no cause for self-congratulation on the Government Benches.

The Minister will undoubtedly tell me about the proposals that he intends to publish shortly. They will be welcome if the proposals to allow access to information are not couched in terms which enable the public sector—I hope that the Bill will apply to the whole of the public sector, including quangos—to cite exemptions. I hope, too, that the Government will not impose prohibitively expensive charges for gaining access to information. I ask the Minister to respond to those points.

I acknowledge the positive way in which the Chancellor of the Duchy of Lancaster has answered my questions, both on the Floor of the House and in written answers. I acknowledge, too, his positive response in the past few days to my question about his intentions to open up the existing code of practice on access to Government information. I remain hopeful.

The problem is that, although we have had many expressions of support from Ministers, we have seen no concrete action to date. I appreciate that these are early days, but a freedom of information Bill could have been introduced this Session. I ask the Minister to provide a convincing explanation as to why that is missing from the first year of Government legislation. The longer we go without a freedom of information Bill, the more attracted to secrecy Ministers will become. They will find it easier not to release information, and we shall be back in the trough created by the previous Government.

The Minister will know that I have introduced the Public Records (Amendment) Bill, which is due for Second Reading on 30 January 1998. It aims to reduce the 30-year rule to 20 years and to reduce the rule for royal documents from 100 to 20 years. That is a modest measure and in line with practice in other countries.

I offer today to work with the Minister and the Government to create sensible, workable legislation—taking account of costs and other potential problems that he and his colleagues may envisage—in an attempt to make progress in this area. I am willing to attend meetings and to co-operate completely with the Government if the Minister wishes to make progress with the legislation in the House.

Will the Minister take up my offer so that that legislation may proceed in advance of any White Paper recommendations? The current parliamentary timetable is very full, and the White Paper will not see any legislation—even putative legislation—before next April, May or June. Will the Minister accept my offer and introduce legislation so that the Government may restore their credentials in the area of freedom of information? That would go some way towards reversing the unfortunate impression created in some quarters that part of the Government is not enthusiastic about freedom of information.

I hope that the Minister will not instruct his colleagues to block the Bill, citing spurious reasons for so doing. The Minister can have no sensible reasons for blocking my Bill when I have offered to work with him and to incorporate Government proposals. Will the Minister work with me on that legislation, and will the real Labour party, metaphorically, stand up and be counted?

1.13 pm

This debate has been short, but none the less interesting and informative. I must agree with the hon. Member for Lewes (Mr. Baker) about Matthew Parris's article in The Times. The hon. Gentleman probably took exception to the valediction that a bore is born; I think that he will agree that a bore is made and not born. I pay credit to the hon. Gentleman and to the hon. Member for Hereford (Mr. Keetch) for their contributions. The hon. Member for Lewes has taken the opportunity to reflect on the considerable importance of freedom of information, and I know that many hon. Members—including me—take a strong interest in that subject.

However, an issue of timing is involved. The hon. Gentleman has initiated this debate, and he has asked numerous questions about freedom of information and other subjects in the House. Together with my hon. Friend the Member for Cynon Valley (Ann Clwyd) and the hon. Member for Aldridge-Brownhills (Mr. Shepherd), he recently presented a Private Member's Bill on public records. The hon. Gentleman misses no opportunity to let the House know the depth of his undoubtedly genuine and deeply felt concerns about those issues.

I wonder, however, whether the hon. Gentleman has listened to a number of important points that my right hon. Friend the Chancellor of the Duchy of Lancaster has made very clearly both within and outside Parliament in the past few weeks. The hon. Gentleman paid credit to my right hon. Friend for assisting the hon. Gentleman's cause. My right hon. Friend has said clearly that the Government take freedom of information very seriously. As everyone knows, we are pledged, through our manifesto, to introducing a freedom of information Bill. The Gracious Speech made it clear that we would begin to implement that commitment through an early White Paper, setting out our proposals for FOI legislation.

My right hon. Friend has been at pains to stress time and again that consultation is the essence of our approach. First, we will issue the White Paper very shortly—it remains my right hon. Friend's intention to do this before the House rises in a few weeks' time. The White Paper will be wide ranging—it will certainly cover public records and other issues that have been mentioned today—and will initiate a period of consultation. A few months later—probably at the beginning of next year—we shall publish a draft Bill, which is part of a significant move towards more open government. That will then lead to a further period of consultation before any legislation is introduced.

The hon. Gentleman offered to consult with the Government in introducing the freedom of information measure. I assure the hon. Gentleman that he, other hon. Members and the wider public will have every opportunity to make their views known during the legislative process. Naturally, the freedom of information Bill, in its final draft form, will be debated extensively by the House—and no doubt in the other place. Perhaps the hon. Member for Lewes will serve on the Standing Committee that considers the Bill. I am sure that he will take part in the forthcoming debates, and my right hon. Friend and I will look forward to debating the important issues with him at that stage.

Under the exceptionally open and consultative approach that the Government will take to FOI proposals as they develop, the hon. Member will have ample opportunity—both in the light of the White Paper and on the basis of the drafted legislation—to make clear his points or areas of concern and to engage the Government in discussions about them. I hope, therefore, that the House and the hon. Member will understand my concern that we must be careful not to embark on the consultative process prematurely, and not to get immersed in debate too soon.

That is partly because we do not yet have the advantage of a published White Paper—let alone a published draft Bill—on which to structure our thoughts, and partly because the Government have embarked on a major exercise in working towards an important and very early statement on freedom of Information. It is essential that we do not delay that process by trying to thrash out all the details beforehand.

None the less, the hon. Member has chosen to raise some specific points in the House today, and I should like to respond to them.

I am grateful to the Minister for giving way. I am interested in what he has to say. Before he moves on to particular points, will he clarify the status of the White Paper? He has made it sound as though it is not so much a statement of Government conclusions as a discussion paper on which the Government might be ready to make changes if persuaded that those changes were meritorious.

I am sure that my right hon. Friend fully intends the process to reflect the opinions expressed in the House and beyond on the substance of the White Paper. It would be entirely in keeping with the Government's intention to be open and consultative in their approach if that is the line that is taken.

The hon. Member for Lewes referred to previous files. Admittedly, those references were somewhat dated. I assure him that I shall do everything that I possibly can to investigate the specific files that he mentioned and will come back to him. We must be careful, however, not to overlap with the debate that will take place on the contents of the White Paper.

The hon. Gentleman said that he was not clear about the Government's position. I hope shortly to be able to make absolutely clear exactly what the process will be and where we stand in terms of openness and consultation. The hon. Gentleman also referred to the Right to Know Bill promoted by my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher). The hon. Gentleman said that there were no drafting problems. It is my recollection, however, that it contained about 83 clauses, which shows how complex the subject is. Indeed, so intent are we on getting this right that we are committed to the extra consultation to which I have referred.

Many references were made to the Minister without Portfolio, and I am sure that he will answer for himself. As for my hon. Friend's millennium dome responsibilities, the hon. Gentleman has already had an adequate answer. My hon. Friend will be answering oral as well as written questions. When the hon. Gentleman reads accounts of what my hon. Friend may or may not think about issues that are far beyond his portfolio. I remind him that he should not, as anybody who has become a Member of Parliament will know, believe everything that is written in newspapers.

The hon. Gentleman spoke at some length about public records. The Government agree with him that that is an important aspect of openness. My right hon. Friend the Chancellor of the Duchy of Lancaster has made it clear that our White Paper will cover that area. He has also informed the House that he hopes to see a considerable extension in the release of public records under the 30-year rule. That remains the case.

The hon. Gentleman proposed reductions in the 30-year rule. Like the rest of the House, he will have to wait until the White Paper is published before considering what we have to say on this specific issue. Believe me, I am as keen as anyone to avoid unnecessary secrecy in our public records system. When I was a Back Bencher, I tried to elicit information in the same way as the hon. Gentleman, and I know how difficult it can be. We have to remember, however, that when holding an estimated 7 billion pieces of paper—not to mention other types of record—in files that would stretch approximately 900 miles, and with about a mile of documents being released by the Public Record Office each year, major and sudden changes affecting the whole system of record review and storage are bound to involve a significant cost in time and money.

It may interest the hon. Gentleman to know, however, given his evident view that the openness of the system is inadequate—there is much sympathy with that view on both sides of the House—that over the past five years, under the Conservative Government, more than 77,500 records held both within and beyond the 30-year period were released as a result of the review efforts of Departments and the Public Record Office. I can assure him that the Labour Government will ensure that the impetus towards openness is at least maintained if not increased, that public access to public records is improved, and that our White Paper will make proposals on that.

I hope that I have made it reasonably clear, not least to the hon. Member for Lewes, that the Government believe in openness and that in our first weeks in office we are working steadily to achieve that aim. Many of the hon. Gentleman's representations were a reflection on previous Governments more than on the present Government, but we are determined to get this absolutely right, in an open and transparent way.

The House should consider, for example, the recently announced decision of my right hon. Friend the Secretary of State for Health that all national health service trusts will be required to hold their meetings in public. That is the kind of development that we need after the legacy of the past 18 years: greater openness in our quangos and other public bodies. Freedom of information will meld very much with the intention of the Chancellor of the Duchy of Lancaster to produce, later this year, a White Paper on better government. It will be an important element of that.

Then there are the actions of my right hon. Friend the President of the Board of Trade, who has published for the first time an unprecedented and full explanation of why the Government disagreed with the advice of the Monopolies and Mergers Commission on the Bass, Carlsberg and Tetley merger. There is also the work of my right hon. Friends the Chancellor of the Duchy of Lancaster and the Minister of Agriculture, Fisheries and Food in preparing the ground for the setting up a food standards agency to provide substantially more open and transparent arrangements for maintaining public confidence in relation to what we eat. Those are matters of vital importance to consumers.

I have no doubt that the Chancellor of the Duchy of Lancaster's White Paper on better government will make further important proposals on opening up our public life to the examination and scrutiny that is so important to ensure proper accountability to the House and to the nation as a whole.

Finally, I refer again to our forthcoming White Paper on freedom of information, which will set out in detail how this Government, unlike any of our predecessors, are prepared to give a statutory right of access to every individual or organisation wishing to use it. That is evidence of our commitment to freedom of information and to open government, and I accordingly commend it to the House.

1.26 pm

Sitting suspended.

1.30 pm

Sitting resumed.

Gcse Results (Stoke-On-Trent)

1.30 pm

It gives me great pleasure to raise on the Adjournment an issue of such importance for my constituency. I welcome most warmly the Under-Secretary of State for Education and Employment, my hon. Friend the Member for Newport, East (Mr. Howarth), to his new ministerial position. I am pleased that he is in his place for the debate.

Education is a burning issue in Stoke-on-Trent and in north Staffordshire. I, too, want to make education a crusade in the area that I represent. We must ensure during this debate that we put on the map the urgent education needs of Stoke-on-Trent and Staffordshire. Against that background, I make no apology for shouting loud and clear about what is needed.

During the tenure of the previous Government, we have seen the few, not the many, receive resources for education provision. The few, not the many, succeeded in securing fantastic educational achievement, while the rest of us were left to do the very best we could against all the odds.

We have heard much talk about failing schools, but it was the previous Government who failed us. More than anything else, I want now to press the case for fair education funding, and especially in Stoke-on-Trent and north Staffordshire.

Why do we want fair funding? We want it so that we might do the very best for our children. All parents want to do that, and that is the feeling of all parents in my constituency. I feel that also, speaking as a parent. That is why the debate on GCSE achievement is so important.

If we are to see any achievement, we need to have targets. We need to know where we are going and what resources are available. We need the good will of all those who are involved in making the necessary resources available. Above all else, we need the active co-operation of the Government. That is why it is so crucial that this debate is taking place.

We have, of course, the active support of two authorities, the new local education authority of Stoke-on-Trent, and the local education authority for Staffordshire as a whole. I can tell my hon. Friend the Minister, too, that all parents, governors and teachers, along with the organisation that will seek fairer funding for schools, want to be able to set targets, so that we can secure the achievements that are needed in the area.

Every school that serves its local community in meeting the needs of that community must have the resources properly to do its job. That is what I want to achieve from today's debate. I want an active partnership with the new Government. Ever since my right hon. Friend the Secretary of State for Education and Employment visited the area in 1996 and saw for himself what was needed, my colleagues and I in Stoke-on-Trent and north Staffordshire have sought to establish such a partnership. It is crucial that we build on my right hon. Friend's visit in 1996.

I urge my right hon. Friend and the Government as a whole to review the standard spending assessment. The SSA is one of the most dreadful pieces of formula that I have ever come across, because it has siphoned funds from certain areas to others and left the area that I represent with huge areas of education spending deficit—more of that in a moment.

I urge the Government also to concentrate the £83 million that has been announced for education in the Budget on the areas that need it most. There are huge discrepancies in education resources and it is crucial that we concentrate on the areas that have done worst, at least to bring them up towards the level from which other areas start.

As a result of the debate, I want to get bids in under the schools renewal challenge fund round, so that my area can benefit. At the same time, I have a great deal of difficulty with the bidding culture per se. It always means that some areas get left out. If, however, we could achieve a fair SSA and bring funds into my area that it has not received in past years, I would wish to use the next round of the SRCF to increase achievement in Stoke-on-Trent.

As I said during questions on the statement when the White Paper on raising education standards was published, I want an area action zone for Stoke-on-Trent. That could make an enormous difference. It could enable a huge number of schools to work together in partnership. In my constituency, it could build on the Two Towns project, which has already done so much to raise standards, and could include other local schools, such as primary schools and nurseries. We could all benefit from that experience.

Not least, I want a visit, if not by my hon. Friend the Minister before the end of the present term, at least by an official from the Department, so that he or she can see what is needed to get Stoke-on-Trent and north Staffordshire off to a good start. I want the visit to take place before the end of the term, because there is a real sense of urgency. Children have only one chance at school. If they do not get good GCSE results and do not do well in their standard assessment tasks; if they do not do well at primary school because their literacy levels are so far behind those of others; or if there is not proper early learning, from which all education begins, how can children in that position do well? That is why there is a real sense of urgency.

I hope that the Minister will give me an undertaking that he will do his level best to ensure that someone from the Department visits the local education authorities in my area to see what is needed. I would want that official to visit schools in my constituency with me. I challenge anyone to tell me that the schools are not doing the very best they can in the circumstances in which they are operating.

Let us consider examination results in Stoke-on-Trent and certainly in Staffordshire. Excellent results are achieved in part of my constituency. There are excellent results in another part but, of course, everything is relative. I am slightly hesitant about mentioning results and naming schools, because we should not judge everything by results alone. We must, however, consider where we start from, and the starting point is low levels of achievement.

In Stoke-on-Trent, North we have above-average results in Endon and St. Margaret ward. In LEA-maintained schools in the city, results vary between 21 and 29 per cent. for five GCSEs at grades A to C. That is quite good progress in the city, given the starting baseline. When a comparison is made, it is clear that there has been a tremendous improvement over the past two or three years. At the same time, however, we have an average GCSE achievement rate of 29 per cent., compared with 44 per cent. for all pupils in Staffordshire. The national average is even higher than 44 per cent.

That is where I rest my case. We are not doing our best by the young people in my area if we cannot improve their GCSE attainments while at the same time improving all their education opportunities right the way through school. That must be the starting point. It is not what I would like it to be, for I would wish it to be much better. However, I recognise that in reaching the present level of achievement, our teachers, staff and governors have worked round the clock. They have done what virtually no one could have been expected to do in getting examination results as high as they are.

There was significant improvement in Stoke-on-Trent between 1994 and 1996. That shows that our teachers, schools and children are working extremely hard. The Two Towns project has made an enormous difference, and I want all schools in my constituency to learn from it.

Those schools are in a deprived area. That is shown by the percentage of free school meals that are taken. The National Consortium for Examination Results has shown the link between performance at GCSE and free meal entitlement of pupils, and in our area there is a large take-up of free school meals. Moreover, the city's cognitive ability scores for year seven show that children are at a disadvantage. Attendance at libraries is low, and the chronological reading age of children going to secondary school at year seven is lower than it should be—in one school that applies to 159 children out of 270.

The standard spending assessment for Staffordshire is unfair and must be reviewed, because schools have received much less money. Primary funding for pupils in Stoke-on-Trent is £68 per child per school, which is 3.6 per cent. below the national average, and funding for secondary schools is £78 per child per school less. Funding below the national average in one year is bad enough, but when it is below average year on year, as it was under the previous Government, there is a huge cumulative effect. As a result, our larger secondary schools could be as much as £0.25 million worse off in any one year, and that figure builds up over the years.

The cumulative effect of underfunding goes right the way through early learning, primary and secondary school funding. Many of our school buildings are in a dreadful state of repair. The chief education officer for Stoke-on-Trent wrote to me before the debate. He said:

"We are expecting our children to raise their eyes to the stars, when in terms of their educational environment many of them have to live in the gutter.?

That is not an insult to our schools and our pupils. Because of the neglect and disrepair that we have inherited, we have our work cut out to look to the stars, set our sights high and aim for the best achievement by all our children.

Teachers are actually doing the building work at Jackfields nursery school, so that we can set our sights on achievement in early learning. When the school at Ball Green was closed down, Holden Lane school was promised a refurbishment programme to accommodate the influx of children. That school was top of the old county council's list of urgent repair works and refurbishment before Stoke-on-Trent became a unitary authority, and it is still top of the list. We are still no further forward in getting the money for that essential work to be carried out. All our schools require money for refurbishment, early learning, lifelong learning and sports facilities, and they want to maximise the money available from the lottery and from capital challenge. They want to make a concerted effort to obtain funding. I urge the Minister to ensure that the £83 million goes where it is most needed.

Against the background of neglect and deprivation, Stoke-on-Trent schools have achieved miracles. I mentioned the Two Towns project. I should like to pay tribute to all the teachers at Haywood high school, James Brindley high school and Brownhills high school for their hard work. In 1991, about 4 per cent. of children in those schools achieved five grade A to C GCSEs: that figure is now more than 20 per cent. That shows what we can do when we have the resources. In 1991, 77 per cent. of children took GCSEs, and now the GCSE entry figure is 100 per cent. That does not come cheap: it costs money. The staying-on rate was 20 per cent., and now it is 50 per cent. We have doubled our achievement levels. We should shout loud and clear about those achievements.

Teachers have said to me that in the coming year as many as four staff members in a school will have to leave because of a lack of funding. They believe that the momentum of achievement cannot be sustained without extra resources. I welcome the White Paper, because it will help us to maintain the momentum. I challenge everyone to take up this important issue.

I am aware that my time is running out, and I want the Minister to be able to respond to all the points that I have made. But I just want to mention an important event that is taking place today in my constituency. The pupils at Sneyd Green primary school are having their annual prize-giving day. I was to hand out the prizes, but it was not possible for me to rush up to Stoke-on-Trent by train and share this wonderful day with them, and then rush back. However, perhaps my time is better spent convincing the Minister that the prize we want from the new Labour Government is to have their full, undivided attention for educational need in Stoke-on-Trent.

We should be proud of our achievements, and should give our teachers the support that they need to do their best for the children whom I represent. I am grateful for the opportunity to raise this burning issue. It will not go away, and neither will I. I look forward to working with the Minister to get something done about education in Stoke-on-Trent.

1.46 pm

The Parliamentary Under-Secretary of State for Education and Employment

(Mr. Alan Howarth)

I warmly congratulate my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley) on securing the debate, and on making the case for her constituents with eloquence, passion and depth of knowledge, and with the commitment that her constituents appreciate and all hon. Members greatly respect.

Education is central to the Government's mission, and I am extremely happy to respond to my hon. Friend. The purposes that she expressed are our purposes, and we want them to be realised in her constituency and across the country. The timing of the debate is appropriate, given the publication on Monday of our White Paper "Excellence in Schools".

I assure my hon. Friend that I shall personally bring her concerns to the attention of the Secretary of State. As she mentioned, my right hon. Friend visited her area, and he will want to be kept closely informed. He is anxious that his Department and his ministerial colleagues should respond to her as constructively and effectively as possible. Her concerns are on the map, to use her phrase.

On Monday, my hon. Friend asked my right hon. Friend a question after his statement, causing him, as he said, to twinkle. He will continue to beam his friendly concern in her direction. The opportunity that he had to engage in discussion with teachers in her constituency was part of the consultation process that we want to maintain. Without that consultation and without a dialogue with teachers, we shall not develop the required policies, but with their assistance, we shall.

As my hon. Friend knows better than any of us, Stoke-on-Trent has suffered from the decline in traditional manufacturing industries, upon which the area had relied economically for a long time. The schools sector has had to bear an appreciable brunt of the wider economic difficulties. Many schools in her constituency, particularly in the primary sector, date back to the 19th century, and are not as well equipped as schools elsewhere to deliver the curriculum.

As my hon. Friend told the House, GCSE results—although excellent in some local schools—are, across the local education authority area, significantly lower than the overall average in England. In 1996, in five of the seven secondary schools in my hon. Friend's constituency, fewer than 30 per cent. of pupils attained five or more grades A to C, against an England average of 44.5 per cent. Let me say immediately, however—in agreement with my hon. Friend—that those schools should not be labelled failures. Far from it: they have been inspected, and have been found not to be failing.

I am happy to join my hon. Friend in paying tribute to the schools in her constituency, and to teachers, other staff, governors and all who have contributed—through immensely hard work and dedication—to what has been achieved. Standards, including GCSE results, have been improved, and the achievement is underlined by the tact that it has taken place in such difficult circumstances. My hon. Friend mentioned the high proportion of children receiving free school meals, for instance. We recognise the difficulties faced by schools, and want schools in difficult areas to be able to do better. We want to give them the best support that we can provide.

We are fully sensitive to Stoke-on-Trent's problems, but it must be said that in far too many parts of the country standards in schools are not good enough. That is why our White Paper "Excellence in schools" sets out the Government's agenda for raising standards in schools across the nation. It sets out our intention to ensure that all schools improve, through partnership with all those committed to raising standards. Our overall approach to policy will be underpinned by six principles. Education will be at the heart of government. Policies will be designed to benefit the many, not just the few. My hon. Friend expressed passionate concern that that should be so, and we share that concern. The focus will be on standards, not structures. Intervention will be in inverse proportion to success. There will be zero tolerance of under-performance, and the Government will work in partnership with all those who are committed to raising standards.

What does that mean for my hon. Friend's constituency? The initiatives in the White Paper will lead to improved standards in our primary schools, providing a firm foundation for further learning. That is vital to achievement in secondary schools. We want all children to be able to read and write fluently, handle numbers competently and concentrate on their work by the time they leave primary school. There will be high-quality education for all four-year-olds whose parents want it, and targets for the provision of places for three-year-olds. We will create a network of early excellence centres to spread good practice. There will be effective assessment of all children starting primary school. We will ensure that there are class sizes of 30 or fewer for five, six and seven-year-olds by 2002. We have set national literacy and numeracy targets and strategies for primary schools, and there will be a sharper focus on literacy and numeracy in the primary curriculum.

At secondary level, we will ensure that we develop the diverse talents of all pupils. Schools need to provide the most effective forms of teaching and learning, using new technologies where appropriate, and being encouraged to develop specialisms. We believe that secondary schools should normally set pupils according to ability. We will provide best-practice resources for schools to help them to establish the most effective ways of teaching and learning.

We will develop a national grid for learning, which will provide up-to-date teaching and resource material. There will be better-developed information and communications technology within a clear national strategy, including better initial teacher training and the training of existing teachers. We will create up to 25 education action zones, to be phased in over two or three years throughout the country in areas with under-performing schools and the highest levels of disadvantage. The zones will enable us to target education support and development where it is most needed, with additional flexibilities so that action can be taken to raise standards.

My hon. Friend has made it plain, on Monday and again today, that she wants an education action zone in Stoke-on-Trent. I hear what she says, but, as I know she will understand, I cannot at this point announce or predict the locations of the zones. The White Paper kicks off a wide consultation, which will include consultation on the way in which education action zones should work and the way in which they should be chosen. We shall develop our ideas, and, during the consultation, we shall expect schools and local education authorities to present their own ideas and proposals.

What I can say now is that the improvement that we all want to see in Stoke-on-Trent's schools will come about only through the new partnership that we aim to forge. Schools themselves are the key to raising standards. They will set their own targets, but they need help—not unnecessary interference, but practical help—from their partners in central and local government. The White Paper sets out what we in central Government will do; it also identities what we want LEAs to see as their rule.

Every LEA will draw up an education development plan showing the targets that it has agreed with its schools, and explaining how it proposes to support them so that the targets are achieved. The plans will be approved by my right hon. Friend the Secretary of State, and each LEA will have one in place by April 1999. LEAs will have an important role in advising and, when necessary, challenging schools when they are setting their targets. We have provided a clear job description for LEAs, but, in return, they will become fully accountable.

Although some of the schools in my hon. Friend's constituency remain in Staffordshire, most are with Stoke-on-Trent's LEA. I am well aware that that LEA has existed only since April this year. I noted my hon. Friend's praise for both LEAs, and I am happy to endorse what she said. I stress that I have no reason whatever to suspect that the new LEA is failing to do its best for the children of its area. I know that Stoke-on-Trent is desperately keen to use its new unitary status to meet its people's needs, and I assure my hon. Friend that the Government, through my Department, want to work closely with the authority. I shall ensure that at the earliest opportunity—in response to my hon. Friend's specific request—the territorial team from my Department revisits Stoke-on-Trent to discuss in detail the issues that my hon. Friend raised today.

Some of the most important issues involve resources. My hon. Friend particularly mentioned school buildings. We announced in the Budget that £1.3 billion would be available—£83 million in the current year, as my hon. Friend reminded us—for schools to start tackling the backlog of repairs. Guidance on how the money will be distributed will be issued to LEAs in the very near future.

My hon. Friend mentioned revenue funding. She powerfully expressed the view that Staffordshire, and now Stoke-on-Trent, deserved more than the standard spending assessment had provided in the past and provided now. She called the SSA a dreadful formula, and said, making her point strongly, that she considered it to bear unfairly on her local education authorities. I can say only that we appreciate the importance of the issue, the strength of my hon. Friend's feelings and her determination. As she knows, we are reviewing the current formula in consultation with local authority representatives, and we must hear what they have to say before we make final decisions about the 1998–99 SSAs in the autumn.

There is particular concern about how new unitary authorities with no experience will deal with the revised SSA formula that we want. Will my hon. Friend pay particular attention to that?

My hon. Friend is obviously right. It is, of course, necessary for us to do what she suggests. We must listen and we must be fair to all authorities, but my hon. Friend can be assured that the case that she has made, and the case that her local authorities make, will be considered carefully, constructively and sympathetically by those in the Government with responsibility for such matters. It is too soon to predict the effect that any changes would have on individual authorities, but the views of local government about possible changes to the formula are of key importance.

I hope that my hon. Friend feels that she made the right decision when she decided not to visit her school today, although she would have loved to be there and I know that the school would have loved to have her there. She has fought doughtily here for it and all schools. Like her, I want Stoke-on-Trent and Staffordshire children to be able to look to the stars.

It being Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.

New Writ

For the borough constituency of Uxbridge, in the room of Sir Julian Michael Shersby, deceased.— [Mr. Arbuthnot.]

Oral Answers To Questions

Northern Ireland

Sinn Fein-Ira (Relationship)

To ask the Secretary of State for Northern Ireland if she will make a statement on the current relationship between Sinn Fein and the IRA. [5890]

In my opinion, which is clearly the opinion of many others, they are inextricably linked.

Given that, on almost every occasion that the IRA is shown to be pursuing its undemocratic objectives by violence, Mr. Gerry Adams not only refuses to have any words with it, but frequently gives the impression that he has no control over it, is there any benefit to the peace process in continuing to behave as if they were genuinely linked?

The British Government have never been of the view that they are not linked, as I said earlier. It is important to continue to seek genuine peace and reconciliation in terms of the problems of Northern Ireland. This week, we all saw the great difficulties that occurred in the Province, and I believe that there is still a case for the aide-memoire and all that accompanied it to remain on the table. Sinn Fein knows exactly what to do if it wants to join the talks process. It must renounce violence and go back to the situation of an unequivocal restoration of the 1994 ceasefire.

Is the link recognised by the Irish Government? Taoiseach Bruton said that there was such a link, and that it was a myth to believe otherwise. Does the Minister think that the new Irish Government will adopt that position in line with us?

It is hardly for me to speak on behalf of the Government of the Republic of Ireland, but I have no doubt that the public statements by the Taoiseach—and, indeed, the previous Taoiseach—are very much in line with this Government's policies.

It is encouraging to hear the Minister express his awareness of the inextricable bond between Sinn Fein and the IRA, and his belief that they are the same organisation. Does he recognise that that organisation has a strategy, the core element of which is violence, and that it is unable to be persuaded, either through the good offices of the Secretary of State, the Prime Minister or anyone else, to make the transformation, to engage in the metamorphosis from violence to the democratic process? Will the Secretary of State ensure that the political process in Northern Ireland is given a chance, and is not hamstrung by constant consideration of the IRA's position within that process?

My right hon. Friend the Prime Minister and my right hon. Friend the Secretary of State for Northern Ireland both accept that the only way forward is to pursue peaceful democratic means—that is, to renounce violence. Sinn Fein knows exactly what it has to do. If it renounces violence, it can join the train that the Prime Minister spoke about when he went to Belfast. That is absolutely the case. It seems to me that the transformation that the hon. Gentleman refers to must come within Sinn Fein's own hearts and minds. When it realises that the only way forward is through democracy and peace, it can join that train.

If the Minister is convinced that the IRA and Sinn Fein are united, is he convinced that the IRA and Sinn Fein have infiltrated and orchestrated the residents groups, as was made clear by the deputation that I took yesterday to the Minister with responsibility for security, the Minister of State, Northern Ireland Office, who is sitting beside him? If that is so, does he agree that the Government should in no way give the IRA and Sinn Fein accreditation by negotiating with them, when Mr. Adams has made it clear that he is not for accommodation on this issue, that he organised the issue, worked hard on it for years and is now going to exploit it?

The hon. Gentleman is partly right, in that some of the awful events that we have witnessed in the past few days in Northern Ireland have been partly orchestrated. I do not think that that is the full story or that we should under-estimate the anger and frustration in the nationalist community. I think that everyone believes that the only way ahead lies in a proper accommodation between both sides of the community. That is why my right hon. Friend the Secretary of State has worked tirelessly for that accommodation in the past few weeks.

Is the Minister aware that the alleged peace process has brought about the most bitter and violent confrontation that I have experienced in 60 years, and that the twin objectives of the peace process—conflict resolution with the IRA and a stable, negotiated settlement—are impossible, because the inducements necessary for the first make the latter an impossibility?

It is our view that the talks should be inclusive. If we cannot make them inclusive, of course we shall have to consider other methods, but I do not agree with the hon. and learned Gentleman that the events of the past few days result from the talks process. They result from the inability of both sides of the community to come to an accommodation on those important matters.

Does the Minister agree that the orchestrated violence of the past few days has all the hallmarks of IRA-Sinn Fein? Is it not a premeditated attempt to deflect attention from the peace process and, more important, to hide the fact that they are not prepared to enter a ceasefire, which is what is wanted by the overwhelming number of people in Northern Ireland, including the great majority of nationalists?

As I said earlier, there is evidence that there has been some orchestration, but I think that all hon. Members realise that, if Sinn Fein does not renounce violence and restore the 1994 ceasefire, in September we shall go ahead with the talks process. I believe that the country will be with us on that.

Unemployment

To ask the Secretary of State for Northern Ireland what steps are being taken to combat long-term and youth unemployment in Northern Ireland. [5891]

The Government are pursuing policies to promote economic growth and job creation and we shall also offer people constructive alternatives to benefit. In particular, welfare to work will be used to combat long-term and youth unemployment. Under the new deal, 18 to 24-year-olds will be offered training and employment opportunities with employers, the voluntary sector and an environmental task force. People who have been unemployed for more than two years will be offered employment opportunities.

Can the Minister tell the House how he will ensure a fair balance of resources between the two communities?

A total of 13,500 young people will be eligible for the welfare-to-work programme, and we shall be able to offer 3,900 places for the long-term unemployed. Obviously, we shall ensure that those opportunities are offered on a fair and equal basis to all sections of the community.

Does the Minister accept that an important role in combating youth unemployment lies with Northern Ireland's training centres? I welcome the Government's decision temporarily to reverse the previous Government's decision on Dundonald training centre, but will the Minister ensure that the time allowed to assess that training centre is used to attempt to build it up rather than to run it down?

I am grateful for the hon. Gentleman's contribution to this matter and for his welcome for our decision to unite education and training, which we believe to be common sense. We shall pursue that. We need to bring together, in terms of their contribution to youth unemployment, the Training and Employment Agency and the Department of Education. As we try to build up the services for combating youth unemployment, there will be an important role for Northern Ireland politicians. We should welcome them putting their weight behind the welfare-to-work programme and the new deal.

Peace Process

To ask the Secretary of State for Northern Ireland if she will make a statement on the Northern Ireland peace process. [5892]

To ask the Secretary of State for Northern Ireland if she will make a statement on the Northern Ireland peace process. [5895]

To ask the Secretary of State for Northern Ireland if she will make a statement on the Northern Ireland peace process. [5896]

The Government are doing all they can in the talks to promote agreement on the issue of decommissioning illegal weapons before the end of July so that substantive talks can begin in September. With the Irish Government, we have tabled proposals on decommissioning that reflect the report of the international body. I am pleased to tell the House that, at yesterday's talks, a timetable was agreed for moving to a determination on this issue.

It will be possible for Sinn Fein to join the talks only if there is an unequivocal restoration of the ceasefire, shown in word and deed. The present situation in Northern Ireland illustrates why it is so important to move towards a political settlement with some degree of urgency.

I thank the Secretary of State for her reply. Will she join me in regretting the damage that has been done to the Northern Ireland peace process by the events of last weekend? Will she accept my support and, I am sure, the support of the majority in the House, for all her efforts in trying to seek amelioration and reconciliation on this issue? What action does my right hon. Friend intend to take now to prevent a repetition of the violence and disruption we saw at the weekend?

I thank my hon. Friend for her support.

Neither side will get the decision it wants unless we can reach some sort of accommodation between them. Only by accommodation and negotiation can we move forward peacefully, whether it be over the parade last weekend or the parades in the weekends ahead. In the end, a decision will be taken by the Chief Constable on the grounds of public safety.

As to where we can go in future, as I have said many times in the House, over the past two years we have campaigned for a change in the law so that the criteria which form the basis of a decision on public safety can be broadened. We have said that we shall bring forward legislation in October to achieve that. It is only by accommodation that we shall be able to change the present situation.

Does my right hon. Friend agree that the lack of a political settlement was at the heart of the tragic events of last weekend? Will she tell the House what she is doing to facilitate a political settlement?

I thank my hon. Friend for her question.

Like my hon. Friend, I condemn the violence outright. There are two ways to make progress. First, we need measures that begin to build accommodation and trust and ensure that both sides work together to deal with the conflicting rights that were illustrated at the weekend. The main way to achieve movement in the future is by multi-party talks and moves towards a political settlement. Without a political settlement, we shall not make progress towards peace for the whole of Northern Ireland, and the microcosms of that problem, as illustrated in Drumcree, will continue.

I am sure that the House will be delighted by the fact that my right hon. Friend is able to look beyond the marching season. Before the details are leaked to all and sundry, will she explain to the House the basis on which she is looking for the removal of illegal weapons from Northern Ireland? Is any progress being made with the parties involved? Clearly the House must look to that as the next step.

I thank my hon. Friend for giving me the opportunity to make a statement on that matter before any further leaking in my Department takes place.

Two weeks ago, this Government and the Irish Government delivered a joint statement to the talks process in Belfast. It outlined what we hope are constructive proposals, in which all the parties can engage, to deal with the issue of decommissioning. As I said earlier, during the talks yesterday, agreement was reached on a timetable to try to move the process forward by the end of July. That is what we want to happen.

The proposals contain details about verification committees and how decommissioning can be put in place alongside the Mitchell international report, which refers clearly to parallel decommissioning. We hope that the parties will engage constructively in that process, so that, in September, we can start the substantive political discussions.

Has the Secretary of State seen the press reports yesterday and the day before about a meeting in Conway Mill, at which the leader of the Sinn Fein group on Belfast City council—supported by Mr. Gerry Kelly, one of Sinn Fein's so-called negotiators with the Northern Ireland Office—discussed how there could be a more militant campaign against the Government?

Is the right hon. Lady aware of the threats made by the Irish National Liberation Army—a terrorist group that operates under the licence of the IRA—to shoot any of the marchers whom they do not like the look of this weekend? In the current situation, is it not necessary for the priority to be peace and, consequently, for the right hon. Lady to take measures over the next few days that will ensure peace in Belfast, rather than becoming fixated on a process which, with regard to Sinn Fein, is clearly bankrupt?

I thank the hon. Gentleman for his question.

As the Chief Constable said at the weekend, the major problem we faced then and will face in the days to come is that of extremist elements on both sides, which ensure that the genuine protests, anger and frustration of one community are so gee-ed up that they then become a difficult situation to cope with. I assure the hon. Gentleman that the Royal Ulster Constabulary and the other security forces in Northern Ireland are doing all they can to deal with that.

I say to the hon. Gentleman, as I say to all other constitutional politicians, that, unless we work together to get a negotiated settlement and to build trust and confidence between the two communities, whatever we say in the House will not bring peace to the streets of Northern Ireland.

Does the Secretary of State agree that, although it is true that those who organise and participate in the marches have a right to pursue their traditional routes, it is in the wider interests of all that they should not march in areas where their presence is likely to trigger violence and disruption? Does the right hon. Lady further agree that, in encouraging people to practise self-denial of that sort, it is important that all of us say that, in the matters of the status of Northern Ireland and its constitution, the views of the majority—who happen to be Unionists—are paramount, overriding and absolute?

On the right hon. and learned Gentleman's point about the overwhelming rights of the majority, both he and I understand that sometimes rights are conflicting. There is the right to march, which I defend, but there is the right to live free from fear and intimidation in one's own community, which I also defend. We are trying to deal with those conflicting rights in Northern Ireland.

Unless we can build some trust and confidence between the two sides—which is what the Churches, voluntary groups, business groups and many politicians have been trying to do—we can never deal with those conflicting rights. We have to face up to the needs and demands of both communities.

The decision at the weekend was taken after we failed to find accommodation. I readily admit that I—with many other people who tried—failed to find accommodation. It was then up to the Chief Constable to make a decision in line with public safety. That is what he did, and that is what he will do again at the weekend. We shall be faced with stand-offs until common sense and rationality prevail, and a degree of trust is built in the two communities.

Given the volatile situation that often develops in the marching season, does the Minister have any plans to revisit the North report to determine whether it contains any further recommendations that might be implemented to reduce that volatility?

I thank the hon. Gentleman for his question. The short answer is yes. We supported the North report and the need for subsequent legislation, although the previous Government did not have sufficient time to pass such legislation. We supported the requirement to announce parades 21 days in advance, and such announcements have helped. We also supported an alcohol ban.

In the autumn, we hope to revisit the report and, with the support of many hon. Members, to pass legislation providing broader and clearer criteria, so that people can make a more rational and whole decision. That is what such a revisitation will be about. It will help, but it will not be enough, because the people themselves will have to decide that they want the situation to change. We can accommodate, negotiate and change legislation, but we cannot force the people to live together unless they themselves decide to do so.

Is the Secretary of State aware that the unnecessary decision—whoever made it—to support an Orange march through the nationalist Garvaghy area and the considerable police brutality used in the early morning to remove the residents, was a death blow to the peace process and to peace generally? What efforts will she make to repair the damage done to the nationalist community's confidence in the impartiality of her administration?

In her decision-making process—regardless of who makes a decision—will the right hon. Lady ensure that decisions are not based, as they were last weekend, on the rights of evil people and on who can do the most evil? The Chief Constable said that he allowed the march to proceed to prevent a greater evil. Can we have some principle and some justice in the decision-making process?

I thank the hon. Gentleman for his question.

I readily acknowledge the nationalist community's fear, frustration and anger, which the hon. Gentleman and other people have outlined to me, and which I have seen for myself. I do not accept the premise behind his question that might is right. Right is right, and we shall stick with that principle throughout.

As I said to the hon. Member for Montgomeryshire (Mr. Öpik), we shall make decisions on legislation on the North report. Such legislation will be based on fairness and justice, which are the principles that have guided us throughout in our policy on Northern Ireland. I tell him, yes, we must all work to rebuild trust and confidence in Northern Ireland, and we shall do so in line with the principles that have always guided us—the principles of fairness and justice.

Is the Secretary of State aware that Conservative Members, from our experience over 18 years, realise that the decision that she and the Chief Constable had to make on Drumcree was an extremely difficult one, and that we believe that she made the right decision? Is she also aware that she will have the full support of Opposition Members in resuming—with or without Sinn Fein-IRA—political talks in September?

I welcome the hon. Gentleman's comments, and thank him for his support.

We must reach a position in which there are no right or wrong decisions. If we do not do so, there will continue to be anger on both sides. We have to move towards a situation in which both sides are winners or both sides are losers. Such a possibility was not open to us at the weekend. A resolution will depend on the constitutional parties doing all they can to help in reaching by July some agreement on the decommissioning issue. We must all then, in September, get on with the substantive talks. That is what will make the difference in Northern Ireland.

Is the Secretary of State aware that one abiding impression of the events at Drumcree last year and this year is that, when loyalist triumphalism requires it, British troops are always available to back it up, and that that indeed is the basis of loyalist loyalism, which is why they do not wish to sit down at any talks that might lead to a change in the status quo? While that remains so, is it not the case that the British presence in Northern Ireland is a part of the problem, and not necessarily a contribution to an answer?

I thank the right hon. Gentleman for his question—[Laughter] It is the nature of democracy that one takes questions from across the board—that is what the House is for.

Elements on both extremes do not want to sit down to talk. I agree with the right hon. Gentleman about that, but it is up to us in the constitutional parties to be sure that, in September, we have, sitting around the table and working towards a political settlement, representatives of the vast majority of the parties in Northern Ireland. That is what will make the difference.

Educational Standards

To ask the Secretary of State for Northern Ireland if she will make a statement on trends in educational standards in Northern Ireland in the past 10 years. [5893]

The percentage of pupils gaining 5 GCSEs at grades A to C in the past 10 years increased from 35 to 52 per cent. The percentage achieving two A-levels at grades A to E increased from 19.7 to 30.8 per cent. However, that will not he enough, and further improvements will be necessary to meet national targets.

I thank the hon. Gentleman for that answer. Is it not indicative of the fact that young people in Northern Ireland have demonstrated to their elders that they can get on and live together and improve what they are doing? Is it not about time that some hon. Members, inside and outside this place, took note of the excellence of what they have done?

I am not sure that I see the link between gaining A-levels and living peacefully together, but I certainly echo the sentiments that the hon. Gentleman expressed.

I remind my hon. Friend that, in the last Parliament, the Select Committee on Northern Ireland, in its report on under-achievement in the education system in Northern Ireland, voiced its serious concern about the prevalence of under-achievement in schools in areas badly marked by social disadvantage. What is he going to do in response to that fine report?

I agree that it was a fine report, and I congratulate my hon. Friend on his contribution to it. We are responding; a Command Paper will be published that will show my hon. Friend just how seriously we have taken the report.

The fact is that, although the achievements at the top of the Northern Ireland education system are fine, there is still a considerable tail to be dealt with. We are looking at all aspects of the report, including the raising school standards initiative and the targeting of social need, to see what improvements we can make.

Against the background of one third selection at secondary level in Northern Ireland, does the Minister agree that the improvement at the bottom of the spectrum has been faster in Northern Ireland in the past decade than in Great Britain? Does he see any moral for, or any read-across into, the affairs of Great Britain?

It is important, and a major challenge for the Government, to secure the full incorporation of vocational and academic qualifications to provide the right kind of curriculum and opportunities for everyone.

Sean Quinn Glass Factory

To ask the Secretary of State for Northern Ireland what decision she has made regarding Government support for the proposed Sean Quinn glass factory. [5894]

Under the previous Administration, the decision was taken to offer Government support for the proposed Sean Quinn glass factory. As my hon. Friend will know, this is a mobile project to manufacture glass containers in Northern Ireland. The project aims to create 330 new jobs in a socially disadvantaged area of County Fermanagh.

I am grateful to my hon. Friend, but I must inform him that that decision will be greeted with great dismay in my constituency, where the glass industry is a major employer. There is now over-capacity in the glass container industry, and the level of grant that has been given to the Sean Quinn project will allow that factory to undercut the present cost level in Great Britain. Will my hon. Friend look again at the project, which is bound to displace jobs throughout Great Britain?

My hon. Friend made a significant contribution as shadow Minister for economic affairs in Northern Ireland, and I thank him for that—he certainly made part of my job easier. On the specific points he raises, all those matters were taken into consideration by the previous Administration, and I have subsequently reviewed them. The best advice is that the matter is of a contractual nature, as a consequence of which it would be difficult to revisit the project as he requests.

Prime Minister

Ministerial Visit

Q1.

To ask the Prime Minister what plans he has to visit communities on mainland Cornwall or the Isles of Scilly in the St. Ives constituency. [5920]

I have no immediate plans to visit the hon. Gentleman's very beautiful constituency, but I hope to do so soon.

I thank the Prime Minister for his reply, and assure him of a warm welcome should he ever visit the good people of my constituency. If he does visit, may I recommend that he does not fall ill? In view of the cold comfort afforded on closer inspection of last week's Budget, will he intervene to protect the essential acute and cottage hospital services in Cornwall and ensure that we do not see cuts this winter, which we did not have even in the past 18 years of Conservative rule?

What I can say to the hon. Gentleman is that the Labour Government have put the huge cash injection of £1.2 billion into the national health service. That is about £500 million more than the Liberal Democrats were asking us for before the Budget.

Engagements

Q2.

To ask the Prime Minister if he will list his official engagements for Wednesday 9 July. [5921]

This morning, I signed the NATO-Ukraine charter; later today I will have meetings with Cabinet colleagues and with others.

Is my right hon. Friend aware that the additional £2.3 billion made available for education in the Budget statement is extremely welcome? Is he further aware that the fact that £1.3 billion of those additional resources is coming from the windfall tax and is earmarked to begin to address the Tory legacy of crumbling schools is even more welcome? The task now is to ensure that those resources are made available to schools. Will he ensure that that takes place as quickly as possible?

I certainly shall. It is the largest cash injection into schools that has been made by any Government ever, and it has been made in part—[Interruption.]—and it is a good deal better than anything afforded by the last Conservative Government. It has been made and it will be carried through—

rose—

Just a moment.

It will be carried through and dedicated to improving standards in schools.

Is the Prime Minister aware of the serious impact of the Budget on local government pension funds? What estimate has he made of that impact, and what plans does he have to compensate them for it?

The Budget measures on pensions were entirely right and necessary. They were right, first, because they remove an unjustified bias in the tax system, and secondly because they deal with the problems of public finances that were left by the previous Administration. As for the justifiability of that, I shall quote from an article in the Financial Times a few days ago:

"abolition of the tax credit is a reform whose time has come."

It was an article by the previous Chancellor's tax adviser.

Perhaps we can now have an answer to the question. Has the Prime Minister read the view of the Local Government Association—which is, after all, Labour-controlled—that such a measure would result in a loss of income to pension funds of some £300 million per annum in local government? Has he read the view of the hon. Member for Putney (Mr. Colman), a member of his party, that no such increase could be afforded by local authorities without making further cuts to services to their local residents? Which cuts does he have in mind—or is he prepared to compensate local authorities for the hundreds of millions of pounds that they will have to pay for this ill-thought-out tax increase?

I like the cheek of a Conservative party person telling us that we should pay more money to local government. As a matter of fact—[HON. MEMBERS: "Answer."] As the right hon. Gentleman—

Answer.

As the right hon. Gentleman must be aware, the revaluation for local authorities does not take place for another two years. The stock market has actually risen 11 per cent. since the general election. If he knew what he was talking about, he would realise that the increase in capital value is the best news there could be for pension funds.

The Prime Minister cannot patronise his way out of it. What he said was meaningless waffle. Anyone who knows anything about pension funds knows that a prudently run pension fund does not simply assume that increases in investment value in years to come will rescue it from its cash flow problems today. Is he aware that Staffordshire county council has said today that it will have to move £1.5 million from local services into its pension fund in the coming year? Is he prepared to see that happen, or will he compensate?

The right hon. Gentleman asked me about prudence. Let me tell him what prudence means. [HON. MEMBERS: "No!"] All this from the party that presided over the biggest pensions misselling scandal in this country. I will tell him what prudence means; it means two things. It means, first, that we deal—

Local government.

It means, first, that we deal with the appalling situation in our public finances inherited from the previous Government, which means that, because of the doubling of debt under the Government in which the right hon. Gentleman was a Minister, this year we shall pay out in interest payments almost as much as we spend on the health service.

Local government.

Prudence also means that we tackle—[Interruption.]

Order. Mr. Luff, keep calm.

Prudence also means that we must take the measures to combat inflation necessary for the long-term health of this country. No doubt the difference between us and the right hon. Member for Richmond, Yorks (Mr. Hague) is that we shall take those long-term measures; he will not.

That was just more waffle. The Prime Minister obviously does not know how local authorities will deal with this situation. Given that he said before the election that there were

"no plans to increase tax at all",

and that he has now introduced 17 tax rises in a single Budget, and given that he said that he would do his "best by British pensioners" and is now making pension funds bear the brunt of those tax increases, does he now regret saying in the election campaign:

"people want honest politics, and they are going to get it"?

They did, because we promised the windfall tax, and delivered it; we promised more money for health and schools, and delivered it. Let me tell the right hon. Gentleman that, after the record of the Government that he supported, no one will take any lessons on broken promises from him.

Does the Prime Minister agree that the terrible events of recent days in Northern Ireland are basically and fundamentally symptoms of the underlying and deeper disease—our failure as a people to agree on how to live together—and that the symptoms have been truly terrible? Will he therefore agree and make clear that it is a priority of this Government to do everything in their power to promote agreement, and therefore to promote stability, and lasting stability? Does he agree that the process leading to that could best take place in an atmosphere in which there was a total moratorium on all street activity and all marches?

Let me say this to my hon. Friend: the situation in Northern Ireland over the past few days has been appalling and tragic for all the people in Northern Ireland. My right hon. Friend the Secretary of State for Northern Ireland, to whom I pay tribute for her courage and determination, has been trying—as have we all—to do the best in good faith in a situation in which all the available options are difficult.

I would ask my hon. Friend and the other people involved in Northern Irish politics, recognising all the pressures that are on them, just as there are on us, to try as best they can to keep the wider process for a lasting political settlement going. It is a terrible situation, but I am not going to give up on Northern Ireland. I am going to carry on searching for a solution. I believe that, if there were good will on all sides, and a little give and take, understanding and reason, a solution could be found.

Q3.

Does the Prime Minister appreciate that the hundreds of thousands of people gathering in Hyde park tomorrow will do so because they feel misunderstood and threatened by what they perceive as an urban-based Labour party seeking to impose urban values on the countryside? Although it is always possible for any Government with a large majority eventually to drive through any legislation, there can be little merit in legislation which alienates so many people who live in the countryside. [5922]

The Labour party represents many rural constituencies—not least my own—as well as urban ones. The matter will be presented in the form of a private Member's Bill; there will be a free vote on it in the House of Commons, with Members on both sides free to make up their minds. Of course we value what happens in the countryside. Some of the allegations that have been made—that we intend to ban shooting, fishing and all the rest—are nonsense. The debate should at least he conducted with reason on both sides.

Q4.

Is my right hon. Friend aware of the warm welcome in the country, particularly in my constituency, for the extra £1 billion to be spent on the national health service? Will he give the House a commitment that the Government will continue to implement their manifesto promise to improve the NHS after the depredations of the Conservative party? [5923]

I certainly shall. [Interruption.] Conservative Members may shout about it, but for those who work in the health service, £1 billion more is well overdue.

Yes, but of course not this year. Will the Prime Minister confirm, in terms of the control totals, that last week's Budget means £5 billion less next year for public services?

No. That is not correct. The right hon. Gentleman keeps getting confused about the prediction on forward inflation, which we have revised as a result of the problems that we inherited—[HON. MEMBERS: "Ah!"]—and thank goodness we now have a Government dedicated to tackling those problems instead of avoiding them. The cash going in for schools and hospitals is precisely the money that we promised, and more than the right hon. Gentleman asked for.

I think it odd that the Prime Minister finds it difficult to agree with what his Red Book plainly says on page 102: the money will be diminished. The Institute for Fiscal Studies, like the Library of the House of Commons, calculates the reduction at £5 billion next year. Of course the Prime Minister is right to say that any extra money for education and health next year will be welcome, but it will be significantly reduced, beyond what the Chancellor said, by the effect of inflation. There is still £5 billion to come from elsewhere in the public services. Is that supportable, and where will it come from?

All that happened in the Budget is that the inflation prediction was revised upwards as a result of objective circumstances. The cash limits will remain. The additional money is going into health and education.

Opposition Members opposed the windfall tax on the privatised utilities, so there would have been no money for a school repairs programme if we had adopted the policies of the Opposition parties. The only way we shall sort out the problems in our public finances is to put the Budget deficit on a proper and secure footing. As a result of the changes that the Budget has made, within a few years we shall be cutting public debt, borrowing will be under control and we will be able to move into surplus. That is prudent finance.

Q5.

The Prime Minister will be aware that, of the 6 million or so personal pensions sold since 1988, at least 500,000 were missold, in that people who bought them would have been better off had they kept what they began with. The determination that the Government have shown in sorting out that mess is welcome, and I welcome what my hon. Friend the Economic Secretary said about that this morning.

However, what steps do the Government propose to renew the probity of the financial services industry so that scandals of that kind do not continue to erupt, as they were allowed to do under the previous Government? [5924]

My hon. Friend is absolutely right. Indeed, the Economic Secretary announced today that she has received back representations from 24 of the companies most involved in the scandal of pensions misselling. The result so far of what they are doing is disappointing, so we intend to put further pressure on them to deal with the problem. That is the real difficulty that many people face at the present time, and we are determined to deal with it.

As my hon. Friend rightly points out, it is not merely that nothing was done about this under the previous Government; but their proposal to take tax relief on pension contributions away from people coming into the schemes would have hit everyone investing in pension funds a great deal harder.

The Prime Minister and his party are currently all-powerful. The House and the country accept that. He will be aware of the industrial problems in British Airways. Given that the general secretary of the Transport and General Workers Union is a strong supporter of the Prime Minister and his party, and that Mr. Boh Ayling, the chief executive of British Airways, is a personal friend and supporter of the Prime Minister, will the Prime Minister now use his authority to bring that problem to an end and prevent the inconvenience that will be suffered by many people and their families over the weeks ahead?

I sympathise greatly with the distress caused to the travelling public as a result of the dispute. I hope that it is resolved as quickly as possible, but it must be resolved by management and trade unions. I seem to remember a great number of lectures from the Conservative party once upon a time about leaving those matters to be determined by management and unions.

Q6.

Will my right hon. Friend send a message of congratulations and best wishes to the people and state of India on the 50th anniversary of their independence? Will he confirm that the Government are committed to strengthening our relationship with the largest secular democracy in the world? Does he recognise that the Asians and the blacks are making a useful contribution to the development of a multicultural and multi-religious society in this country? [5925]

I entirely agree with my hon. Friend's remarks about the contribution made by the Asian and black communities to the society in which we live. We shall celebrate the 50th anniversary of India's independence both in India and Pakistan and back here in this country. I understand that you, Madam Speaker, will attend special celebrations in India. The granting of independence to India and the strong ties that grew up then between that Labour Government and India will be strengthened under this Labour Government.

Q7.

If the people of Denmark vote no in the referendum that their Government have allowed them on the treaty of Amsterdam, will that render the entire treaty null and void? [5926]

No. That is a matter for Denmark to decide. The idea that this country should have a referendum on the Amsterdam treaty is one of the most absurd propositions that has been advanced in recent times. What happens in Denmark is a matter for Denmark, and does not affect us.

Q8.

Comprehensive schools in my constituency of Harlow have been successfully streaming pupils by ability for decades, to the significant advantage of the pupils in those schools. In the light of that experience and the Government's White Paper on education, does my right hon. Friend agree that there is all the difference in the world between that kind of successful streaming by ability in the same school and selection at the age of 11, which condemns four out of five children to permanent failure? [5927]

I agree with my hon. Friend. The proposals made in the White Paper are right. We need to modernise the comprehensive principle to take account of pupils' different abilities, but within the comprehensive system. That is why we support initiatives such as those being taken in schools in my hon. Friend's constituency. We do not believe that the right way to go is to return the entire system to the old 11-plus. It is right that we modernise the comprehensive system. That and other proposals in the White Paper will make a great deal of difference to the education system.

Q9.

What support will the Government give to the proposed international English riviera film festival in April 1998? [5928]

I thank the hon. Gentleman for giving me advance notice of that question; otherwise, it would have been rather difficult for me to answer it.

I wish the festival well. I cannot promise Government money, but the hon. Gentleman will know of the tremendous help that my right hon. Friend the Chancellor of the Exchequer has given to the film industry in the Budget. The hon. Gentleman will also know that a working party has been established by my right hon. Friend the Secretary of State for National Heritage to examine ways to develop more. British films and to contribute to what is already a British success story but could he an even greater one. I wish the hon. Gentleman's festival well.

If the Drumcree fiasco was the least worst option, what on earth was the most worst option? In future, will the Government go for the best possible option, by treating both communities in Northern Ireland in an even-handed way?

We treat, and have treated, both communities in an even-handed way. It was an extremely difficult decision. The advice that was given by the head of the Army in Northern Ireland, Sir Rupert Smith, and by the head of the Royal Ulster Constabulary, was to the effect that the march should go ahead. If my right hon. Friend the Secretary of State for Northern Ireland had disagreed with that advice and overturned it, she would have been subject to even more criticism. Those are difficult—actually, impossible—decisions to make in a way that satisfies everybody.

People must keep their minds focused on what is important—the wider process leading to a lasting political settlement. It is appalling that intransigence on both sides obscures the fact that the vast majority of people in Northern Ireland want and deserve the chance of a lasting peace there. It could be done if people would understand that, if it is to be achieved, it requires their commitment all the way through.

Q10.

Does the Prime Minister realise that the extra £1.25 billion for education and schools next year will be almost entirely wiped out by the extra £1.2 billion real cut in local authority spending next year as a consequence of the increase in inflation in the Budget? Does he therefore accept that, next year, when it comes to giving more to education, local authorities will be confronted with the choice between making real cuts in social services, policing and other vital services? [5929]

To repeat the point I made earlier, the hon. Gentleman is not right to say that the change made in the Budget predictions has altered the facts of the situation. The money going into schools and hospitals is real money. The £1.3 billion dedicated to the schools repair programme is in addition to anything that the hon. Gentleman's party has proposed. If the Liberal Democrats called for a vote against the Budget, that would leave the situation as it is, and no extra money would go in.

Is my right hon. Friend aware that the British manufacturing sector believes that the recent Budget is the best in living memory for that sector? [HON. MEMBERS: "Oh."] Wait for it. But is he also aware of some of the disturbing trends this week, such as the downturn in engineering and other manufacturing industries that depend on exports? Will he keep a careful eye on the strength of the pound and its impact on employment and jobs?

My hon. Friend is absolutely right on both counts. The cuts in corporation tax and in tax treatment for small businesses—which is the best package for companies, particularly the small business sector—have been widely welcomed.

People will face difficulties as a result of the rising pound, but it is important to recognise that we will put economic management on a stable footing only if we take the decisions in relation to monetary policy and fiscal policy that allow for balanced growth. As a result of the situation that we inherited from the Conservatives, we must deal with problems on both those counts.

It is no use Conservative Members' shaking their heads: if we do not deal with those problems, we will be left with a structural deficit in our public finances and no proper control over monetary policy, which is bad for business. That is the difference between government and opposition.

Q11.

Will the Prime Minister tell the House which way he will vote on the hunting Bill, and why? [5930]

I have voted before in favour of a ban on fox hunting, and I shall continue to do so. I believe that a ban may be imposed without the massive destruction to the countryside that some people fear. We are all entitled to make up our minds according to the evidence. That is what I intend to do, and I suggest that other hon. Members do likewise.

Q12.

Does my right hon. Friend agree that the proposals that will be advanced by the European Commission next week represent a major shift towards the Labour Government's policy of massively changing the common agricultural policy? Does that not provide an opportunity to start shifting resources from subsidising production to environmental work in the countryside, and to move from intensive farming to extensification? [5931]

We welcome those proposals, if they have been described correctly. A change in the common agricultural policy is most important both for the future of Europe and for British contributions in Europe. If that is happening, it is a big change of heart on the part of the European Commission and other European partners, and it is very welcome.

As the Government need to speak with one voice, will the Prime Minister tell the House whether the Government have changed their position on the single currency? Has Lord Simon, who was fanatically against the single currency before he became a Minister—I am sorry: who was fanatically in favour of the single currency—changed his view since he became a Minister?

The hon. Gentleman seemed to have difficulty summarising my noble Friend's views. The Government will keep the option open and judge the situation according to Britain's national interests. That is the right way to do it.

Q13.

Does my right hon. Friend agree that the antics last week of the hereditary peers down the Corridor in trying to sabotage Labour's election pledge to hold referendums in Scotland and Wales—

Not on different days.

The poor chap is demented: what can one do?

Does my right hon. Friend agree that those antics make the ending of the House of Lords in its present form more certain than ever—which, for many, cannot happen too soon? [5932]

My hon. Friend is absolutely right: the measure was passed in another place only as a result of the votes of hereditary peers. It is also true that more hereditary peers—twice or three times as many—take the Conservative Whip in the House of Lords than there are Labour peers. If we are looking for constitutional wrongs, what could be more wrong than the Conservative party depending on hereditary peers to pass the measures that it cannot get through this place because it lost the election?

Q14.

Following the Budget's cynical smash-and-grab raid on private pensions, what provision have the Government made for people who will now wish to opt back into the state earnings-related pension scheme? [5933]

As I have already said, it is absolute nonsense to suggest that the measure will deprive people of their proper pensions—it will not. Which party first cut tax credits? The Conservatives. Our proposal is a great deal better than that advanced by the Conservatives before the election: to remove tax relief on people's pension contributions. That really would have hurt people's pensions.

Does the Prime Minister agree that the most fundamental implication of what the Chief Constable did and said, and of the Government's decision, at the weekend is that it signals in a most dangerous way that, in circumstances such as those at Drumcree, decisions are made not on the basis of natural justice, equity or any semblance of principle but on the threat of greater force—paramilitary force—and the threat of greater disruption? Is it not the role of Government to address and, if necessary, confront that threat of force and to prevent that disruption, rather than to trample on the legitimate rights of those against whom the threats have been made?

I well understand my hon. Friend's anger, but the difficulty with this situation is that there are legitimate rights on all sides and the problem is how those are balanced out in extremely difficult circumstances. We are trying to take all these decisions in the best possible interests of the people in Northern Ireland. We have tried to do that throughout. It is a very difficult situation.

Let us be quite clear: the first thing that we should all be doing is totally condemning the violence that has erupted in the past few days. It has no proper justification. I do not want to repeat what I said earlier, but, if we focus on a lasting political settlement and the possibility of achieving it, we will realise that this is a difficult set of circumstances and we are going to have to get through it the very best we can.

However, I know from the past couple of weeks that my right hon. Friend the Secretary of State for Northern Ireland has been trying, in total good faith all the way through, to do her best by the people there. It is very difficult, if not impossible, but she is right to try to carry on, and I will carry on searching for that settlement.

I urge my hon. Friend and all others, once they have got over their understandable anger and dismay at what is happening, to get back to the only thing that offers a future to the people of Northern Ireland—a lasting political settlement that allows the consent of people in Northern Ireland to be uppermost. If we do that, we have some chance.

Nato Summit

3.31 pm

With permission, Madam Speaker, I shall make a brief statement on the NATO summit that took place in Madrid on 8 July. I was accompanied by my right hon. Friends the Secretaries of State for Foreign and Commonwealth Affairs and for Defence. Copies of the declaration that we agreed, of our separate statement on Bosnia, and of the NATO-Ukraine charter, which we signed this morning, are being placed in the Library of the House.

The main outcome of the summit was an invitation to Poland, the Czech Republic and Hungary to begin accession talks with NATO, with the aim of joining the alliance by the 50th anniversary of the Washington treaty in April 1999. This is an historic decision and a step of huge importance, which I am confident will be widely welcomed in the House, and, indeed, across Europe and the alliance. We aim to negotiate a protocol of accession by the end of this year. This will need ratification by all NATO members as well as by the prospective new members. We shall, of course, ensure that there is a full debate in the House before British ratification.

Successful NATO enlargement has been a key objective of both the previous Government and this Government. If we can get this right, it will make a major contribution to security and stability in Europe by bringing in countries of central and eastern Europe to one of our key institutions. Our priority was a manageable and limited enlargement, involving credible candidates with reliable democratic credentials and a real ability to contribute to collective security. As I said in yesterday's discussions, NATO is a military alliance, not a political club, and its collective defence obligations have to be taken with the utmost seriousness.

We were, of course, conscious of the sensitivities of candidates which might not he asked to begin negotiations this time, and of others, such as Russia, which might fear the consequences of enlargement for them. We also wanted to ensure that the NATO door would remain open for future enlargements. We therefore strongly favoured an enlargement of three countries at this stage.

I should say a particular word about Romania and Slovenia, whose applications were especially closely considered even though there was no consensus to invite them on this occasion. Both countries have indeed made remarkable progress. Romania's new Government deserve particular congratulation on the steps taken since they took office last November. A number of allies would have liked to see Romania and Slovenia included among those invited at Madrid. All, including ourselves, saw them as strong candidates for any future enlargement, but we felt that Poland, the Czech Republic and Hungary were the limit for current enlargement. I warmly congratulate them.

There will of course be a financial price to be paid, mostly by the new members but also by existing members of the Alliance. We believe that this cost will be manageable. For example, there is no reason why Britain's contribution to NATO budgets, currently some £155 million per year, should rise significantly in real terms.

There were, of course, other disappointed applicants. We recognised, for example, the progress achieved towards greater stability by the states in the Baltic region. NATO leaders agreed that they expected in the years ahead to extend further invitations to nations willing to take on the responsibilities of membership, whose inclusion would serve the interests of the Alliance and enhance overall European security. We made clear our intention to intensify dialogue with aspiring members.

NATO's relationship with all its partner countries also took on a new dimension with the establishment of the Euro-Atlantic Partnership Council in May. Today's meeting with the Heads of partner countries has been taking place under the aegis of the partnership council.

Relations with two partners deserve particular mention. NATO leaders underlined the historic achievement represented by the Founding Act between NATO and Russia signed in May in Paris. Good future co-operation with Russia is vital for Europe's security.

In Madrid, we took a further important new step by signing with President Kuchma the NATO-Ukraine charter, which provides for intensified consultation between the Alliance and Ukraine. Ukraine's independence and sovereignty are vital to European stability, and the agreement with her is a further move to consolidate her key role in Europe.

We also looked at progress on the Alliance's internal adaptation, in particular the development of a new command structure. The aim is to reach final agreement by the time of the December ministerial meetings. Against this background, we warmly welcomed Spain's readiness to participate fully in the alliance once agreement on the new command structure has been reached. I should underline that, while we want to see Spain contributing fully to alliance security, we are determined to ensure that the interests of Gibraltar are fully safeguarded in this process.

We also discussed Bosnia, and expressed particular concern about the political crisis in the Republika Srpska. We called on those responsible to resolve their differences peacefully, and demanded that the police in Republika Srpska comply fully with all the provisions of the Dayton agreement. We also again urged the leaders of the region to deliver those indicted for war crimes for trial at the International Tribunal in The Hague. This issue must not and will not be put on one side.

Finally, we agreed on a further NATO summit in April 1999 to mark the 50th anniversary of the Washington treaty. That treaty has proved its enduring value in keeping the peace in Europe. But NATO has also shown its continuing relevance, and its ability to adapt to changed circumstances. NATO must continue to evolve and change as the security situation in Europe changes. The agreement on enlargement at the Madrid summit is a further important step in that process. It is an agreement which meets all of the objectives that we sought to secure. I commend it to the House.

May I thank the Prime Minister for his statement? On behalf of the Opposition, I welcome many aspects of the Madrid summit, particularly the historic decision to extend the NATO Alliance to the east. I am glad that the right hon. Gentleman acknowledges the outcome of the summit as very much in line with the policy of the previous Administration, and that continuity is most welcome, as are his assurances concerning Gibraltar.

Does the Prime Minister agree with me that the future stability of Europe may well depend on extending the prospects of membership to other central and eastern European nations over the coming years? What assurances did the right hon. Gentleman give to Romania and Slovenia in that respect? I agree with him that we must not undermine NATO's fundamental role as a hard-edged military alliance. Does the Prime Minister accept, however, that NATO enlargement and EU enlargement are complementary processes in many ways, and that in this respect the Madrid summit was more successful than the Amsterdam summit?

May I welcome the new NATO-Ukraine charter? Does the Prime Minister agree with me that President Kuchma's presence at the summit sent a signal to the people of the Ukraine that their nation has a positive role to play, in partnership with NATO, in spreading democracy and security throughout the world?

I agree with the Prime Minister that relations with Russia are central to the future of NATO, and that the new NATO-Russia Founding Act is an essential step in bringing Russia closer to the west. Will he assure the House that, although Russia has legitimate security interests, she will not have a right of veto over future NATO members?

Does the Prime Minister agree with me that Britain can be proud of the role that our forces have played and continue to play in Bosnia? He said that he had urged the leaders of the region to deliver those indicted for war crimes for trial, but how does he intend to take that forward in practice?

Does the Prime Minister agree that the NATO summit was an opportunity for him to reassure our allies that Britain will continue to play its full role in NATO? Did he explain to them his decision to hold a defence review? Will he confirm that some of our military commitments should be above the review, as they are essential to our defences and those of our NATO allies? Will he take this opportunity to say again that the Trident nuclear deterrent and the Eurofighter 2000 fall into that category?

What consultations has the Prime Minister had with his fellow Heads of Government? Has he reassured our German allies that the United Kingdom will not disband or withdraw the 1st Armoured Division from Germany? Did he reassure our Dutch partners that we will continue to have amphibious capabilities to co-operate with them? If those commitments are under review, are they not under threat? Is the Prime Minister aware that soundbites do not support NATO, but political action and military hardware do? Those are the two criteria that we will apply to measure the Government's commitment to our NATO allies, both old and new.

Finally, does the Prime Minister agree that the enlargement of NATO to take in former members of the Warsaw pact is an historic vindication of the resolve of those who, throughout the 1980s, rejected the simple-minded arguments for unilateral disarmament, and stood up for NATO and the western alliance in the years when that support counted the most?

I shall first deal with the politics at the end of the right hon. Gentleman's comments. The defence review has been welcomed by people in the armed forces, who think that it is entirely sensible. We have made it clear that it is foreign policy-led. As far as I am aware, the greatest cuts in defence made by any Government were made by his Government. With the greatest respect, we shall not take lessons from him on that. Our commitment to Trident and the Eurofighter has been made absolutely clear on many occasions.

I shall briefly deal with the points that the right hon. Gentleman made on the summit and on the NATO-Ukraine charter. We are in basic agreement. The assurances to Romania and Slovenia will be considered in good faith. We did not think it right to give a commitment that those countries will be taken in when the next round of enlargement occurs, but we have given a commitment that we will consider it in good faith.

We thought, as did the Americans and other countries, that it was right not to bring them in now, as the three countries that have joined—Poland, the Czech Republic and Hungary—have shown over a long period their commitment to the democratic process, and have got their armed forces almost up to the required state to be full members of NATO, whereas that is not yet the position with Romania and Slovenia. In the language we used, we deliberately "held the door open? to them and to other countries, and we shall continue to do so.

I agree that NATO and European Union enlargement go hand in hand. The charter with Ukraine is an important attempt to bind Ukraine even more into the European Community, but it still has a long way to go with its economic reforms. I expressed to President Kuchma the Government's full support for the action that he is taking, in the hope that he will continue that economic reform process.

Russia will not have a right of veto over new NATO members, although we must handle that issue sensitively. I concur with what the right hon. Gentleman said about the role of our armed forces in Bosnia. We keep all measures relating to the prosecution of war criminals under close scrutiny the whole time. I am immensely glad to report to the House that the British armed forces in Bosnia received the greatest of praise from all countries at the summit. They are generally reckoned to have done a superb job, often in very difficult circumstances, that have taken them far beyond the normal duties of soldiery.

I welcome the Prime Minister's statement, which showed that sensible and admirable progress had been made in Madrid. Even if some of it had as much to do with American domestic politics as with international necessity, it is no less welcome for that.

I have two questions, one relating specifically to Bosnia and one more general. First, does the Prime Minister agree that, while it may not be necessary to hunt down every petty war criminal in Bosnia immediately, it is urgently necessary for stability, and for withdrawal from the climate of increasing confrontation in Bosnia, to hunt out soon—or obtain soon—the more senior war criminals? Does the right hon. Gentleman agree that the sooner that is done, the better?

My second question relates to the general progress in Madrid. That progress was sensible, but short-term. We still lack a strategy. Let me give the Prime Minister an example. The armed forces of Romania, which has been excluded from NATO, are by general consent both more efficient and more under civilian control than those of, say, Poland and the Czech Republic. Are we now going to draw up general criteria that will be applied in the consideration of future entrants?

Does the Prime Minister accept that there is a necessary but growing divergence between the long-term strategic aims of the Americans in NATO and the Europeans in NATO? The Americans see NATO as a global institution, perhaps with implications for their policy on the middle east, while we see it as an institution concerned with security in Europe.

As an ad hoc set of decisions, the decisions that were made were sensible; but they do not yet comprise a strategy, and we need a strategy urgently.

I agree that it is important for us to take action on war criminals, and, as I have said, we keep that under constant review. There are many other things that we need to do in order to give more impetus to the process in Bosnia, which has been in danger of drifting for some time. That issue formed a large part of the more informal discussions at the Madrid summit. We hope that the proposals that now exist, and the implementation of the Dayton agreement, can be given greater force, and we are considering how we can achieve that.

As for Romania, and the question of which countries come into NATO, a range of criteria must be established before a judgment can be properly assessed; but I think that those criteria are basically fairly obvious. Of course they are to do with the state of the country concerned—with the development of democracy there, and the state of the country's armed forces; but—this is the burden of what I had to say when I addressed the summit—we must realise that NATO is a military alliance.

There was a danger that people were saying, "Let us broaden the alliance to show good faith, and introduce more and more countries." What membership of NATO means is that we guarantee that we will send our troops to a country and that, if necessary, they will die to defend that country. The country involved guarantees, vice versa, that its troops will come and die for our country. That is a profound and solemn obligation, which I believe should be undertaken only when we are absolutely clear that certain countries are ready to undertake it.

Judgments change. Two years ago, people might have said that Slovakia rather than Slovenia was the country that would come into NATO, but they probably would not say that now. The matter must be kept under review.

The right hon. Gentleman mentioned relations between the Europeans and the Americans. I think that there is a clear strategy for NATO, in that collective security is still tremendously important to us. Of course its nature has changed somewhat as a result of the welcome changes that have taken place in eastern Europe, but I believe that one of the purposes of NATO is to bind the Americans and Europe more closely together.

I took the opportunity of saying in Madrid—as, indeed, I did at the Amsterdam summit, when we discussed the idea of a common defence policy in Europe—that nothing must ever be done that would undermine that transatlantic alliance, because it is the foundation of NATO, and is entirely right in terms of defence principles.

We were talking about Romania a moment ago. In Romania, we have our biggest bilateral defence programme in central Europe. It is far bigger than those in many other countries that urged us to take Romania into NATO.

When President Kuchma came to the Jubilee Room last year. I asked him in his capacity as the former technical director at Baikonour whether there should be more co-operation on the tremendous science that existed in Soviet times. He gave the positive answer that, for financial and technical reasons, a great deal could be done between Ukraine and, for that matter, Kazakstan and the west for mutually beneficial purposes. Was anything said about that technical co-operation or about the unstable sarcophagus problem at Chernobyl?

I had a bilateral meeting with President Kuchma, and both those issues were raised. On the first, we assured him of our intention to carry on and to deepen technical exchange. Of course, we make quite a contribution through the know-how funds to what is happening in Ukraine.

My hon. Friend asked about the sarcophagus, the covering on the Chernobyl reactors. President Kuchma raised that with us, and we are currently looking to see how the European bank for reconstruction and development can assist in the process of finding an alternative to what is there at present—the Chernobyl reactors. It is important for this issue to be dealt with because if we are to make sure that Chernobyl is closed down by 2000, there is much work to be done. We agreed that we would carry on exchanging information on these subjects.

I assure the Prime Minister that, on the central theme of the enlargement of NATO, I think that he will have wise and general support. I emphasise the importance of what he said about showing sensitivity to Russia in this development. There is too ready an acceptance that it must be the obvious step. It is the right step, but it needs to be carefully managed.

Can the right hon. Gentleman say anything about the costs of infrastructure improvements that may be involved in this enlargement? Is it not the case that they could result in substantial injections of foreign currency into some of the countries concerned? Is he aware that, in an existing NATO country, we cancelled a major infrastructure improvement because of evidence that criminal organisations were likely to receive a substantial share of the proceeds? I encourage him to take a close interest in how such investments will be managed in the countries that receive them.

I thank the right hon. Gentleman for his broad support. I agree that we have to be very sensitive to Russia's concerns, which is why last month we signed the agreement with Russia about our future relations. It is not possible to give a detailed breakdown of the costs, although I am advised that some of the estimates that I have seen recently are highly exaggerated.

The right hon. Gentleman's points about foreign currencies and the difficulties that were encountered over infrastructure projects are well taken. For precisely that reason, we have to be clear, during the negotiations about accession, that proper arrangements are made. Of course, that is another reason for us to be clear about those countries being ready for full membership of NATO.

My right hon. Friend agreed with the Leader of the Opposition that the expansion of NATO and that of the European Union would go together. Does he agree that the Western European Union should be involved in that equation? If so, will an invitation be extended to the three applicant countries to join the Western European Union? If that happens, what will be the consequences for the developing common defence policy of the European Union?

My hon. Friend is right: the WEU has an important role to play. That was precisely why we safeguarded its position in the Amsterdam treaty. Words were inserted at our behest to make it quite clear that part of the common defence policy that we certainly perceive in relation to Europe is through the WEU. Obviously, invitations to other countries are kept under review all the time.

My hon. Friend's point is well taken, and it is another reason for our belief that NATO and the WEU are the foundation stones of our common defence policy. Although we want to co-operate with European Union countries and want such co-operation to be practical, we should not rush into a common European defence policy while we are still trying to sort out basic arrangements in the alliances we already have.

I applaud the Prime Minister's determination to ensure that it is well understood that NATO is a military, not a political, organisation. In his deliberations, was he able to come to any firm conclusion with our partners on the question of Commander-in-Chief South, and the position of the French Government? Does the Prime Minister agree that, as there are countries that have been left out—for reasons with which I entirely concur; again, I applaud what he said about them—it is important that the partnership for peace process is strengthened and deepened, so that it does not become a meaningless waiting room for those countries that want to join, but are not able to do so?

On the first point, perhaps the hon. Gentleman will allow me to be diplomatic and to say that discussions are continuing in relation to Commander-in-Chief South, but the hon. Gentleman's point about the partnership for peace process is absolutely right. I should have said that that was one of the things that was raised at the summit.

It is important that these countries understand that the way is open. A number of different factors have to be balanced there, but one reason why I was hesitant about an enlargement by live, apart from the fact that I did not think that the case was sufficiently justified on other grounds, was that it was important that we did not give the impression that, having taken in five, that was the end—that one group was in and no one else came in.

This process will have to be handled with huge care and sensitivity, not least because of the problems to do with Russia over the next period, but the partnership for peace has worked out far better than people thought as an initiative, and we gave it full support and agreed to intensify it.

As the Prime Minister knows, we have not had the open and vigorous debate on this important issue that people have had in the United States, which is regrettable. If we were being sensitive to Russia, we would not have embarked on this enlargement in the first place. Does he think it responsible for NATO to encourage countries such as Poland, which are struggling with their economies, to double their defence budget at the cost of health, education and the infrastructure—all those things that are needed in an emerging economy?

How much is enlargement going to cost this country? The rumours in the United States are that it will cost us more than the United States. Lastly, will he tell us precisely what the process of ratification will be in the House of Commons? As he knows, in the United States, it is a long-drawn-out process. Can he give us some indication of the time scale for ratification in the House?

First, the process of enlargement is important. There can no doubt be legitimate disagreement about it, but I believe that it is extremely important for countries that have emerged from under the shadow of the old Soviet Union and that feel that accession is an important part of their progress towards modernisation and democracy, to be part of the NATO alliance.

Having talked to the President of Poland during the summit, I believe that Poland did not need much encouragement. It views accession as an essential part of what it wants to achieve. Indeed, the problem for NATO is not that it is having to drag unwilling countries into the NATO alliance. On the contrary, as we have discussed, the problem is that it is having to say no to many countries that want us to say yes at present.

The ratification process will, of course, be a matter for discussion, but it will be fully debated in the House of Commons. There are people in the United States who wholly oppose the enlargement process, but many of them want the United States to have an isolationist policy, which I would not like us to agree with at all. The maintenance of a strong link between the United States and Europe is an essential part of our future defence requirements and of our security. It is to the credit of President Clinton that he has been prepared to take those people on.

I, too, applaud the Prime Minister's statement. I can confirm that the reaction of the countries to which he referred is correct, as I was able to judge for myself at a meeting in Warsaw over the weekend of the Organisation for Security and Co-operation in Europe.

Nevertheless, I hope that the Prime Minister will take into account the fact that, as NATO is a military alliance, there is also concern, among those who have welcomed expansion so far, that it could lead to tremendous diplomatic and political problems with not only Russia but those nations which might find themselves disappointed. I strongly emphasise the comments of my hon. Friend the Member for Mid-Sussex (Mr. Soames), who said how important it is to establish the criteria in a way that will ensure that, if those countries are not included in the expansion of NATO, there will be an expansion of the usefulness—in their eyes—of the partnership for peace and proper, and positive use of the Foundation Act which established the co-operation of discussions with Russia.

I totally agree with the right hon. Gentleman. That is precisely our intention. It is important that all these decisions are taken free from politics between the main powers. They must be taken on an objective basis that can gain some credibility. That is what we have tried to do in the arrangements that we set out. I agree entirely with the right hon. Gentleman.

Does the Prime Minister agree that this exercise will almost certainly cost the Labour Government billions of pounds over five years? Now that those three Warsaw pact countries—the Czech Republic. Hungary and Poland—want to join, and another half a dozen Warsaw pact countries want to jump on the bandwagon, who is the enemy? It cannot be all those countries in the middle east, because successive Tory Governments have rearmed them over the years, and it cannot be China because Governments have handed over Hong Kong to that country. Who is the enemy? Why should we be spending all this money for this organisation, when we could use it on the hospitals, schools and many other projects that we need in Britain?

I am sorry to say that I cannot agree with my hon. Friend. We have no reason to think that we are talking about billions of pounds of public spending. I said earlier that I see no reason now—I will make it clear if things change—why there should be a real-terms increase in NATO expenditure at all. Much of the spending that takes place will be in those countries that want to gear themselves up for membership of NATO.

The purpose of NATO remains collective security. Yes, it is less easy today to say where a threat may come from, but we need the capability to defend ourselves properly. Collective security has been the basis of our defence for decade upon decade, and it has served us pretty well. The vast majority of countries which remain in NATO—probably all those countries—do so because they see genuine benefit in it. They would not remain in membership if they did not.

I support strongly the calls today for an enhanced role for partnership for peace. Can the Prime Minister be a little more specific about the timetable? Is he saying that the three new members of NATO will be fully fledged members by 1999, able to fulfil their obligations under article 5 of the Washington treaty? Can he be more specific about costings? He said that the cost to the United Kingdom of those three new members will not be significant. Whatever the cost, significant or not, will it fall on the defence budget or the Foreign Office budget?

We welcome what the Prime Minister said about Spain and Gibraltar, but am I to understand that the United Kingdom has vetoed Spain's membership of the integrated military structure, and will continue to do so until it allows its airspace to be used not only for NATO allies engaged in NATO exercises but for civil airlines using that airspace for access to Gibraltar?

On the timetable, the aim is that, by the 50th anniversary meeting in April 1999, the membership of those countries will be through. Of course, the process of accession has to be negotiated with them in detail over that period, and that is what will happen. The aim is certainly to have them all in by April 1999, and that is the agreement we reached.

The position on Spain and Gibraltar is that the Foreign Ministers have to come back in December with the details of how the command structure will be changed as a result of the internal adaptation process of NATO. We have made it clear to the Spanish Government, tactfully but firmly, that a necessary part of ensuring that any new command structure that involves Spain is in place is that we should resolve the questions over the airspace. We will continue to do that, and I hope that we will be able to resolve the issue.

The reason that we are taking that attitude is not machismo. If Spain is fully to integrate into the military command structure—we would welcome and strongly support that—it will mean consequential changes in the way that that airspace is used. We have to ensure that it is right.

What did the Spanish Foreign Minister mean yesterday when he spoke of Spain's "legitimate demands" of sovereignty over Gibraltar? What sort of topsy-turvy language is that? Is not an important principle involved—the right to self-determination of the people of Gibraltar? We might compare Gibraltar with the sad situation in Northern Ireland, but Northern Ireland is a divided community and Gibraltar is not. Now that Spain is a democracy, and has been for a number of years, should it not respect the wishes of almost all the people who live in Gibraltar? Surely that is not asking too much.

Fortunately, I do not have to answer for the Spanish Foreign Minister. It is important to understand that British Government policy on Gibraltar is not going to change, and that the wishes of the vast majority of people in Gibraltar are very clear.

I support the policy of the gradual enlargement of NATO, and particularly the invitation to the three Visegrad countries. Will the right hon. Gentleman clarify policy on the Baltic states? He knows that a number of people wish to close the door permanently on any admission to NATO of the Baltic states—or at least some of them—because of the ethnic Russians in at least two of them.

Does the right hon. Gentleman agree that we should maintain the policy of admission, especially as Estonia, and probably others, will in time become members of the European Union? Meantime, as my hon. Friend the Member for Mid-Sussex (Mr. Soames) said, should we not concentrate on ensuring that the three Baltic states participate fully in the partnership for peace programmes?

I agree with the right hon. and learned Gentleman—that is one reason why we were so insistent that the right language about the Baltic states went into the agreement and communiqué. It was made clear that there were aspiring members among the Baltic states, and that the door remained open to them on the same basis as for others. That is important. The fact that we took such a strong view was hugely welcomed by representative of all the Baltic states who attended the dinner last night. I am sure that we have generated a great deal of good will among them.

I am sure that NATO is right to defer consideration of the application from Slovenia. However, does my right hon. Friend agree that stability in the former Yugoslavia is in the vital interest of NATO and the European Union? Does he further agree that it will be difficult to have stability in the former Yugoslavia as long as Ratko Mladic and Radovan Karadzic are strutting their stuff in the Bosnian Republika Srpska? Can my right hon. Friend envisage circumstances in which NATO forces in SFOR in Bosnia may be required to help to apprehend those indicted war criminals?

All that I can say to my hon. Friend is that we remain dedicated to bringing war criminals to justice, and we keep under review the best means of achieving that. However, that should not be taken as politic-speak for saying that the issue is being pushed into the long grass—it is not. It remains under active consideration.

May I add my words of appreciation to those of right hon. and hon. Members on both sides of the House for the Prime Minister's statement, and in particular for the charter between NATO and Ukraine and the Government's unequivocal statement of support for Ukraine? It is a favourable development, because Ukraine is the foundation stone of eastern European security.

To continue the metaphor, are not the Baltic states the cornerstone of eastern European security? Therefore, could not a similar charter between NATO and the Baltic states be drafted, signed and ultimately ratified? Notwithstanding the favourable statements made, the Baltic states feel exposed, yet they have impeccable democratic credentials, and take part, alongside NATO, Russian and Ukrainian troops, in peacekeeping in Bosnia.

The hon. Gentleman is absolutely right. The Baltic states undertake that peacekeeping role, which is one reason why we wanted to include language supportive of them in the communiqué. Obviously, we always keep under consideration the best way of improving relationships with them in defence terms. On NATO and Ukraine, it is important to understand Ukraine's absolutely pivotal role in the security of eastern Europe. The move was very good and essential for the future, not only because it assists Ukraine but because it puts in place another block of the collective security of all our countries.

Does the Prime Minister accept that opposition in the United States to NATO expansion comes largely from the peace movement and from those who are concerned about burgeoning US military expenditure? Like many people in central Europe, they are very concerned that countries with huge gaps between rich and poor will be expected to find millions of pounds that are desperately needed for houses, hospitals and schools in order to buy new weaponry from the United States and western Europe.

Would not the situation be rather better if we were attempting to achieve de-escalation in military expenditure across Europe rather than NATO expansion right up the borders with Russia—which may well fuel another arms race between NATO and Russia?

Opposition will, of course, come from many quarters, but it is misplaced. Countries in central and eastern Europe want to be NATO members, not because they wish to engage in some new arms race—they themselves are tremendously sensitive to their own relations with Russia—but because they regard NATO membership and the collective security that that offers as the best platforms for stability for their countries, and as the best encouragement to the democratic process.

Those countries also detect a very strong connection between economic reform and NATO membership—not because of specific expenditure but because, for them, it is important to be part of the collective security that NATO represents. Being part of that collective security assists the process of economic reform in those countries, because it gives them security and confidence.

Does the Prime Minister accept, when he says that NATO and the EU go hand in hand, that there is a potential inherent contradiction between the concept of control and command, which is part and parcel of article 5 of the NATO treaty, and the concept of progressive movement towards a common defence policy in the Western European Union? How will he reconcile that contradiction in his thinking, as he has just outlined?

We had it written into the Amsterdam treaty that we believe that our common defence is in NATO precisely because we wanted no one to be in any doubt that—in whatever arrangements for common defence we have in Europe—NATO remains for us, as for other countries, the foundation stone of our defence. NATO is a body that we have joined that, for reasons of the better satisfaction of our national interests, requires a pooling of sovereignty. The situation is similar with the European Union. They are, of course, different bodies, but the principle is the same—that, in certain respects, we are better off binding with other people than remaining outside and on our own.

I congratulate the Prime Minister and the Foreign Secretary on the success of the Madrid summit. Hon. Members on both sides of the House believe that Spain should be integrated into the NATO machinery. As part of that process, however—to take the Prime Minister back to a question asked earlier—restrictions over Spanish airspace should be lifted. That applies not only to military but to civil over-flying. It is an important issue. I am sure that the Prime Minister will receive congratulations from all hon. Members if he can resolve it—which I hope he will commit himself to doing before September.

I understand the point that my hon. Friend makes, and, of course, those matters will be part of the discussions that we shall have over the next few months.

I should like to ask the Prime Minister about the lack of differentiation between Slovenia and Romania. He spoke about the qualifications of credible candidates, which included being a reliable democracy and making a contribution to collective security. We have accepted the membership of Hungary, which does not have a contiguous border with any NATO country.

If NATO is to be a successful military alliance, surely the capacity to reinforce its members is of great importance, and Slovenia has a central contribution to make. Given that it fulfils the democratic functions—I accept that the armed forces of Slovenia are frankly neither here nor there in terms of the overall balance of NATO—why was there no differentiation? Was it because of the need for the United Kingdom to cosy up to the United States in the discussion about the arrangements?

That is a slightly strange sentiment coming from that corner, but we shall let that pass. In relation to the first part of what he said, the hon. Gentleman has a fair point in one sense, but it was felt by everyone concerned that Romania and Slovenia had to be dealt with together, and I think that that is the right way to have proceeded. It is nothing to do with cosying up to the United States or anything else; it was part of our joint position because we jointly believe in it.

Bill Presented

Social Security

Secretary Harriet Harman, supported by Mr. Chancellor of the Exchequer, Mr. Secretary Blunkett, Mr. Secretary Dewar, Mr. Secretary Dobson, Secretary Marjorie Mowlam, Mr. Secretary Davies, Dr. David Clark, Mr. Frank Field, Mr. Geoffrey Hoon, Mr. Keith Bradley and Mr. John Denham, presented a Bill to make provision as to the making of decisions and the determination of appeals under enactments relating to social security, child support, vaccine damage payments and war pensions; to make further provision with respect to social security; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed [BILL 42].

Disability Discrimination (Provision Of Voting Facilities)

4.16 pm

I beg to move,

That leave be given to bring in a Bill to amend the Disability Discrimination Act 1995 to make it unlawful for a provider of voting facilities to discriminate against disabled people.

There are many reasons that I wish to introduce the Bill, but there are three main ones. The first is the "Polls Apart 1992" survey carried out by Scope, which spelled out some of the difficulties that disabled people face in getting access to polling stations. It showed that only 12 per cent. of polling stations were fully accessible, while 88 per cent. had significant barriers that would have prevented a disabled person from voting there.

Only one out of every eight polling stations are accessible to all disabled people. A quarter had two or more steps, 13 per cent. had temporary ramps, and only one in three that needed permanent ramps had them. The survey found problems with doorways and lighting, a lack of privacy, polling booths and ballot boxes that were inappropriate or located where people with a disability could not use them, and slippery floors. I could go on and on.

That survey on its own would have been enough to justify the Bill but, on top of that, Scope has produced "Polls Apart 1997", which is my second reason for introducing the Bill. That report will not be released until next week, so, although I have seen a copy, I shall not reveal the details. However, without giving away any great secrets, I can say that the report shows that things have not got any better. It was a bigger survey, and, in some respects and in some areas, things seem to be worse. There are, however, a few positives.

Some councils have made enormous strides, sometimes at very little cost and, I have to say, with very little help from the Home Office. They have made amazing improvements simply by changing their attitude. Unfortunately, those councils are the exceptions that prove the rule. The third reason for introducing the Bill is my personal experience; what I have seen in my locality has appalled me.

During the election, I went to a polling station on my own patch. I found a well-signed entry for the polling station, went through the gateway, and found a path that was 100 to 150 metres long, with, roughly every six feet, a step going down. There was a hand rail for people with a disability. I helped an elderly lady with bandages on her leg all the way down that path to get to the polling station, only to find, when I reached the bottom, that there was side access to a road. The woman could have had her taxi bring her directly to the door of the polling station, but a simple matter of bad signing had prevented it.

All that was despite the fact that I had written to the chief executive before the elections asking him to ensure that staff were trained in matters of access and to take account of the needs of disabled people. In response, I got a self-congratulatory letter saying:

"We think that over 50 per cent. of our polling stations are accessible to disabled people."

That is the authority's assessment, not mine, and I suspect that, if Scope had surveyed it, far less than 50 per cent. of stations would have been found to be accessible. The chief executive informed me that there was no problem because some of his inspecting officers had portable ramps that they carried around with them on election day. I wondered how they knew when a disabled person would turn up, and at what polling station, so that they could nip across in their cars with the portable ramp. To be quite honest, it was nonsense.

I was even more surprised to find that the authority had no knowledge of the fact that there were grants available for elections—50 per cent. grants for temporary ramps and 80 per cent. for the new, more accessible polling booths. Despite the fact that, since 1993, the Home Office has paid out £179,000 in such grants, my authority was unaware of them. I had told the chief executive that I was sure that there were grants, but he said that there were not. As recently as June, he said:

"Firstly, I have checked with the Home Office about the availability of grants for access to polling stations and, as I thought, no such grants are available."

indicated dissent.

I am getting a shake of the head from the Minister—I hope that I have not got it wrong.

No, you are right.

I am right—okay.

To give credit to the chief executive of Nottingham city, he is now suggesting that £150,000 be put into the capital programme at the beginning of 1998 to try to deal with some of those problems, so things are moving.

The Representation of the People Act requires local authorities to make polling stations accessible to disabled people, but, in my view, local authorities are clearly not doing so. One of the problems is that elections are the one area in which council officers do not take any directions from elected councillors—they can do what they like, and it does not matter what anyone else says.

To be quite honest, it shows, because some returning officers turn into little Hitlers—any advice one gives them is considered political, and they are determined to run it their way. That is a more general point about elections. Many election officers are helpful and do their best, but many councils do not issue clear guidelines about how they should deal with disabled people. It seems that it is left to the officers' common sense. Well, let me tell the House that some people's common sense is my nonsense.

I find that many of the people dealing with the public during elections, in effect, tell disabled people off. They say to them, "It's really your fault—why didn't you put in for a postal vote? It's not my responsibility—you should have put in for a postal vote." My response is that postal votes are not an excuse for authorities to do nothing.

Why should disabled people be denied the right to go to a polling station and vote when they want to? Why do they have to vote ahead of the rest of us? In the 1992 elections, it is reckoned that 3 per cent. of the population switched from Labour to Conservative. That was not very helpful to my party, but people had the right to do that —they had information right up to polling day, and could wait until the day itself to make their minds up. Why should people with a disability not have that same benefit?

The whole postal vote system causes confusion to many people who have a disability. In 1990, the Government spent £750,000—three quarters of a million pounds—publicising the right of people living abroad to take part in British elections. As a result, 34,500 people registered: that worked out at £22 per person. The Government spent £14,500 to publicise the rights of the 7 million disabled people and the elderly to postal votes in elections; that worked out at 2p per person. No wonder people with disabilities believe that they are being treated as second-class—sometimes third-class—citizens.

In the past few years, enormous strides have been made in recognising the needs of disabled people and the fact that they deserve civil rights. I believe that the Civil Rights (Disabled Persons) Bill, the private Member's Bill introduced by my hon. Friends the Members for North-East Derbyshire (Mr. Barnes) and for Kingswood (Mr. Berry), was the catalyst for the Disability Discrimination Act 1995.

The Bill that I propose is not significant; it is very modest. I am not asking for civil rights for disabled people in total; all I am saying is that I want to give them the basic democratic right that the majority of us enjoy—the right to vote.

Question put and agreed to.

Bill ordered to be brought in by Mr. John Heppell, Mr. Harry Barnes, Mr. Roger Berry, Mr. Vernon Coaker, Mr. Mike Hall, Mr. Neil Gerrard, Mr. Elfyn Llwyd, Mr. John Hayes, Mr. John Healey, Mr. Tom Levitt, Kali Mountford.

Disability Discrimination (Provision Of Voting Facilities)

Mr. John Heppell accordingly presented a Bill to amend the Disability Discrimination Act 1995 to make it unlawful for a provider of voting facilities to discriminate against disabled people: And the same was read the First time; and ordered to be read a Second time upon Friday 12 December, and to be printed [Bill 43].

Opposition Day

[2ND ALLOTTED DAY]

Pensions

I have selected the amendment in the name of the Prime Minister.

4.27 pm

I beg to move,

That this House condemns the Government's assault on pension funds through the removal of tax relief on dividend income of pension funds in direct betrayal of their election pledges; agrees with the National Association of Pension Funds that this is the biggest attack on funded pension provision since the War; believes the brunt of the cost of the Windfall Tax will also fall on pension funds; warns members of occupational schemes that they and their employers will have to increase contributions to maintain benefits; further warns personal pension holders that they will need to pay higher premiums or suffer significantly lower pensions; believes the Government is guilty of mis-selling personal pensions if it refuses to spell out how much this tax change will cost pension holders; demands that the Government increases the contracted out rebate to avoid large-scale contracting back into SERPS; deplores the total absence of consultation about these far-reaching changes in company and pension taxation which has resulted in shoddy, hastily prepared and ill-thought-out proposals; and calls for the Government to withdraw these measures until it has prepared a Green Paper on future reform of company taxation and its implications for pension provision.

One of the most daunting challenges facing every developed country is that of providing decent pensions for an aging population. When the welfare state was set up, there were five working people contributing to support every single pensioner. By 2030, for every five working people, there will be three pensioners—three times as many pensions to provide.

There are only two ways of financing pensions: by taxes and charges, or by savings and investment. Continental countries rely almost exclusively on the tax system to finance their pension provision. They use this year's taxes to pay for this year's pensions of people who have already retired. It is pay-as-you-go. As a result, they face increasingly crippling burdens of taxation, as more and more pensioners are supported by fewer and fewer people of working age. When the Minister for Welfare Reform was Chairman of the Select Committee on Social Security, he highlighted the problem of unfunded continental pension liabilities, so the House is well aware of that.

By contrast, in this country we have encouraged people to save and invest for the future. We have enabled them to opt out of the state earnings-related pension scheme, and given them national insurance rebates to do so. When they opt out of the state scheme, their contributions are genuinely saved and invested; they go into industry and generate the profits and dividends to pay for people's pensions in 10, 20 or 30 years' time—without imposing a crippling burden of tax on our economy.

The right hon. Gentleman will be aware that two years ago, Coopers and Lybrand carried out a study which concluded that 2.4 million people on low incomes had been misled, and that their contracting out of SERPS would not pay for the administration costs of the personal pension schemes that they had entered. Therefore, what he has just said is not quite correct.

I am sure that the hon. Gentleman will agree that the misselling of pensions in the past by the private sector is no justification for the misselling of pensions in the future by the public sector. Measures that reduce the return to pensions, relative to costs, cannot be an improvement.

The fact is that we have built up a huge flow of investment. As a result, we have accumulated about £650 billion of investment to pay for present and future pensions. That is not just more than any other country in Europe; it is more than all the other EC countries put together have bothered to save and invest for their future pension liabilities. Above all, it has been Conservative Government policies, encouraging savings and investment, which have put Britain in that strong position.

A constituent of mine did exactly as you suggest, but lost nearly £7,000 of his savings. He used to be a Tory voter, but he was so disappointed by what happened with his personal pension plan that he reverted to the Labour party, thank goodness. What would you say to my constituent, who has lost such a massive sum investing in the very way that you describe?

Order. The only "you" in the Chamber at the moment is me, not the right hon. Member for Hitchin and Harpenden (Mr. Lilley).

I apologise.

I should be quite happy for you to answer that question, Mr. Deputy Speaker. Still, I shall do my best. I would advise the hon. Lady to ensure that her constituent takes up his grievance with the regulators, who have given an assurance that no one will lose, and everyone will be compensated for misselling.

Is it not correct that the changes to advance corporation tax made by the Government in the Budget will remove, from a 30-year-old man building up a savings pension fund, not the £7,000 that the hon. Lady's constituent lost, but about £50,000 over his lifetime of work?

My right hon. and learned Friend is correct. I hope that the hon. Lady will write to her constituent to point out the damage being done to all such people by the actions of Labour Ministers. Meanwhile, I am sure that she will join us in the Lobby tonight.

Is it not also true that the changes that the Government propose to make to ACT have been viewed by independent observers as making it more difficult to complete the pensions review and as delaying the payment of compensation to those entitled to it?

That is also correct.

As I said, the great achievement of building up this huge volume of pension funds, which enjoyed bipartisan support in the past, was primarily due to Conservative Government policies. To be fair to the Labour party, Baroness Castle's reforms also played a part. As far as I am aware, no Labour Government before this one ever tried to penalise or discourage saving in pension funds. Therefore, the Budget changes represent a breach with that bipartisan consensus. The Budget targets pension funds for many billions of pounds a year, which will reduce investment, penalise long-term savers and permanently subject pensioners to double taxation on the income that they put into the funds.

We should not penalise pensions provision. We need more pensions provision and savings, not less, which is why earlier this year the Conservative Government announced plans to build on our success by ensuring that, in future, every young person entering the labour force would have his or her own pension plan, funded by rebates from the national insurance system, to provide decent, secure, guaranteed funded pensions.

Basic pension plus involved the Conservative Government putting billions of pounds into pension funds; the Labour Government's Budget involves taking billions of pounds out of pension funds. The Labour party calculated that the accumulated value of the rebates that we proposed over 44 years—that is a long period—would total some £150 billion. On the same basis, it proposes over that period to take £230 billion out of pension funds and use it for other purposes, which only Labour Governments can devise.

There is a consensus that we should encourage more long-term saving. It is sad that, for short-term political reasons, the Government have decided permanently to discourage and penalise private pension provision, and it is no surprise that the National Association of Pension Funds described the Budget as the biggest attack on funded pension provision since the war.

The right hon. Gentleman has not yet responded to the question about the misselling of pensions. Ten years have elapsed since personal pensions were first sold, yet fewer than 12,000 people, including my constituents, have been compensated and more than 500,000 remain uncompensated. What did the right hon. Gentleman do about the misselling of pensions when he was Secretary of State for Social Security?

Like other hon. Members, the hon. Gentleman raises an important point. I intend to come to it in the order that I choose; I shall respond directly to his point.

Will the right hon. Gentleman give way on basic pensions?

I shall give way to another supporter of my pension scheme, along with the Minister for Welfare Reform.

I want to comment on that very point. Conservatives in my constituency blame the former Secretary of State personally for the disaster of recommending that the old-age pension should be privatized. They have read the literature and believe Labour's accusation that the right hon. Gentleman intended to privatise the old-age pension. Does he now have enough conscience to come to the Dispatch Box and apologise to tens of thousands of Conservative party workers throughout the country who blame him?

I am happy to say that, although we suffered a big swing against us generally throughout the country, there was almost no swing against us among pensioners, except possibly in the hon. Gentleman's constituency. I advise him to ask his constituents whether they would prefer a state pension based simply on the promise of future payment from future tax revenues by a Labour Government, not backed by investment funds, or a basic pension guaranteed by the Government and backed by investment funds. I know which I prefer, and which any sensible person would prefer.

In any circumstances, a massive new tax charge on pension funds would be deplorable, but from a party that gave the electorate a clear pledge that it would not raise taxes, it is a betrayal of trust. Before the election, the then Leader of the Opposition told Birmingham business men:

"We have no plans to increase tax at all."

The then shadow Chancellor said on television on 8 April:

"We've got no public spending commitments that require extra taxes.?

The Government then come along and raise £5 billion a year—over and above the windfall tax—by imposing 17 new tax increases, by far the biggest of which falls on pension funds. That is a betrayal of trust on a scale that the Government ought to find deplorable.

I shall first examine the direct impact of the Government's changes. Secondly, I shall consider the arguments deployed by the Government to defend their claim that the measure will not affect pensioners. In the process of that I shall deal with the issue of misselling, which hon. Members have raised, and finally I shall examine the lack of consultation about those far-reaching changes, which is a scandal.

The Government hope to raise the very large sums that they propose to extract from the change in advance corporation tax credits without too much political pain, because the money is to be extracted at one remove from the ultimate losers, and the system is so complex that scarcely anyone understands what is happening.

It is too complicated.

We are discussing the Government?s measures, and I am inclined to agree with the hon. Gentleman.

In the course of my professional life I have had to study the ACT system in some detail over many years, and on at least three occasions I have understood it, but it is difficult to sustain that understanding for any length of time.

For the first time, a Government propose to tax the income generated from long-term savings. In effect the Government are imposing income tax on pensioners' dividends, which they previously enjoyed free of basic-rate tax. Previous Governments of both complexions have thought it right to encourage and reward long-term savers by ensuring that they paid tax once and once only on the income that they saved, and exempting at least from the basic rate of tax any investment income generated by that long-term saving.

My right hon. Friend the then Chancellor, Norman Lamont, adhered to that rule when he reduced the relief from the old standard rate of 25p in the pound to the new target rate of 20p in the pound. By abolishing that relief entirely—by reducing the credit from 20 to zero—the Government are in effect imposing tax at the standard rate of 20 per cent. on income generated by long-term savings.

That is a clear breach of Labour's promise not to increase the rate of tax on anyone's income, because it falls on the dividend income accruing to pensioners. People do not immediately see it that way, because that income is building up in their pension funds and PEPs.

The changes that have been made affect 10 million to 20 million people. In due course, the consequence of that tax burden will filter through to them in the form of higher contributions or lower pensions. Anyone whose pension fund was previously generating dividends worth £100 in a given period will now get only £80. People will have to increase their investment by 25 per cent. to get the same net income.

The effect on the value of the final pension is not quite as ferocious, because some of the final pension that people receive from their fund is repayment of their premiums, some of the growth might be capital gains and some of their investments might not be made in equities.

Taking those factors into account, the Association of Consulting Actuaries calculates that a 30-year-old person who was previously investing £100 a month will now need to invest £112 a month to achieve the same final pension as was previously expected. He or she will suffer a 12 per cent. penalty as a result of the Budget.

To most people it is self-evident that, if the Government extract several billion pounds a year from pension funds, those funds will sooner or later have to find several billion pounds a year more from their contributors or pay out smaller benefits. If the Government are £5 billion a year better off, it follows that the funds must be £5 billion a year worse off.

Astonishingly enough, the Government's response to that charge is complete denial. They claim that pension funds, pensioners and investments will not be harmed by the change. It was embarrassing enough watching the Chief Secretary to the Treasury on "Newsnight" being skewered by Kirsty Wark. He seemed unprepared for her simple question—how can the pension funds invest as much as before, if they have to pay £5 billion extra to the Government? However, the subsequent comments by the Financial Secretary to the Treasury in the House made the Chief Secretary look perfectly reasonable and thoroughly on top of his brief. She made the amazing claim:

"The measure is good for pensions and pensioners, not bad for them … People should understand that our tax reforms Will benefit pension funds.?—[Official Report, 3 July 1997; Vol. 297, c. 507.]

Anyone who believes that must also believe that water flows uphill—or, if one argues hard enough, that it will change direction and flow vertically. I challenge any Government Member to defend the Financial Secretary's statement that the reforms will benefit pension funds.

rose—

I shall give way to the hon. Gentleman if he intends to defend the Financial Secretary.

On the question of tax burdens on pension funds—

The hon. Gentleman refuses to defend the Financial Secretary—and I can understand why. I shall give way to him later. It is only fair that the Financial Secretary should receive some defence from the Government Benches.

rose—

Will the hon. Gentleman defend the Financial Secretary's statement that the reforms will benefit pension funds? I shall give way if he will do so.

Does the right hon. Gentleman accept that the actuarial practices to which he referred that evaluate pension funds on the basis of dividend flows alone are quaint and eccentric? Growth prospects are employed in the evaluation of pension funds and minimum funding requirements, in terms of future values and so on, in other countries and for other financial products, such as unit trusts. The wider Budget package offers more investment in Britain and in British industry which, in the medium term, will be good for pensions, good for pension values and good for pensioners. So the right hon. Gentleman's claims are false.

That effort should win the Mandelson prize for loyalty beyond the call of duty. The hon. Gentleman claims that actuaries base their practices on old-fashioned systems—such as the laws of arithmetic. If we subtract £5 billion from a fund, there is £5 billion less: that is old-fashioned arithmetic. I agree that it is out of date and does not accord with new Labour thinking, but that is how it has been done until now.

When we study Hansard, perhaps we shall realise that the hon. Gentleman's remarks contained kernels of wisdom and that somehow the pension funds will not suffer because, according to new actuarial analysis, everything will be all right. Therefore, I invite him to address another question that the Financial Secretary could not answer. If pension funds will not be hurt by the measure, why is it necessary to protect charities and personal equity plans from its damaging effects?

It is very kind of the right hon. Gentleman to ask me these questions—I did not realise that I was giving the speech. As I have knowledge in this area, I shall respond. My point is that there is no congruence between money not given in dividend flow and the eventual impact on pension value, because we have not taken into account the impact on equity growth due to the wider economic environment that the Budget creates. The Government have excluded charities not in order to neutralise the effects, but in order to give them the extra benefit that they deserve so much.

Roughly interpreted, that means that funds will grow faster if we take away £5 billion—so imagine how fast they will grow if we take away £10 billion.

Is not the real point rather different? The measure will drive pension fund investment managers away from investing in equities to investing in gilts. As a consequence, the gilts yield will be reduced, as will fund values. It is a question not just of the £5 billion, but of the effect that the measure will have on the financial markets, which will reduce yield.

I am sure that my hon. Friend, who is an expert in such matters, is correct. It is part of the law that I adumbrated in response to the Budget: the further removed the tax charge is from the taxpayer, the more damage it does as it works its way through the economy. My hon. Friend has given an example of that damage.

As well as simply denying that taking money out of pension funds has any adverse effect, the Government's second defence is that many of the funds are in surplus. The simple fact is that no personal pension funds or money purchase funds are in surplus. By definition, there is no such thing as a surplus for those schemes. The impact of higher taxes will feed straight through to them. The changes will affect some £170 billion of such funds and 6 million people, particularly the self-employed who have been building up such a fund over a long period, all of whom will have to pay in higher contributions in future or receive smaller pensions.

Before the end of the debate, I should like to hear from the Government whether they agree with the Association of Consulting Actuaries that, for a 30-year-old paying in £100 a week, 12 per cent. extra is required to achieve the same pension that he had anticipated. Has the Treasury come up with any of the answers to the questions that I asked last Thursday? The Chief Secretary is present. I do not know whether he is here to listen. Perhaps I may briefly interrupt his conversation. Will he pay attention for a moment? Last Thursday, I asked him a series of questions during the Budget debate. He failed to answer them. We have given him extra time from our own. May we have an answer to those questions today?

I remind the Chief Secretary what the questions were. By how much will the contracting-out rebate have to be raised to prevent people being best advised to contract into SERPS again? How much will that increase cost the Exchequer? Was that cost included in the calculations in the Red Book and netted off against the £5.4 billion revenues, which will, allegedly, be raised by the tax? If there is to be no increase in the rebate, how many people who contribute to personal pensions will be best advised to opt back into SERPS, and how much will that cost in the long term? Will the Government advise those 6 million people of the impact that their tax changes are having on pensions that they have already taken out? Will not the Government be guilty of misselling if they fail to do so?

I now deal with the point about private firms misselling pensions, an act that I utterly deplore. I entirely support and endorse the measures that were taken by the former Economic Secretary, Angela Knight, and her successor, who was here until a moment ago, in trying to speed up the resolution of the problem. Past misselling by private individuals cannot justify future misselling by the state. The measure that the Government are introducing will have the effect of slowing down the resolution of the misselling. Both the Association of British Insurers and the National Association of Pension Funds have agreed that it will add further months of delay to the process of calculating and sorting out past misselling, because all the calculations will have to be redone, to take into account the impact that the measure will have on the costs of reimbursing people.

If the Government believe what they say, they believe that there is no impact, so there is no change in the calculations, so they can order the companies to go ahead and give compensation at the lower level that they had intended and not at the higher level that they now believe is necessary as a result of the tax changes.

rose—

I give way to the hon. Lady. We shall see whether she wants a higher or a lower level of compensation.

The right hon. Gentleman made a point about the advice that the Government might provide to pensioners, but could it could be any worse than the advice that the previous Government provided? In the advertisements, they said:

"Is the pension you're going to get the one you'd choose?"

and

"The right pension for you is now yours by right".

Or how about this one?

"The old pension rules made moving around a wee bit tricky".

Rather a lot of people who took out private pensions will find that that advice was not very good. The right hon. Gentleman also mentioned that many pensioners did not vote Labour, but one place where they did was in Enfield, Southgate, which was the constituency of his former colleague who was responsible for those advertisements, Michael Portillo.

If the hon. Lady is merely making a debating point, we can move on. If she is making a serious—[Interruption.] Well, a petty-minded debating point. If, as I judge, however, she is making a serious point, she will deplore any future misselling as she deplored any that occurred 10 years ago. Surely two wrongs do not make a right. If she thinks that what occurred 10 years ago was wrong, how does she think that it is correct for the Government to make changes without acknowledging their impact on the 6 million who already have personal pensions? That is, unless she is a Labour Member who thinks that her party can do no wrong.

The effect of the tax changes on personal pensions and other money purchase schemes is indisputable. It is true, however, as the Government have said, that many defined benefit occupational schemes are in surplus. To suggest that taking money out of such schemes, which happen to be in surplus, is harmless, let alone beneficial as the Financial Secretary says, is what might be called the classic Robert Maxwell defence. After all, Robert Maxwell made a habit, quite openly, before he moved on to straight theft, of stripping out surpluses from pension funds.

When was that?

It was when the Economic Secretary was working for him. It was when Alastair Campbell was working for him. It was when Lord Donoughue, now a Minister, was working for him. That is when it was. It was all out in public. They were his henchman, apologist and fearless reporter, but not necessarily in that order.

It is perhaps not surprising that a Government composed of Robert Maxwell's cronies should resort to his old excuses. I do not believe in guilt by association, however, and I would have expected them to be rather uncomfortable to find themselves in a Government who are doing on a huge scale what their old employer did rather more modestly. But perhaps they believe that surpluses do not belong to the pensioners. If they do, they should acquaint themselves with the view of the right hon. Member for Glasgow, Anniesland (Mr. Dewar), the Secretary of State for Scotland, who thinks otherwise.

We had long debates on pensions surpluses during consideration of the Pensions Bill in Committee in 1995. The right hon. Member for Anniesland, who then represented Garscadden, said:

"I do not accept that simplistic argument"—

that the surplus belongs to the employer.

"Most pension schemes are contributory because, if the surplus has evolved from real-term growth of assets over a period of time, a contribution to those assets has been made by the employees … morally and logically … those employees should benefit from and have a stake in any surplus."—[Official Report, Standing Committee D, 18 May 1995: c. 255.]

So surpluses should not be taken away by Governments any more than, in the right hon. Gentleman's view, they should be taken away by employers.

Will the right hon. Gentleman explain to the House why half the major pension schemes took tax holidays by reducing either partially or fully their contributions?

That was because of the splendid performance of industry, companies' profits and the stock market over the past 18 years under Conservative Governments. Many pension funds have found that their investments have grown more rapidly than they anticipated. They therefore built up a surplus. They had the opportunity either to take a contribution holiday or to increase benefits for their employees. A mixture of those two options has been put into effect by different schemes.

rose—

The hon. Gentleman has been given enough rope to hang himself on two previous occasions. I think that I would be cruel to give way to him again, and I do not propose to do so.

Will my right hon. Friend give way?

On the application of the rule of frequency but not of hanging, perhaps I should not give way to my hon. Friend unless he insists.

I should be grateful.

Very well.

is it not true that even funds that are in surplus—for example, the Sainsbury fund, which has a £230 million surplus in its pension fund—calculate that the effect of the Government's proposed changes will be to turn their surpluses into deficits? Sainsbury calculates that it will face a deficit of £30 million and that it will have to double its contributions as a result.

That is absolutely true. As a result of the change to the tax treatment of pensions, many companies that were previously in surplus no longer will be. Actuaries estimate that, on the new calculations, almost half the new funds are no longer in surplus, and many more will cease to be in surplus. Moreover, when the contribution holidays end for either employers or employees, depending on the arrangements, the jump will be all the greater, because the level of contribution will not go back to what it was beforehand, but will reach the higher level now needed to fund the taxed provision in the future.

Many funds do not have satisfactory surpluses, and many local authorities are well aware that pension provision for their employees is not in surplus. The Association of Consulting Actuaries has calculated that an extra charge of £12 per head on council tax throughout the country will be required merely to fund the higher cost of pension provision for local government employees. Alternatively, there will have to be cuts in services throughout the country. We expect the Chief Secretary to tell us how he intends to finance that or to manage the cuts.

One of the changes that we made in the Pensions Act 1995 was to introduce a minimum funding requirement. Currently, if a company is underfunded or is dangerously close to its minimum funding requirement, it has to inject substantial extra money. Following the previous tax changes affecting advance corporation tax, BT had to put an extra £1 billion into its fund. Many other funds may be putting in large sums now, and those initial injections attract tax relief. Companies will pay less in the years in which they pay in lump sums, and that will reduce the revenue to the Treasury in the early years. Has the Treasury taken account of that phenomenon in its calculation of the impact of the tax changes, or is it hoping that there will not be any such injections into pension funds that have become underfunded as a result of the Government's measures?

The third line of argument that the Government deploy to explain the impossible assertion that their measures will not affect pensioners, pension funds or the level or investment is worth savouring. They claim that the combined effect of reducing corporation tax and increasing tax on dividend distributions will encourage sufficient extra investment to produce extra income to make good the £5 billion tax charge. Even Robert Maxwell did not rely on that excuse, although, had he survived to come before the courts, I can imagine him saying, "Well, your honour, I was just doing it to encourage investment."

Arithmetically, such a scheme could work only if large sums in dividends were withheld and that was offset by an above-average return on those dividends. That is extremely unlikely, but, if large sums were withheld, tax revenues would fall correspondingly. It is clear that the Government do not expect that to happen, because they have not allowed for it in the Red Book.

It is equally unlikely that the investments that companies would make as a result of retaining more of their profits would be more profitable than the investments that they were making anyway. It is unlikely that they previously invested in less good investment opportunities and held in reserve high-yielding investments just in case the Government forced them to invest in them; but that is necessary for the Government's theory to be correct.

What is bad about this process is that it encourages investment abroad, and to the extent that it encourages retentions, it encourages money to stay where there are less good investment opportunities, so that it is not recycled by the capital markets into small, growing, new, cash-strapped companies. The money stays with cash-rich companies that do not need it, and does not get to the cash-poor ones that do.

I am not always 100 per cent. in agreement with my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath), but when he introduced his system, he described the old one that it replaced, to which the Government want to revert, as the survival of the fattest. This scheme encourages money to stay where it is least needed. I know of no reputable economist who believes in the Government's assertion that the scheme will be capable of generating such extra economic and profit growth as to be self-financing over any period, let alone over the period of a Government.

The changes that the Government are introducing have vast ramifications, not only for pension funds and pensioners but for company taxation as a whole. In opposition, the Labour party called for a bipartisan approach to both company and pension taxation. With regard to pension taxation, Labour said in its last Opposition document:

"A pensions framework which changes with the government of the day will never give people the confidence they need to plan for retirement."

Yet within weeks of its arrival in government, Labour has changed the pensions framework, legislating in haste.

Changes of such magnitude need careful consideration, wide consultation and thorough debate. We set an example with basic pension plus, which was given thorough consideration before we published our proposals. We then said that there would be a Green Paper, in whose drafting expert groups would be involved, followed by a long legislative and consultative process enabling everyone to contribute, to ensure that the policy would be implemented to the best possible standard. In contrast, the measures in the Budget were prepared in great haste, in just eight weeks. We know that the Government cannot have been preparing them before the election; if they had been, I am sure that they would have told us, but they said that they had no such plans.

How long did the right hon. Gentleman spend considering basic pension plus?

About a year.

So the right hon. Gentleman was thinking about it in secret for a year?

Yes. I am sorry not to speak through you, Mr. Deputy Speaker. I can tell the Government that I thought out my proposals in great detail for a year, and then published them. I sought consultation before there was even a Green Paper, which was due to appear next, followed by a legislative proposal. The present Government have given their proposals no proper internal consideration, have arranged no proper external consultation, and are planning to truncate parliamentary deliberation to such an extent that it is an insult both to Parliament and to outside interests that have a right to have their say on these measures.

I urge Ministers to withdraw the proposals as they stand. I urge them to return with proposals in the form of a Green Paper, to seek wider consultation and to allow parliamentary deliberation over an extended period. We shall then give their proposals positive consideration and see what aspects we can possibly support. As long as the Government proceed with their present cack-handed, ill-thought-out approach, however, we shall feel obliged to oppose their proposals root and branch and to defend the interests of pensions, pension funds and long-term investment in this country.

I urge my hon. Friends to support the motion.

5.7 pm

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:

"condemns the failure of the last Government to foster security in retirement for either today's pensioners or pensioners of the future; supports the present Government's objective of a decent income for all in retirement; believes that the best way to achieve this is by developing second pensions building on the foundation of the basic state pension; commends the Government's decisive action on the past mis-selling of private pensions; endorses the measures taken in the Budget, particularly the reforms to corporation tax, which will help to create a climate encouraging higher investment and a higher sustainable growth rate increasing the capacity of the economy to support decent pensions; supports the Government's welfare-to-work proposals, which will improve the employment opportunities for thousands of people, enabling them to save for their own retirement; and welcomes the Government's commitment to review pensions and achieve security in retirement for all."

I shall deal in turn with each point of substance raised by the right hon. Member for Hitchin and Harpenden (Mr. Lilley).

The motion mentions misselling. The right hon. Gentleman said at numerous points during his speech that he would come to the subject of the misselling of pensions that took place, to a large extent, while the last Government were in power, but unfortunately he did not get around to addressing that central point. Rather like his right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke)—who is here now, and who said the other night that the business of pensions misselling was something of a "hare in another field"— the shadow Chancellor ignored the fact that misselling is a running sore which, sadly, has yet to be cleared up.

I hope that the Chief Secretary will accept that the point that I sought to make was that his intervention on misselling was not a defence of what the Government were doing, although I acknowledge that it was a fair debating point.

I shall return to Government policy, but first I should like to deal with misselling, especially as the Opposition have referred to it in their motion. That reference demonstrates the Tory party's brass neck because, over the 10 years between the start of misselling and the time that they left office, they did little to sort out the problem.

It is ironic that, on the day my hon. Friend the Economic Secretary to the Treasury publishes a further list showing what little progress has been made by many pension companies to solve the problem, the Opposition should choose to use the term "misselling". Many of the 700,000 people who were affected will wonder why the Conservatives, who were in power for so long, did nothing to prevent the problem in the first place and, when it arose, did little to resolve it. It was not until a few weeks before the election that there was the slightest flicker of interest in the Conservative Government in clearing up the problem.

It was obvious to us on taking office that the Conservative Government had done precious little to put pressure on the companies that were guilty of misselling. I wonder why. Perhaps the Opposition could do with a lesson in history. Let us look at Conservative Government policy in the late 1980s. Their hostility to public provision is well documented, and it extended to the public provision of pensions. Their policy was designed to get people out of occupational pensions and into private schemes.

My hon. Friend the Member for Northampton, North (Ms Keeble) drew attention to advertisements—which, I may say, were paid for by the public—which the Government promoted not just in text but on television. They wanted people to believe that the very act of going private was spiritually and materially enriching. People were persuaded that, if they took out a private pension, they would be better off, almost by definition. It is interesting to recall the name of the junior Social Security Minister at the time that policy was promoted—it was the shadow Chancellor. The other Minister, although perhaps now it is a matter of historical interest, was the man who was Prime Minister for some six years.

That is not true. I was never a junior Social Security Minister. I was only ever Secretary of State.

It has nothing to do with the right hon. Gentleman. Is that not typical of the Conservative party?

On a point of information, Mr. Deputy Speaker. Is it not customary for someone who makes a false accusation to apologise rather than, after recognising that the person accused is not guilty, letting it be a matter for further derigration?

That is purely a matter for debate.

A former Minister complains that he has been falsely accused of being a Minister. I can understand why he feels guilty about that. If he thinks that it is an insult to say that he was a junior Social Security Minister, of course I am sorry for insulting him. I did not realise that it was insulting to say that someone was a member of a Government.

My right hon. Friend was a junior Minister in the Treasury at that time.

He cannot deny that he was a member of the Government when these problems arose, or is that an insult, too? Is it insulting to say that someone was a member of the Conservative Government? It may be; I do not know.

The Conservative Government created the climate in which it was possible for unscrupulous salesmen to go into communities, especially former mining communities, and persuade people to leave their occupational schemes and enter private ones that were wholly unsuitable. People who should never have been allowed to sell pensions were let loose among some extremely vulnerable people and, sadly, the managements of some companies turned a blind eye to the problem.

When we add to that the problem of lax regulation—Tory self-regulation—and the far too many vested interests that were quite happy to turn a blind eye to what was happening, it is not surprising that many people were wrongly sold personal private pensions. The Conservative Government were culpable, collectively and in some cases as individuals, because, during all the time they were in power, they did nothing about that.

It is to the credit of Sir Andrew Large, the outgoing chairman of the Securities and Investments Board, that he brought the matter to public attention in the early 1990s. His battle, along with other regulators, was fought largely by the regulators on their own, without help from the Government, in the new climate that began to prevail in the past three or four years. Despite the misselling over the past 10 years, little progress has been made. My hon. Friend the Economic Secretary today published a report showing a lamentable lack of progress by the 24 firms that have most cases to review. Of course, there are others.

In many cases, the commission charged on pensions was 25 per cent. That is more than the 20 per cent. tax credit about which the Opposition complain. They complain about the withdrawal of the tax credit, which is good for the public Exchequer. Will they condemn the massive commissions that were paid to people who missold thousands of personal pensions?

For a long time, I have said that the regulator should look at the impact of commission on selling. It can put undue pressure on people who sell pensions, and that can have unfortunate consequences.

I was a member of the Committee that examined the Financial Services Bill. Four years before the rows about misselling broke out, we moved amendments about the disclosure of commission and the hon. Member for Bournemouth, West (Mr. Butterfill), who was also a member of that Committee, and some people who have now left the House, opposed such disclosure. The public should know that, if our amendments had been accepted, the great misselling scandal of pensions in the 1980s might not have occurred, because people would have known that they were being ripped off.

My hon. Friend is right. If there had been the transparency that now exists, many of the problems that occurred in the late 1980s would have been avoided.

rose—

The hon. Gentleman is desperate to intervene. According to the Register of Members' Interests, he is well qualified to intervene on this matter. No doubt he will draw the attention of the House to that if he makes a speech.

The hon. Gentleman is right: I advise the Independent Financial Advisers Association and the British Insurance and Investment Brokers Association. However, that is not the point that I wish to make. Will the hon. Member for Workington (Mr. Campbell-Savours) reconsider what he said? I did not at any time oppose the disclosure of commission. In 1986, I opposed purely the disclosure of commission when it was often necessary to disclose all the other costs of direct selling companies. In many cases, such costs were much higher than those incurred by companies that employed independent financial advisers. I urged the Committee to legislate to disclose all the costs of all companies and not single out one area, as the hon. Gentleman wished to do.

It is interesting to note that Opposition Members, whether on the Front Bench or the Back Benches, are trying to disclaim all knowledge of what went on in the 1980s. I am intrigued that hon. Members such as the hon. Member for Bournemouth, West, who opposed the disclosure of commission, always said that such opposition was for the greater good and that many other things needed to be known as well. I would not have minded if they had argued at that time in favour of disclosing not just commission but all other factors in the make-up of the sale of a product. That is important.

Will the Minister give way?

The hon. Gentleman should contain himself. I may give way to him later. I was about to be nice to him, so perhaps he will sit patiently. In debates on the Finance Bill and in other debates, he can make helpful suggestions. In debates on a Bill on financial services, which we propose to introduce during this Parliament, I am sure that his comments will be helpful.

The right hon. Gentleman is completely distorting the facts and what I said. I urged the Committee to disclose all costs, including commission paid to salesmen, but it was the Labour party and the hon. Member for Workington who did not want all costs disclosed—the hon. Gentleman wanted only insurance salesmen's commission costs disclosed. It was precisely because I felt that all costs should be disclosed that I made a principled stand on the entire subject.

I can see now why the hon. Gentleman is retained at such generous rates. He clearly does his best for the industry.

Will the right hon. Gentleman give way?

Perhaps I could deal with one point at a time; at some point, I should like to get on to the matters raised by the right hon. Member for Hitchin and Harpenden.

I was making the point that many people, including the hon. Member for Bournemouth, West (Mr. Butterfill), used to argue against disclosure of commission simply because they did not want that aspect disclosed. The House may remember that we are discussing this matter because my hon. Friend the Member for Croydon, Central (Mr. Davies) raised the impact of commission on the selling of financial products. I think that all of us agree that the regulators need to examine the matter. I am all in favour of giving incentives to sales forces to sell products, but we have to watch the impact of those incentives and their propensity for encouraging the misselling of pensions.

Is it not a fact that the people about whose plight the right hon. Gentleman is agonising, shedding some crocodile tears along the way of course, are the very people whose individual pension funds are to be raided by the Government—about 5 million of them? They are paying modest amounts of around £1,000 a year, and they will have to find another £100 to £150 a year to keep their savings intact—because of the depredations that the Government are about to inflict on them.

The answer is no.

The point that I was drawing to the attention of the House is that many people who were missold pensions have still not received the compensation that is due to them. I say this in response to the point that the right hon. Member for Hitchin and Harpenden made, at which the hon. Member for Billericay (Mrs. Gorman) may have been hinting. Frankly, I have little time for the argument that is now advanced by some pension companies that they could be making great progress, if only there had not been any change to the corporation tax regime. That might have been a statable case had they been making any progress, but many of them have not.

When hon. Members read the parliamentary answer of the Economic Secretary to the Treasury, which will now be published, of course, they will find that the progress has been lamentably slow. In nearly every company, the percentage of cases that has been dealt with is in single figures, and that cannot be satisfactory. I hope that the pension companies that follow these proceedings will understand that the public will not tolerate such lamentable progress, when so many people are awaiting redress and cannot understand why on earth there is a delay.

Will the right hon. Gentleman give way?

In a moment.

We will continue to publish regularly companies' progress, or lack of progress, because we believe, unlike the Conservative party—presumably, if it had believed that openness was a good idea, it would have done something about it—that openness is essential. I should like to move on to some of the other points raised, but, as the hon. Gentleman seems desperate to intervene, let him do so.

I was merely going to inquire whether, after some 15 minutes of eloquence, the right hon. Gentleman intends to move to the subject of the debate.

If the hon. Gentleman had sat quietly, I would have got to the points about which he asks some 30 seconds sooner. I have been asked questions and, as a member of the Government, I thought that it was my duty to answer them. Ministers are accountable to the House, and some important points have been made. The performance so far has been unacceptable, and I hope that the National Association of Pension Funds and the Association of British Insurers can find time, when they are not criticising the Government, to put some pressure on their members to resolve the matter.

The other step that the Government are taking, which the previous Government would not take, despite being pressed to do so, is substantially to reform the Financial Services Act 1986, to ensure that we have a proper regulation system, an end to self-regulation and regulation in the public interest, which will benefit both the industry and the public. We are committed to doing that, and legislation will be introduced during this Parliament, but Conservative Members, despite this debate, still cannot answer this question: why did they so nothing about the problem when they had all the time in the world to do so?

Let me deal with another point to which reference is made in the Opposition motion but to which, although I may be wrong about this, the right hon. Member for Hitchin and Harpenden, the Opposition spokesman, did not refer—the windfall tax. I am interested in this because, when the shadow Chief Secretary to the Treasury summed up for the Opposition at the end the Budget debate, he did not mention the windfall tax either. Over the past year or two, and certainly during the general election campaign, I got the impression that the Conservative party thought that the tax was so bad that it would form the centrepiece of its opposition to us in government, yet, in two major speeches, Opposition spokesmen did not mention the tax.

Will the right hon. Gentleman give way?

Not just now. I do not want to be accused of taking up the valuable time of the House answering Conservative Members' questions.

It is interesting that, in the Opposition motion—never mind Conservative Members' speeches—the Conservatives are no longer defending the privatised utilities, and no wonder, because they have accepted the Budget proposals. I notice that their shares have increased since the Budget, which suggests that what we are doing is reasonable, but the new line from the Opposition is that the tax is an attack on pension funds.

I want to make a basic point. The reason we have implemented the windfall tax is to fund a programme to get people back into work, which will enable them to make a contribution for themselves and their families, to save for their retirement and to contribute towards their pensions, so the tax is a sensible step. The Government have raised a windfall tax that will get people into work. Instead of paying increased social security bills, about which the right hon. Member for Hitchin and Harpenden certainly knows something, we can give people the opportunity to contribute. The windfall tax is entirely justified for that reason, and is widely accepted to be so. Given the strength of feeling on the Conservative Benches over the past few years, I am surprised that the tax was not referred to, although it was in the Opposition motion.

One matter was mentioned: the allegation that there was an absence of consultation. The Opposition motion contains the words

"shoddy, hastily prepared and ill-thought-out".

I have heard those words before and not too long ago. I heard them in March when the then Government introduced basic pension plus, which I do not remember being introduced with much consultation. In fact, there was not even a statement in the House.

Will the right hon. Gentleman give way?

In one moment.

The right hon. Member for Hitchin and Harpenden, in a sotto voce exchange with the Minister for Welfare Reform, said that the proposal was prepared in secret. If that is true, the Conservative party is in no position to criticise us. I also caution the Conservative party about dressing up in new, ill-fitting clothes as the pensioners' friend. We have to remember what we are dealing with here. The Tories' record as the pensioners' friend does not bear close examination. If one considers the central plank of basic pension plus, one will remember that the tax changes that the then Government were going to make would have cost a person on average income with an occupational pension some £600 extra a year.

Will the right hon. Gentleman give way?

In one moment.

Talking about consultation and openness, I think that basic pension plus was the first pensions policy ever to be announced without a Government Actuary's report, which is unusual in relation to social security, so for the Conservative party to accuse us of doing something that was "ill-thought-out" and without consultation simply does not stand up.

The right hon. Gentleman is busy comparing the Budget to proposals that preceded a Green Paper from the previous Government. Is he suggesting that this section of the Budget will be pushed out to a Green Paper? If he is not suggesting that, he should stop this ludicrous comparison.

I am simply drawing attention to the fact, that just before the election, the then Government—that is what they were, despite sometimes appearing not to be so—put forward major proposals for the reform of pensions. The then Prime Minister and Ministers—I hope that I am not being rude to Opposition Members by accusing them of being Ministers—all gave the impression that that was their policy and that that was what they intended to do. When we are discussing an Opposition motion, I am entitled to draw attention to the fact that they had a proposal that would have cost someone on an average income about £600 extra a year.

In addition, the previous Government could never say how their proposals were to be funded. At one point, over the next 20 to 30 years, the cost was rising to about £7 billion a year.

rose—

I will give way in a moment.

It was not just we who criticised the Government or got the wrong idea about their policy—if that is what they are now telling us. Many newspapers were critical of it. The Financial Times said:

"look at the fine print and it is clear that the scheme will involve either higher borrowing or higher taxes for 45 years".

In The Times, Graham Searjeant said:

"Privatising the basic state pension … will raise the tax burden."

The Consumers Association pointed out:

"Young people will be paying for their own pension, to meet their retirement needs, but at the same time they will be paying for their parents pension."

My point is that the Conservative Government put forward proposals just before the election which would have hammered pensioners. They cannot stand before us today and pretend somehow to be the pensioners' friend.

Basic pension plus would have given pensioners a better rate of return on their money than the present basic state pension. Will the right hon. Gentleman bear in mind the fact that we are spending time discussing his Budget proposals on advance corporation tax because the tax raised by that measure makes the windfall profit tax look rather modest by comparison? If we had followed the example that he has set with these proposals, we would have kept basic pension plus a secret until after the election.

Some of the hon. Gentleman's hon. Friends may have some sympathy with that point.

Before I turn to the central point raised by the shadow Chancellor, I want to talk about the pensions industry. Despite the fact that we are rightly critical of the performance of some of these companies in clearing up the misselling of pensions problem, it is sometimes easy to lose sight of the importance of the industry as an employer, a wealth creator and a service provider.

Will the right hon. Gentleman give way?

Not just now.

It is the purpose of the Government to encourage people to save and invest and to make provision for themselves. We intend to create an economic climate where we have growth and investment that will create the wealth that will enable everyone to enjoy a higher standard of living now and in their retirement. The pensions industry plays an important part in that.

I want to return to our proposals on corporation tax—[Interruption.] Conservative Members are always complaining that we are being high-handed and are not responding to their questions: now they are complaining because I have been answering their questions.

I shall start with an important point. The shadow Chancellor said that when Norman Lamont introduced the changes in his Budget in 1993, it was simply a matter of bringing tax rates into line. I notice that the Opposition motion opens by saying:

"this House condemns the Government's assault on pension funds through the removal of tax relief on dividend income of pension funds in direct betrayal of their election pledges".

It reminded me that that accusation could more properly be applied to what happened in 1993. The shadow Chancellor told us that it was a matter of bringing tax rates into alignment, but I wonder whether he would refresh his memory and see what Norman Lamont said in his Budget speech. When talking about the reforms, Mr. Lamont said:

"they are central to the strategy of this Budget, and they raise significant amounts of revenue."

He went on to say that it would save the Exchequer

"no less than £1 billion a year."—[Official Report, 16 March 1993; Vol. 221, c. 185–86.]

At that time, the Conservative Government were not proposing to reduce the rates of corporation tax, but were simply taking that money into the Exchequer. We have to rely on the words of the then Chancellor, Norman Lamont, as I do not remember any Minister denying that that was the Government's intention. Therefore, the shadow Chancellor's assertion that all that was happening in 1993 was a minor adjustment to ensure that the rates were the same for corporation tax as for other taxes does not stand up.

Will the right hon. Gentleman give way?

The hon. Gentleman was not a Minister at the time, but I think he knew something about it. I will give way, as long as he does not accuse me of taking too long.

Does the right hon. Gentleman have the end of the 1993 speech? He will find that the then Chancellor confirmed that the intention was to align all the rates at 20 per cent., that there was no intention to bring the rate to below 20 per cent. and certainly no intention ever to consider abolition.

The point is that the then Chancellor told the House in clear terms that the purpose of his adjustments in the taxation of dividends was to raise money for the Exchequer—£1 billion of it. [Interruption.] I am just about to come to another passage which Opposition Members might find illuminating.

I was not in this place in 1993, but I wonder whether my right hon. Friend can refresh my memory as to whether anyone on the Treasury Front Bench at that time or the now shadow Chancellor criticised the then Chancellor for the tax change.

I believe that, at the time, there was great criticism among members of the Government, but it involved Europe rather than tax changes. Two of the Opposition Members on the Front Bench will recall that.

I shall press on in case Opposition Members are in any doubt about what their Government were doing. I know that they were not all on the Committee considering the Finance Bill in 1993, and they may not know what went on. I thought that I would see whether the Government ever threw any more light on why they changed the taxation of dividends. The then Financial Secretary, the right hon. Member for Charnwood (Mr. Dorrell), told the Committee:

"We needed to raise revenue in a way that did least economic damage … my right hon. Friend decided that to collect extra revenue"

he would do so from pension funds

"from a group of people with taxable capacity, but who are not taxpayers, in a way that does minimum economic damage, recognising the substantial tax benefits available to pension funds as collective savings vehicles."

I wonder whether Opposition Members would like me to read that again. It tends to suggest that what the then Government were about was a raid on pension funds and that they were not proposing any other measures to compensate for that. [Interruption.] I see that the shadow Secretary of State for Social Security wants to intervene but is being held back by the shadow Chancellor, and no wonder.

rose—

I will let the hon. Gentleman have his moment.

In line with his point about the taxation of dividends, I wonder whether the right hon Gentleman can explain what he said on 31 May 1996. He said:

"Britain lives in a global economy and the minute you even suggested taxing dividends people would go out and invest in other parts of the world."

The right hon. Gentleman has just agreed with his Chancellor that he has taxed dividends. How does he explain his volte face?

If I remember rightly, I believe that I was being asked about the taxation of investment income at a different rate. If the hon. Gentleman will allow me to see the article, I will be able to confirm that I made the remark in that context.

The argument from Conservative Members that they were simply aligning tax rates does not stand up. If all I could produce in evidence was the quotation from Mr. Norman Lamont, they might have got by, but the quotation from the Financial Secretary in the comparatively quiet waters of the Standing Committee must be borne in mind. I shall repeat it. He said:

"We needed to raise revenue in a way that did least economic damage."

He said that he was raising money from pension funds

"from a group of people with taxable capacity, but who are not taxpayers in a way that does minimum economic damage, recognising the substantial tax benefits available to pension funds as collective savings vehicles".—[Official Report, Standing Committee A, 15 June 1993: C. 377.]

It is worth bearing it in mind—although listening to the right hon. Gentleman, one would not have been aware of it—that pension funds have been paying tax since 1993. Our proposed changes will not alter the fact that pension funds will continue to be free of tax on income in the form of capital gains and ordinary shares, as well as on other sources of investment income. That has a net cost to the Exchequer, but one that we feel is justified.

It is wrong to suggest that what we are proposing is new. In fact, the Conservative party started the process. It is equally wrong to suggest that pension funds will be left without tax advantages.

rose—

I will give way, but I want to make some progress.

Should not my right hon. Friend circulate to all Members a copy of the 1993 quote by Mr. Lamont? Many hon. Members would like to see it, and might wish to use it extensively in their constituencies.

I am happy to make arrangements to do that, subject, as always, to the public expenditure implications. I might even pay for it myself and send it to the National Association of Pension Funds and Mrs. Robinson.

I want to explain our proposals. We believe that it is necessary to reform the system of tax credits because it contains a major distortion, under which shareholders are better off if companies pay out profits as dividends than if they retain them for reinvestment. It is right in principle to remove that distortion. The principle that underpins our changes to the corporation tax system is absolutely right. It is for the management of companies and the shareholders to make the decisions, not for the tax system to provide an inbuilt bias.

In the United States, where a similar system exists, pension funds take decisions on their economic merits. An important point to note is that they are as keen on the capital appreciation that then results as they are on dividends. Greater emphasis on capital growth is important. It will help companies and offer them high, long-term growth. It will ensure that they are not starved of capital by the tax system. Indeed, the importance of capital growth is something on which actuaries and others in this country might want to reflect further.

I was pleased to note that, after the Budget, the Daily Telegraph—which I do not think is yet converted to the cause of new Labour; it certainly was not during the election, but it may be about to turn—said in its business section:

"The quality of life in retirement … depends on the growth in the economy, reflected in the prices of shares where the contributor's money is invested. This is the point of the Brown Budget that the pension funds would do well to grasp."

That is absolutely right. I want to emphasise that the reason we have taken this decision is right in principle. I wait to hear whether the Conservative party would repeal it were that party ever to return to power.

The American experience is worth bearing in mind. The central thrust of the Budget is to create a climate in which the level of investment is raised. It is important to keep our eyes on that fact. Currently, the level of investment is lower than it should be at this stage of the economic cycle.

I was interested in the speech delivered by Sir David Cooksey a few days ago, when he looked at some emerging US companies in 1975 and compared their position then with their current position. He noted that they had expanded dramatically, which is a common feature of the American economy. He said:

"It is also notable that very few of those companies pay dividends to their shareholders who prefer to benefit from growth in capital value as the companies reinvest all of their profits in the business."

He said that that contained a lesson which we should learn.

The value of a pension depends, to a large extent, on the value of the fund available when someone retires. Someone retiring at the height of the recession would have done less well than someone retiring now because the value of the stock market has increased; indeed, it has increased quite a bit since we came to power. It is important that those who follow these proceedings bear in mind the fact that, at the end of the day, the value of a pension depends largely on the prospects for the economy.

I very much hope that when actuaries assess the results of our decisions, they will remember that capital growth is an important matter to take into account. When considering our proposals, they should remember that the well-being of the economy as a whole is the most important feature. Not only have we reduced corporation tax for large and small companies, but we have doubled capital allowances.

Our goal is a long-term one—to improve this country's investment performance. For many years, our performance has lagged behind that of our major competitors, and continues to do so despite the current recovery. That may be because, in the past, there was so much concentration on the short term. Investment for the long term and for better growth will greatly benefit companies and, therefore, pension funds, which will gain in the long term. Many of those who have commented on the impact of the corporation tax changes have ignored the long term. Indeed, that is far too common a tendency in Britain. The long term is the central point of the Government's economic strategy.

Actuaries, who often value shares largely on the basis of prospective income and take relatively little account of market values, should begin to think long and hard about what they have been doing. They have tended to inflate the effect of the loss of tax credits. Over the past few weeks, there has been much comment in the press about that. Actuaries should change their approach. In the United States, actuaries pay much more regard to market values. That is beginning to happen with some funds in this country, but it is necessary for both pension schemes and actuaries to sit down and take a long, hard look at the real effect of the loss of tax credits and to understand the Government's strategy in the long term.

rose—

I will not give way, because I have been speaking for too long already. We have had four days' debate on the Budget. We are now having an Opposition day, which is substantially on the Budget. Tomorrow, there will be Second Reading of the Finance Bill, and there are further days of debate in the House next week. No one could say that we are curtailing debate on these matters.

This is an Opposition day.

It is an Opposition day, and I am replying to the right hon. Gentleman's points.

The steps that the Government are taking will stand this country and its economy in good stead in the years to come. For the first time in many years, Britain has a Government who are looking to the long term and who will create an environment in which there is growth and investment. That will be good not only for companies and pension funds but for all the people of this country.

5.47 pm

I am pleased that we are having this debate today. The Chief Secretary was right to say that a great deal of time has been made available, but the issues are extremely important. When I spoke in Friday's debate I expressed my support for the Government's overall strategy, particularly the welfare-to-work proposals. In a continuation of that spirit, I readily acknowledge that the Government are showing proper levels of ambition and determination in the fight against poverty.

I share the view that improving access to employment is the only way to beat dependency and hardship. I repeat my offer of support for the Government's efforts to help the left-out millions get back into the mainstream of society. Anyone who argues against the objectives of the welfare-to-work programme is politically blind, deaf and dumb to the circumstances in this country.

Having said that, there are grounds for strong opposition to the way the Government intend to finance their plans. I am pleased that the Opposition tabled this motion today because it is right to focus on that. How the Government spend the money is one matter but, as this important debate shows, how they intend to raise it is another. I want to concentrate on the latter.

There are, of course, two sources of finance in the Government's programme, and we Liberal Democrats find them both difficult to stomach, primarily because of the heavy penalty that we believe they will impose, both now and in the future, on Britain's pensioners. The first tax is the windfall tax. I share the Chief Secretary's surprise that, both in today's debate and in the debates on the Budget, the official Opposition did not concentrate more on that. The second tax will be raised through abolition of the dividend tax credits reclaimed by pension funds.

Although both sources of funds are distinct taxes, they have been introduced for the same reason and share a common provenance: the Government's almost obsessional timidity over taxation and the revenue raising conundrum that such timidity has inevitably caused. If one cannot use the fairest, most transparent and most progressive tax—which is income tax—one simply must look elsewhere. Unfortunately for British savers and pensioners, the Chancellor has turned his gaze on them.

It is difficult to overstate the importance of the taxation straitjacket that the Government are in. As I said in last Friday's debate, the United Kingdom is faced with a situation in which the Government have become a prisoner of their own pre-election rhetoric. They cling to the vote-winning line: "We can have gain without pain; we can raise billions of pounds without anyone having to pay; and we can magically solve the problems of chronic underinvestment in education and institutionalised unemployment with a few tax increases that are so opaque and complicated that they seem to be entirely cost free."

Such a proposition is nonsense, and the Budget exposes it as such. There is simply no such thing as a tax for which no one must pay—a fact that encompasses both the windfall tax and the withdrawal of dividend tax credits. Together, those taxes constitute nothing less than a smash-and-grab raid on British pensions.

It is now reasonably well documented that the windfall tax is hitting not only the so-called fat cats—I understand Ministers' emotional reaction to their having secured unconscionable and unjustifiable increases in emoluments—in the privatised utilities, but employees or customers or future investment in those industries. In some industries, all three—employees, customers and future investment—are affected.

An equally valid argument is that it is simply not possible to take £5 billion out of the corporate sector without hurting the millions of people whose savings and future incomes are tied up in those utilities. The Government have adopted an unconscionable position on the matter. The tax will have an impact on the millions of individuals who own shares—many of whom arrived on the scene a considerable time after the windfall was gained. It may also impact on institutional investors, such as pension funds, which hold in their hands the future incomes of 19 million people with occupational or personal pensions. In years to come, those people will pay the indirect and hidden, but very considerable, costs of the windfall tax.

The Chief Secretary tried to argue that the windfall tax poses no problems because the welfare-to-work programme will work—hopefully, it will—and enable those entering employment to make proper provision for their pensions. If the tax's objective was to raise money to start such a beneficial cycle, however, why do not Ministers openly raise the money by increasing income tax? If the tax will start such a beneficial cycle from which everyone will gain, why do not Ministers go to the electorate and say, "The most honest way to raise the money to start such a cycle is through income tax?"

We went to the electorate and told them that we would introduce a windfall tax. Surely the hon. Gentleman will accept—I know that the Tories do not—that those companies were very rich in cash because they were sold at knockdown values. Privately, even some of those companies will admit that.

For a variety of reasons, some of which I have adverted to, it is rough justice. I simply do not accept that attacking the utilities was fairer than going to the electorate and arguing honestly the reasons for raising the money. If the Chief Secretary is right—I hope that he is—that the aim is to create a virtuous cycle from which people will benefit, income tax increases would generate such a virtuous cycle in a manner that is much fairer and more progressive and transparent than the Government's windfall proposals.

I accept and do not complain that the proposals were in Labour's manifesto. The Government were absolutely open and honest about the tax and they deserve credit for it, but their openness and honesty do not persuade me that the tax is right. We have a clear difference of opinion on that.

Would there not be another benefit if the Government had grasped the nettle and raised income tax? If they had, perhaps the Bank of England might not currently be under such pressure to raise interest rates, doing greater damage to the economy and to potential investment.

In future, I think that the Government will regret all those indirect and untoward effects. There is an honest difference of opinion between the Ministers and the Liberal Democrats, which I accept.

The Chief Secretary tried to justify the Government's position on withdrawal of dividend tax credits by saying that he wants to discourage companies from paying dividends rather than reinvesting profits. I understand that, and believe that he could have mounted a taxation argument to justify the Government's decision to move in that direction, but I do not think that the way in which the Government withdrew the credits, the short time frame over which they did so or the amount of money that will be raised, enable Ministers to found a sound argument.

If Ministers had said to the House, "We are going to do this. We will have proper consultation and, over time, we will move in that direction," we would have been willing to listen. However, grabbing £5 billion overnight, as the Government have done, might damage the trust that the Chief Secretary and the Government will require if they are to reform pensions in the United Kingdom. They will need that trust in future to work with pension funds. It was a bit thin for him to say that pension funds are flush with cash and that the withdrawal is a mere bagatelle meant to refine the taxation system. I was not persuaded by that section of his speech.

I have also re-read the Chancellor's exposition in which he tried to explain why he withdrew the credits. I was not convinced before, and I remain deeply sceptical of the Government's position. The same types of people, such as pensioners, will be hit by withdrawal of dividend tax credits as will be hit by the windfall tax. I think that withdrawal is another measure suggesting that the Chancellor is determined to avoid deployment of transparent, fair and income-related taxation, concentrating instead on complicated measures that might initially seem to be company taxes but which, in time, will be shown to have a huge negative impact on individuals' savings.

The broad impact of depriving pension funds of £3.5 billion per annum will require each of the 19 million members of active pension schemes to contribute an extra £190 per annum simply to maintain the same growth level. That situation is deeply worrying.

Ministers have said that one of their intentions is to try to move from the short term to the long term. Is it not most likely that someone who sees the flow of dividends from their pension fund drying up will spend their money rather than invest it in a pension scheme that has been shown to be not at all safe?

I agree that that is another indirect effect. I agree also with the Chief Secretary's view that we should consider such matters on a much more long-term basis. I will support any earnest attempts by the Government to achieve such a shift in emphasis. The hon. Member for Faversham and Mid-Kent (Mr. Rowe) is absolutely right: withdrawal of credits will not only have the effect that he mentioned but will undoubtedly cause other untoward and unforeseeable changes in people's behaviour.

I have two questions for Ministers, which perhaps the Financial Secretary to the Treasury will deal with in her reply. Is any work being done by Ministers to consider whether the rebate awarded to those who have opted out of the state earnings-related pension scheme will be upgraded to deal with the shortfall? There is a perfectly good case for that being so. If we do not do something along those lines, people may be tempted back into the state scheme, and that would not be sensible. It is an important question, which may well determine whether we support the Opposition motion. I am inclined to do so, but, if I had a positive answer from the Government on this point, I might be tempted to vote for them and increase the congestion in the Government Lobby.

The second question is equally important but slightly different, in that it refers to the impact of the proposals on local authorities. If the Government are to proceed as they have said, to be fair they will have to provide some compensation for local government settlements. The effect of the proposals on local government pension funds will be pretty dramatic and, in some cases, very dramatic.

It will cost my authority upwards of £1 million; that is an employer's contribution of nearly 3 per cent. of payroll, and will come out of capped expenditure in a local authority with a relatively small amount of money to play with in the first place. If the Government are to be fair in introducing a change of this magnitude, the position of local authorities must be dealt with in some way. Even an undertaking to consider the matter at some stage in the future would encourage me to think that the Government were being more responsible about these changes than appears superficially to be the case.

The fact that the official Treasury line seems to be that pension funds will be substantially insulated from the changes because they are "in surplus" worries me, because it assumes four things. First, that the existence of a surplus necessarily justifies a Treasury raid, despite the fact that the surplus belongs to the fund members and companies that have over-contributed. Surpluses are not necessarily a bad thing; they can be quite a good thing, but it is up to the companies and members of the fund to decide what to do when there is a surplus.

Secondly, the assumption is that a surplus is permanent and cannot be reversed or lead eventually to a shortfall whereas, in fact, it could do so in some circumstances. Thirdly, more than half of the 19 million people with occupational or personal pensions are in money purchase schemes. For them, the concept of a surplus does not exist because their ultimate pensions are entirely dependent on the site of the fund on retirement. The Government have not taken proper account of that fact.

Finally, the Government seem to assume that no pension funds are in difficult financial circumstances or under financial pressure. The implication is that no one will be badly hit by the proposed changes. I think, however, that some could be badly, perhaps even fatally, hit.

It appears that the Government have made the political judgment that pension funds are a soft target. They are seeking to raise an amount of money which is very difficult to justify and in a way which we might all regret. It is not fair on the companies involved. The actuarial revaluations that will be required and the higher administration costs and so on will drive a wedge between the Government and the pensions industry. The industry believes that the change is indefensible. There has been little or no consultation, and the industry believes that there is no logic or justice in the proposals. I am worried that that will make it difficult for the Government to make progress in this important aspect of public policy in future.

If we consider the matter in the round, it seems that the changes are premature, ill thought out and unfair, but if the two principal questions that I have asked can he answered tonight, I shall be willing to think again. As things stand, however, the Opposition have the better of the argument in their motion about the source of the money and the way it is to be raised.

6.4 pm

I congratulate the shadow Chancellor on initiating a debate on pensions, something that he singularly failed to do in his six years as Secretary of State for Social Security. It is nice to see him initiate a debate on such a vital issue.

When we consider pensions, we have to examine the history of occupational pensions, how they came about and their purpose. There is no doubt that the best type of pension scheme to be in is an occupational pension scheme on a final salary basis—

And which is funded.

indeed—unlike that of the police, I have to say. That is the best scheme to be in, provided someone has a guarantee that they will remain in employment until retirement. Sadly, that is no longer the case for tens of millions of people.

Occupational pension schemes are a relatively modern phenomenon. They grew significantly in the 1950s and 1960s because there was a shortage of labour and such schemes were needed to entice people to work for particular companies and particular industries. There is nothing wrong with that, perhaps, but the decline in occupational pension schemes since the late 1960s and early 1970s in terms of their number and the number of members is significant and something that should worry us.

In the 1970s, there was some recognition of the fact that millions of people are not and can never be members of occupational pension schemes. They are principally women and carers, but they also include many people in low income brackets and people who have many breaks in their employment for many reasons. Recognition came in the form of the state earnings-related pension scheme. SERPS has to be recognised as a valuable, solid scheme for millions of people, but, at the same time, we have to recognise that, during the changes that took place two or three years ago, billions of pounds were taken from the future pension entitlement of members of SERPS without an iota of whingeing from the Conservatives—it was okay, because it affected individuals in a state scheme.

We have heard much hypocrisy today, with talk about a briefing from the National Association of Pension Funds. I have to say that Anne Robinson told a different tale when she was at the Institute of Directors—perhaps it is a case of whoever pays the piper calls the tune. Millions of people will experience a dramatic reduction in their SERPS pension in years to come without an ounce of compassion being shown by the Conservatives.

Much has been said today, wisely, about the misselling of personal pensions, but an issue of financial mismanagement that affected tens of thousands of pensioners in the late 1980s and early 1990s—the infamous home income plans—has not been touched on. Not only did people lose a great deal financially, many pensioners lost their homes because a deregulated system with no statutory back-up allowed people to rip off those who did not know any better and had no access to the right advice. People lost their homes and their investment, and finished up far worse than they ever were before.

Many things affect the value of a pension fund, not least the investment decisions taken by fund managers, the profit record of the companies in which they invest—at this point, I should perhaps mention that the profits declined somewhat in the two recessions that occurred under the previous Government; in fact, they declined significantly—the contributions from employer and employee, and the sort of investments held, whether gilts, bonds or equities, at home and overseas.

It is interesting that, in 1990, the Nikkei index in Japan hit 34,000 and is now down to around 19,000. Is it suggested for one minute that the Government should compensate pension funds for investments in the Nikkei? I think not. The ability of pension fund managers is crucial. There are some very good ones, but many are very bad.

The performance league tables for pension fund managers show the same companies time and again in the top three or four, be it over five, 10 or 25 years, and the same outfits at the bottom, offering a miserable performance and depressing pension fund values, assets and returns. We have had charter marks for many years, but it is noticeable that there has never been one for the pension fund industry. If there had been, very few people would ever have earned one. We now have the minimum funding requirement, which is no bad thing, but perhaps we need a minimum performance requirement of pension fund managers, because some of them have been getting money under false pretences for far too long.

In general, if a company is a mutual or non-commission paying, the investment is safer and will do better. In addition, if the company's title includes the adjective "Scottish", it tends to be one of the better ones—and I do not say that just because of the identity of the Minister on the Front Bench tonight. Certain institutions have a long history of being sound, solid investment vehicles, but there are far too many who are doing nothing for pensioners or investors and they should be weeded out. The sooner we have a regulatory authority that acts against incompetence, the better off pensioners will be.

Before I came to the House, I had the privilege of being the chair of the investment board of what I believe is the largest local government scheme in the country—the West Yorkshire local government superannuation scheme, which had about £2.5 billion of assets. In the six years I was there, the fund grew, we were fairly successful in the investments we chose, and the benefit could be seen in the employers' contribution rate dropping from 11 per cent. to 5.5 per cent. for manual workers and to 4.5 per cent. for white collar workers. Those were significant gains.

At the same time, some of the previous Government's worst anti-public sector attitudes were on display in that, in the late 1980s, when bus companies were deregulated and local authority bus services went into the private sector, we were instructed that bus workers could no longer be members of the local government scheme. They had been in the scheme for years and had a good, well funded final salary scheme, with low employers' contributions. By diktat of the Government, new bus workers were told that they had to make their own pension arrangements, so immediately we had a two-tier pension scheme in the bus industry.

Of course, the Conservative Government were well known for having two-tier schemes throughout the public sector, so they probably thought nothing of it. Now, however, about two thirds of those working in the bus industry have a good scheme, but the other third are at the mercy of the sharks and charlatans about whom we have heard so much today.

The Government had other attitudes towards pension funds and their assets—one remembers their raid on the assets and surpluses of the National Coal Board, the National Bus Company's BEST scheme, British Rail and many others. Not only did they do that: they then spent Government money on behalf of the new trustees, defending them against claims that the money should be paid back. In short, they raided the money and then provided the costs of the legal defence to justify the decision being made in the first place. Many, many thousands of pensioners who worked in those industries will be far, far worse off as a result of that than of anything that might—I stress, might—emerge from the Budget decisions taken last week.

When considering pension values and the rights and living standards of pensioners, there are two sides to the equation. It is like any accounting practice—there is the income side and the expenditure side. We well remember the savage attacks on pensioners in the 1980s: the increase in prescription charges, the introduction of charges for eye tests and dental checks, value added tax on fuel and various other measures, all of which had a disproportionate effect on those on small occupational pensions. Some Conservative Members are looking aghast—they thought pensioners were exempt from those charges, but they must have been given the wrong brief.

Would the hon. Gentleman care to enlighten us as to which pensioners pay prescription charges?

Any pensioner who is not on income support. If the hon. Gentleman nips very quickly to the Library, he will see that I am right, and he might get back before I sit down.

So far, this has been an interesting debate, although there seems to have been an attack of collective amnesia among hon. Members on certain Benches. It is important to remember that pensions are a long-term equation and all sides need to be considered. We cannot simply allow the debate to continue as it started, with the words of the shadow Chancellor.

6.14 pm

I am glad to follow the hon. Member for Bradford, North (Mr. Rooney), not least because I listened to his speech with great interest for 10 minutes and noticed that it did not contain a single word of justification for what the Government have done in respect of pensions in the Budget—not a single word.

In the light of the Budget, people are rightly concerned about their pensions. The whole cast of this gravely mistaken Budget is wrong. In two short months, the Chancellor has allowed the living costs of the average mortgage payer to rise by about £12 a month, and has cut that individual's prospective pension—if he is around 30 years old and paying the modest enough sum of £100 a month—by some 20 per cent.

In order to provide equally for himself and his family in future retirement, that same citizen will have to increase his contributions by some £20 per month, if he can. That is a combined increase in mortgage and pension payments of £384 a year for a fairly modest earner, and the country should realise that.

That is profoundly wrong. The Government came into power purporting to set a high moral tone, yet they are willing to pretend that taxes can be raised painlessly by so-called windfalls; and, hoping that no one will understand the complexities of advance corporation tax, they have robbed future pensioners—pawning the future to pay for the present. I see that the Chief Secretary does not like to listen to this, and is about to depart the Chamber.

The £5 billion per annum taxes raised from the advance corporation tax changes to pension funds is the equivalent of an extra 3p in the pound on income tax, taken from people's savings. I mean people's savings, not "the people's money", which is how the Government like to refer to public money. We are talking about money taken from real people's savings every year, and millions of pensioners and probably as many as 20 million families will suffer as a result.

Britain can pride herself on having, over the past 18 years under the Conservative Government, increasingly funded pensions, so that, now, not only do we have the largest funded pensions in Europe, but our funding of pensions exceeds all others put together. We have put money by and saved it so that it can grow for the future.

With a constantly aging population, that is the only way to prevent our old people—that means ourselves in the years ahead—from becoming an intolerable burden on our children and grandchildren. At one greedy, misguided stroke, the Chancellor has severely limited that benign process. He has cut our savings and increased the need to save, but has cut the incentive to save. He is spending now what should be saved up for the future.

I am sorry that the Chief Secretary has left the Chamber, because, at the end of his speech, he tried to give some justification for what he had done by saying that the fact that companies would be taxed on the dividends they pay out would make them more likely to invest. I have never heard such a wafer-thin argument, which was rightly cut to ribbons by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley). The Chief Secretary had not thought of that argument when he was skewered on "Newsnight" the other night, and I suspect that it was dreamed up, either in the Treasury or the Department of Social Security, to provide some sort of fig leaf for this gravely mistaken policy.

We look forward to asking the Government some detailed questions. For example, how much of the money of companies that would have paid dividends is to go into investment, and therefore by how much has the £5 billion tax take been reduced to allow for the increased investment that is to give rise to the compensating bonanza, which was the substance of the Chief Secretary's argument? I do not believe that the figures will add up.

Moreover, by taking his tax increases from these largely unnoticed funds, not from current earnings, the Chancellor is doing nothing to cut current spending, which is feared to be leading to overheating, thus causing the Bank of England to continue to increase interest rates. Hence we are moving from the benign downward spiral in costs and interest rates that has stimulated the remarkable economic recovery in the past four years and left the Chancellor with his unrivalled inheritance, into a vicious upward spiral.

The pound rises, hitting at our competitiveness—the effect on manufacturing orders was dramatically demonstrated yesterday. Companies that increase payments into their pension schemes to replace what the Chancellor has taken out will have correspondingly less for investment; so much for his talk of under-investment. Private citizens with personal pensions who already prudently pay the maximum permitted for tax relief have nowhere to go. If they wish to save more, they must do so without the same tax relief.

Now we hear that the Chancellor has designs on personal equity plans. What will ISA, the individual savings account, have to offer? It seems hardly likely to be better, but we wait with keen anticipation.

Government supporters should realise what their much-vaunted new Labour Government are up to. They are up to hype and deceit, robbing the future to pay for the present. They pretend that money can be raised painlessly by windfalls, when they know that today the principal investors in the companies that they have just taxed are the very pension funds that they are already robbing by abolishing ACT.

Before the general election, one of the aims of the Labour party was to persuade the country that it had changed—that, in its approach to business and to the personal ambitions of ordinary people, it was now more like the Conservatives, only nicer. [HON. MEMBERS: "Hear, hear."] We now know that that is not true.

Two key Conservative principles—principles that apply to the millions of ordinary families who work hard and save hard—are thrift and self-help. By this Budget, Labour has hit both principles in the teeth. New Labour has turned its back on the pensioners of the future. Wake up Britain, and see these deceivers for what they are.

6.21 pm

The Opposition motion is a rambling mish-mash of ideas, cobbled together by the fag end of the previous Government. It is couched in the language of guilt and betrayal, to scare the British public into supposing that they are at risk.

In reality, the aim of the Budget was to confront the country's endemic legacy of economic problems. That legacy consists of gross under-investment in physical and human capital, increasing debt costs—the annual cost of paying our debts is now £25 billion a year more than the cost of schools—and emerging overheating in an economy that is disabled by under-capacity and under-investment.

The Budget was designed to confront those problems head-on, and it did, by reducing corporation tax, reducing tax on small business and investing in the skills stock of UK plc, so that we would be strong again to fight and win in the global economy.

The Leader of the Opposition has said more than once that there is no such thing as a free lunch—although we know that there is free champagne in the Conservative leadership contest—but he does not realise that the Budget means growth and higher profitability for British industry and a simultaneously faster reduction in the country's debt. That must mean UK plc moving into balance much more quickly, and that must mean that the returns and values of pension funds appreciate more quickly.

It was no surprise, therefore, that, on the day after the Budget, the stock market rose 80 points. Since we were elected, there has been an upward cycle of share values, which has helped pension funds.

The shadow Chancellor, who has now left the Chamber, seemed to imply that growth did not matter, and the next moment he started talking about pension holidays, which is proof that, if industry grows because the Government provide the right environment for growth, that will compensate for the reductions in tax concessions that are given for dividends. The conditions that we have created will help pension values.

It has again been asserted—incidentally, it was asserted by the right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell)—that pension values simply rely on dividend flows. That is obviously not the case: I have previously described that idea as a quaint, eccentric actuarial practice. Real pension values also depend on overall equity growth and projections of that growth.

We find that to be so elsewhere on the globe, and in the case of other financial products, such as unit trusts. Actuaries and the Department of Social Security need to think carefully—especially with respect to minimum fund requirements—about the definition that we now use, which we very much need to revisit.

I want to bring to the Floor the issue of the level of dividends as a share of operating surpluses in Britain compared with that of our major trading competitors. In Britain, that share is much higher than in the United States of America, Japan or Germany, suggesting that there is an opportunity for reinvestment from retained profit to increase research and development, and to increase long-term profitability to a more globally competitive level. That is implicit in the thinking of the Budget.

We must consider the Budget in the context of the new culture of stability that was introduced by the delegation to the Bank of England of responsibility for setting interest rates—a change which, overnight, reduced the long-term borrowing costs of British industry by changing long-term interest rates. That change reduced costs and this change increases returns, so collectively we see an increase in the expected return and profitability of British industry. That means jobs and prosperity for Britain.

The changes are good news for pensions. They are good news for pensioners, for workers and consumers, and for Britain.

6.26 pm

It was obvious to all hon. Members who were in the House before the general election that, whoever won, the House would find itself debating pensions fairly soon. I doubt, however, that any of us anticipated that we would be doing so in circumstances such as those that we are in tonight—the robbery of about £5 billion a year from our pension funds by the proposal on advance corporation tax in the Budget.

Listening to some of the earlier exchanges about the proposals for basic pensions plus made by the previous Government—which, I seem to recall, were favourably received by the current Minister for Welfare Reform and by the Prime Minister—I was reminded that, before the general election, it was understood on both sides of the House that there was a need for long-term reform, to encourage more people to provide for themselves for their retirement. That recognition appears to have flown out of the window in the present Government's proposals.

I remind the House of my many interests in insurance and financial services. I have worked in the insurance industry since 1970. I am a director of what is now a very successful insurance brokerage, which also includes an independent financial services company, both based in North Yorkshire. I am an adviser to the Institute of Insurance Brokers, and have been throughout its 10-year history.

As the Under-Secretary of State for Social Security, the hon. Member for Southampton, Itchen (Mr. Denham), knows, in the past seven years we have had a thriving insurance and financial services group, in which we have considered in a non-partisan way some of the issues that we are debating tonight. I have one other curious interest, in that I am, and have been for six years, an elected member of the Insurance Brokers Registration Council. We are regulators. We are the authorised bodies for insurance brokers. In that role, I have hands-on experience of why the problem of the misselling of personal pensions is taking so long to resolve.

In view of these interests of mine, hon. Members are bound to wonder whether any of them might influence what I have to say. But in fact the Budget was not bad for the company of which I am a director: the lower corporation tax and the 50 per cent. on capital allowances benefited our company. The removal of the ACT credit from pension funds will inevitably mean more new business for companies like mine—so the measure is beneficial from that point of view. The real issue, however, as my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) said, is the fact that we are robbing the future for tax revenue today, which is a gross mistake.

The pensions transfer review is complex. It has been said this evening that the former Government did nothing about it, which is not true. The Economic Secretary, to be sure, has injected some urgency into the review, and that is good. Very few people in insurance or financial services fail to recognise the need for the review to be completed. I remember saying at the Chartered Insurance Institute's conference in Aberdeen, held in 1995, that insurance and the financial services industry cannot expect to regain the trust of the public until this matter is resolved. There is no shortage of willingness to resolve it, but certain problems remain.

The IBRC authorises roughly 1,200 firms' financial services regulation. We have identified about 200 cases, involving 80 of those firms, which hinge on the opt-out and non-joiner part of the problem. As the hon. Member for Southampton, Itchen (Mr. Denham) knows, that is critical. Very few of these cases have been settled, but we have set as a target for their settlement the end of 1997. We believe that about half the cases will result in compensation.

We have also identified about 2,800 cases involving pension transfers. A great many of them are not a problem, although I suspect that there may be some over-optimism in that regard. We have identified, furthermore, about 11,500 non-priority cases which are not yet part of the review and which still await a decision about when the industry should consider them. If the IBRC, covering 1,200 insurance firms—each one of which has a large general insurance business; this is not the main part of their business—has so many cases, we can only guess at the scale of the problem throughout the rest of the industry.

The Government would therefore be wise to defer a decision on when the non-priority cases should be reviewed until the first phase, the priority cases, is out of the way.

Why is it taking so long to complete and settle the reviews? Gathering the information is a slow and complex business. It was not until the autumn of last year that the software was produced to allow a loss assessment to be done in a standardised form. It would be a hugely complex task to do case by case. It should also be remembered, as against the allegations that the previous Government did nothing, that the Securities and Investments Board simplified the information that had to be asked for only as recently as January of this year.

I have seen a letter on file from one occupational scheme that we are reviewing, answering the request for information using the latest, simplified form recommended by the SIB, as follows:

"You will have to learn to wait."

I urge the Government to get on the backs of the financial services and pension providers, and to chivvy along the occupational schemes. Unless they provide what are often simple scheme details, we cannot calculate precisely what the losses may be. They must be encouraged to get on with the job. The country is entitled to expect progress, and progress is precisely what the great majority of people in the industry want.

The next huge problem concerns the feeding in of the removal of tax relief on dividend income to the calculation of what it will cost to go back into an occupational scheme, and of the likely value of the personal pension policy that was sold instead. If such an equation has to be drawn up, any prospect of resolving the problem of misselling at an early date will go out of the window. Any such idea is bound to hit the buffers.

If an occupational scheme does decide to recalculate what it will require for a person to rejoin it, it will in effect have a blank cheque: it can require whatever it wants before someone can rejoin. Yet existing members will still be subject to the same regime, governed by the tax credit removal on ACT; so current members will be worse off. It is expected throughout the industry that many occupational schemes will ask for more—but why should they?

The Government ought to send a strong message to the industry that no allowance should be made for the tax change in any of the reviews. We should not move the goal posts because of that tax change. The calculations should be carried out as if the tax change were neutral; otherwise, the pensions transfer problem will not be solved as quickly as we would like.

The scenario I have described would be a double whammy when it came to compensation costs. Some people might ask why an increase in compensation costs is a cause for worry. I can tell the House three reasons for that. First: who will pay? Perhaps the money will come from professional indemnity insurance or the resources of the firms concerned, if they are still in business—many of them are. But the value of the policy benefits to many policyholders in mutual companies will fall as a result of compensation payments—an issue with which the House has yet to come to terms.

I long for the day when a non-executive director of one of the mutual life offices says, "I have had enough of this. People who did no wrong are having their benefits curtailed so as to pay for compensation to people who may have been missold personal pensions but who were at least a party to that transaction." Ultimately, the problem will have to be tackled.

My second reason is a question of equity. Any assessment of the advice that preceded the misselling of pensions can surely be made only in the light of what were thought at the time to be the likely consequences of such advice.

It may be argued that advisers should have paid attention to possible tax changes, such as the one under debate this evening—although there was certainly no clear warning of it. We have to make a firm judgment at some point as to the knowledge on which such advice was based. If we do not set the cut-off date for such knowledge at the time a policy was sold or the time someone was advised to leave or not to join a scheme, then we should at least settle for the time when the SIB review was announced.

Without such a cut-off, who knows what changes to tax laws or benefits the next couple of years may hold? We shall find that, every time a change is made—it will be a long-drawn-out process for several years—we shall have to rehash the matter.

A precedent has already been set of which the Minister may be aware. Some independent advisers have asked the SIB and the PIA whether, in calculating compensation, they can take into account the fact that the company with which the personal pension policy was arranged produces windfall shares for members. Some, such as the Norwich Union, have, and there are strong rumours about what might happen to others like the National Provident Institution and Friends Provident.

The PIA has come down firmly and said that under no circumstances should those additional benefits be taken into account. If we apply the logic of that argument, we should say that the ACT tax credit change should influence neither the calculation of the cost of returning to an occupational scheme nor the value of the pension policy that was sold. The comparison between the two is how the required compensation is calculated.

The third reason for concern about compensation costs is that the Government's role in this matter was undoubtedly a major factor. Earlier in the debate, the hon. Member for Northampton, North (Ms Keeble) produced some advertisements with which we are all familiar. I urge the new Government to tread carefully when giving advice: whether it was right or wrong, many people thought that buying a personal pension was the right thing to do because the climate that was created encouraged that.

It was right for some people.

It certainly was, but it was not right for everyone.

My hon. Friend makes the very point that I was about to make: the fact that there was a climate in which personal pensions were regarded as attractive exonerates no one from giving bad advice on whether to opt out or not to join an occupational pension scheme. The pensions industry has agreed to take all this firmly on the chin, because it knows in its heart of hearts that people were put into those schemes, and that policies were put on to the books and accepted, when they should not have been.

The Chancellor's decision to remove ACT tax credits from pension funds is a monumental misjudgment. For the background to this matter, one need only look at The House Magazine of 30 June—published on the eve of the Budget—in which the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) had an article about pensions.

In another article, Allan Evans of Pearl Assurance made two telling remarks about the scale of the under-investment in pensions. In spite of the record that my right hon. Friend the Shadow Chancellor outlined at the start of this debate in comparing our record with that of other countries, the potential for more to be done could not be clearer from Mr. Evans's two comments. The first is:

"Only 1 in 100 occupational scheme members will receive their maximum entitlement of two-thirds of final salary."

It is no good saying that pension funds are awash with money and that everyone is on some great gravy train once they retire. That is simply not true, because only one person in 100 will get the maximum. One has only to look at the insecurity of being a Member of Parliament and at how many hon. Members, when they eventually retire, will get the maximum pension entitlement under our scheme. In the fleeting moments during the count, when even I wondered whether I had survived, the pension that I would lose was one factor for my wanting to return to the House—but it certainly was not the only one.

Mr. Evans's second point, which is even more telling and even more important in terms of the removal of the ACT tax credit, is:

"the majority of people with a personal pension are making wholly inadequate levels of contribution."

That is why the misselling scandal arose. It was not wrong to encourage people to make provision for their own future; the problem was that they merely invested their national insurance rebate, which should have been just the first building block.

One of the reforms on which I hope for some cross-party consensus is that, if people decide not to join an occupational scheme, any employer's contribution that would have been made to an employer's scheme should be available for them to invest, as of right, in a scheme of their own. We should have done that in the late 1980s. The fact that we failed to do so is one reason why we have this problem today.

The hallmark of the new Government's first weeks in office is to blame the previous Government's shortcomings for unpopular and difficult decisions. I make no complaint about that; if the roles were reversed, we would doubtless do the same. However, the decision on advance corporation tax credits is entirely of the Government's making. All Governments make mistakes, but it is hard to imagine a worse one, even by this Government's standards.

6.45 pm

The House will welcome the sudden apparent interest shown by Conservative Members in the plight of pensioners. However, I fear that the 15,000 pensioners in Pontefract and Castleford will be a little cynical about the former Government's new-found concern for their plight. After all, it was the Conservatives who put VAT on fuel bills up to 17.5 per cent. whereas the Labour Government have cut it to 5 per cent. and abolished the gas levy, which means that pensioners in my constituency will be considerably better off this winter than they would have been had Conservative Members had their way.

The Conservative party did little to ensure that the poorest pensioners get their full entitlement to the money that they are owed after working hard all their lives. An estimated 1,500 pensioners in my constituency do not get the income support top-up to which they are entitled, having worked so hard, which means that they lose on average £14 per week. That sum goes a long way when one does not have much money to play with in the first place. Nevertheless, the Opposition now say that they are concerned for the plight of pensioners in the future; it is worth considering their arguments in detail, if only to show that they do not add up.

The Shadow Chancellor raised the subject of a 30-year-old now saving for her pension. She has most of her working life before her and hopes to be in work during that time to save for her retirement. What questions does she face when considering the security of her retirement? Her security depends first and foremost on her pension fund's long-term performance, which means the performance of the companies in which the pension fund invests. She will be pleased to see how well the stock market has done since the Budget—an 11 per cent. increase has done wonders for the capital value of pension funds—but she will be more interested in the long-term performance of pension funds and companies, which depends most of all on the economy's long-term performance.

The 30-year-old is also interested in whether she can stay in employment for the next 30 years, which means that she has a strong interest in not being pushed out of her job by another recession—by more of the same boom-bust cycle with which the economy has been plagued for decades, and certainly severely for the past 20 years. Her security in retirement thus depends on her ability to stay in employment and on the long-term prospects for growth in the economy.

What would that 30-year-old have had to expect from the Conservatives for her retirement? Not very much. The former Chancellor was preparing to make exactly the same mistake in economic management as his predecessor, Nigel Lawson, made in the 1980s, fuelling another boom. No, he would not have raised taxes. No, he would not have cut borrowing. No, he would not have given the Bank of England control over interest rates. And no, as we know, he would not have been half so keen to raise those interest rates himself.

Had the Conservatives been re-elected, we would have been on the verge of another round of disastrous economic mistakes, taking the risk that we were fuelling inflation, triggering recession once more and weakening the very companies on which that 30-year-old's pension depends. We can assume from what the shadow Chancellor has said that he would agree that he, too, would not want to cut borrowing at this stage, would not want to raise interest rates and would certainly not have given control of interest rates to the Bank of England.

In contrast, my right hon. Friend the Chancellor has done more to promote stability in economic management than any Government since the war. He has also done more to promote the long-term rate of economic growth in the past few months than the Opposition did in their time in government.

Let us consider the real problems for the long-term rate of economic growth, which matters for the pension funds and for long-term company performance. Low investment and skills shortages are huge capacity constraints on the economy, stopping our economy growing and preventing businesses from expanding as much as they could otherwise do. The United Kingdom's investment record is pitiful compared to that of our competitors. In 1995 we invested only 15 per cent. of our national income, leaving us 13th in the European Union league. We know that we also face persistent skills shortages, which the previous Government did little to tackle when they were in power.

The new Government, however, have introduced new measures for investment, not just by cutting corporation tax, but by increasing capital allowances. Such measures will promote the prospects of pension funds which are so important.

That brings me to the tax credit about which Conservative Members are so exercised. Would they have introduced that credit if they were starting all over again? Will they reintroduce it, once it is abolished? Would they really want to introduce a distortion in the tax system that encourages pension funds to demand a short-term dividend from the companies in which they hold shares, rather than encouraging those companies to put their profits into investment? The tax credit directly encourages that. It is a distortion that is short-termist in its impact and probably does much to explain why we have such an abysmal investment record in the UK.

For example, in the late 1970s dividends as a share of gross domestic product were about 2 per cent. in the UK and about the same in the United States. Over the past 20 years, dividends have risen to about 3 per cent. in the US. In the UK, dividends have soared to an almighty 6 per cent. of GDP. No wonder we have capacity constraints, if so much money is being poured out in dividends rather than being invested in the long-term future of our companies. It is madness to allow such a distortion to remain when we have the chance to do something about it.

The hon. Lady describes a gap of 4 per cent. of GDP. Can she tell the House where she imagines it to go? Does she accept that it may be redistributed into the industries that most require it for investment?

Opposition Members have a problem—they think that there is a zero sum going all the time. They do not think in terms of resources going into investment in the long term, and of allowing companies to make a fair decision without its being distorted by a tax incentive that sends the money back to the pension funds. Conservative Members have been so keen to advocate market forces in order to allow companies to make fair decisions and to send the money where they think that it will have the best return; yet the hon. Gentleman is advocating a tax credit that specifically distorts the financial decisions made by companies and by pension funds because they have an incentive to send the money back in dividends instead.

Even honest Conservative Members know that that tax credit should go. More than 10 years ago the right hon. Member for Henley (Mr. Heseltine) told journalists that the system of subsidies for pension funds did not promote wealth creation. The remedy, he suggested, was to

"take pension fund incentives away."

If Conservative Members were genuinely concerned about the plight of pensioners in future, they would have done more to tackle the misselling of pensions. Theirs is the party which, when in government, encouraged hundreds of thousands of people to opt out of their work pensions into private personal pensions, and then sat back and did nothing about the scandalous misselling that took place.

About 2,300 people in Pontefract, Castleford and Knottingley have been missold personal pensions. Fewer than one in 100 have received any compensation. More of them have died before receiving any compensation than have received compensation. I find those figures shocking. I am amazed at the gall of the Opposition when they refer to the misselling of pensions in their motion, after their irresponsible behaviour and the little that they did to tackle that misselling.

On behalf of my constituents I welcome the determination of my hon. Friend the Economic Secretary to take tough action against companies which have not yet compensated their unlucky victims. Pensioners in my constituency and savers for future pensions will be relieved to know that their prosperity and their future pensions are now in the hands of a Labour Government.

6.56 pm

I begin by refuting the point made by the hon. Member for Pontefract and Castleford (Yvette Cooper) about the imputation system. We would have created the imputation system if we were starting from scratch, because it avoids double taxation of company profits, first in the hands of the company and then in the hands of shareholders. The current method avoids distortion in the capital market. We have equilibrium in the capital markets through the system. The system that the Government are trying to create distorts the capital market.

As the details of the Budget begin to sink in, the irony of it all begins to rise to the surface. The Labour party ran a general election campaign based on a promise of no rise in income tax, a promise to generate more investment in industry and, most disgraceful of all, a scare story that pensioners risked losing their pensions if a Conservative Government were re-elected. Now we see the reality—a Budget which does colossal damage to the interests of pensioners and pension funds, which will reduce investment in industry and which introduces a reduction in people's disposable income which, in all but name, is a rise in income tax.

The ending of tax credits on dividends vandalises British pension funds to the tune of a diminution in value of about 11 per cent. At a time when the developed world is confronting the challenge of how to fund an ever aging population, and when we have in prospect a huge competitive advantage of meeting that challenge with £650 billion of pension fund assets, the Government decide to launch an unprovoked attack on those funds. That tax change will cost the average person who contributes to a personal pension £20 a month extra in pension contributions to make up the shortfall.

For example, the tax change will result in a 30-year-old's pension fund that would have been worth £250,000 on retirement suddenly losing £50,000 in value—a reduction of 20 per cent. in the value and a consequent £20 a month extra pension contribution to make up the shortfall. For many millions of people with personal pension schemes, the shortfall will have to be made up by the individual.

While my hon. Friend is examining the effect of that tax increase on individuals, will he also consider the cost for council taxpayers and the extra that they will have to pay to ensure that local authority pension funds are topped up? Is he aware, for example, that in the borough which covers my area—Bromley—the council estimates that the tax rise will cost it £750,000 per year, which means an increase of £6 for every council tax payer in that area on band D?

I thank my hon. Friend for that intervention. I agree with him, and I have similar figures from my constituency to which I shall refer later.

Returning to pensions, the company will have to make up the difference in most—but by no means all—final salary schemes. As a result, more and more companies are likely to switch from defined benefit and final salary pension schemes to defined contribution schemes. That will shift the risk from the companies to the individuals.

The Chancellor of the Exchequer would have us believe that this is a no-cost Budget—a Budget for the people—but it is not a Budget for the people: it is a Budget that the people will pay for. The Chancellor described it as a Budget for the long term, but the truth is that the Budget will raise cash in the short term while creating enormous problems and increased state dependency in the long term.

Before the Budget, the pension fund regime allowed funds to accumulate tax free. The Government have effectively removed that tax exemption. They will tax pension funds at a time when they were talking about encouraging more savings and the possibility of compulsory third tier pensions. I wonder whether the Labour Government are fully aware of all the consequences of this measure. I doubt whether the Government thought through the changes fully in their rush to legislate.

It is odd that, while higher and basic rate taxpayers will keep tax credit on dividends, non-taxpaying individuals—the poorest in society—will lose the ability to retain tax credit on any small dividend income that they might have. That will particularly hurt pensioners, most of whom do not pay tax. The Government have surely not thought through that measure.

Have the Government considered what will happen to the self-employed or to those in non-pensionable employment who are paying the maximum 17.5 per cent. of their net earnings into a private pension fund? As a result of the Budget, those people will find that they must increase their contributions in order to rebuild their pension funds to their pre-Budget values. However, as they are already paying the maximum amount, those people cannot increase their contributions. Why did the Government not decide to raise the limit from 17.5 per cent. to 25 per cent. of net earnings in those circumstances? Did the Government reject the idea or, as I suspect, have they not even considered it?

What extra incentives do the Government intend to introduce to make maintaining an opt-out from SERPS worth while in the light of Budget changes that make private and occupational pensions less attractive? Have the Government proposed any new incentives? Will they provide additional expenditure to fund the extra demands on the public purse? Have the Government considered those points, or is that another aspect of the Budget that they have overlooked in their rush? Perhaps the Government do not want people to opt out of SERPS—after all, the heroine of the old Labour party introduced SERPS in the first place.

The Budget's effects on local government were mentioned earlier. Have the Government allowed for extra spending provision to make up the revenue support grant in order to fund the extra cost on local government? Have they considered that issue? For example, West Sussex county council has calculated that, as a result of ending tax credits on dividends for tax-exempt funds, its pension fund will be an additional £3.4 million in deficit. That will necessitate increasing the employer contributions, which are currently 17 per cent. of salary, to a staggering 23 per cent. of salary.

We must then ask: how will West Sussex county council fund that extra contribution since it is already spending up to its cap? Will the Government allow the council to allocate the extra expenditure necessary? Will they relax the cap? Have the Government considered that issue? I noted earlier this afternoon that the Prime Minister had considered the matter relatively recently. He excused the mess by declaring that local authorities do not need to revalue their pension funds for another two years. Is the Prime Minister recommending that councils act in an imprudent manner and do not start making up their deficits immediately?

If West Sussex county council is allowed to spend beyond its capping limit, it will mean a 2.5 per cent. increase in council tax. A similar problem faces Arun district council. As a result of this Budget measure, its pension fund will be in deficit by £400,000—which translates to an extra £8 a year that residents of Bognor Regis and Littlehampton must pay. Combined with the county council and police authority, that amounts to an increase of £20 a year. People will have to pay an extra £20 a month in pension contributions and an additional £20 a year in council tax. The Government were elected on the pledge that they would not increase income tax—but these are income tax increases by the back door, and the people will notice. They will know that they were misled on 1 May.

The Government billed last week's Budget as a Budget for investment. A Budget that will tax the investing sector of the economy—the pension funds—to the tune of £5 billion a year is not a Budget that will encourage investment. A Budget that will tax the biggest spenders on plant and machinery—the utilities—to the tune of £5.2 billion will not encourage investment. A Budget that reduces the tax credit available to overseas investors, so that it is less advantageous for a corporate investor from the United States, for example, to invest in the United Kingdom, will not encourage investment.

A Budget that proposed initially—I do not know whether the measure is still on the books—to abolish foreign income dividends, which threatens to drive out of the United Kingdom many British-based multinationals, will not encourage investment. A Budget that amends the finance leasing legislation, the consequences of which will be higher capital costs, will not encourage investment. A Budget that doubles the rate of stamp duty on property to 2 per cent.—we should note that stamp duty applies not only to houses and real property, but to any property that is sold or transferred by document, including the sales of businesses, good will and so on—will impose a significant cost on dynamic and changing businesses, and therefore will not encourage investment. They are only six measures from the Budget, which was billed as a Budget that would encourage company investment, which will reduce such investment.

A Government who said that they would consult widely on tax legislation and who have proposed the novelty of green Budgets, are rushing ahead and pushing through legislation, the consequences of which they have not considered fully. The Government have already announced changes to the Budget: first, altering the calculation of the value of utilities for windfall tax purposes; secondly, the possible withdrawal of their ill-considered decision to abolish foreign income dividends.

It was interesting to hear the Paymaster General's response during Friday's debate on the Budget to criticism of the Government's decision to abolish foreign income dividends. He said that international headquarters companies would remain and could continue to pay dividends free of tax. However, the international headquarters companies regime is available only to non-UK owned groups.

We have before us ill thought out and rushed legislation. The timetable for debate allows for too little consultation, which is why mistakes are being made. It is time that the Government paused to consider and to consult. It is time that they gave up their high-handed approach. The Finance Bill will not increase investment, as the Government claim, but reduce it. The Finance Bill will not create jobs, but cost jobs. It will not make pensioners more secure, as the electorate were told that a Labour Government would, but less secure.

7.9 pm

Thank you, Mr. Deputy Speaker, for calling me to speak in the debate. I declare an interest as a councillor for the London borough of Merton and chair of the United Kingdom Standing Committee on Local Government Pensions. I am also chair of the Local Authority Mutual Investment Trust, director of Church Charities and Local Authorities and chair of Greater London Enterprise Development Capital.

The United Kingdom Steering Committee on Local Government Pensions represents the 99 pension funds in local government. Between them they invest assets of some £60 billion under the local government pension scheme. We have 1.6 million current and deferred pensioners and 1.25 million contributing members. Our funds constitute 10 per cent. by value of all UK pension funds.

Local government pensions are unique within the public sector in being funded rather than pay-as-you-go. We also represent teachers, the fire brigade and the police, but, of course, the previous Conservative Government had not grasped the nettle in ensuring that those schemes are funded, so council tax payers, through various levies, have to pay ever increasing costs for the police and fire brigade. I hope that the Under-Secretary of State for Social Security, my hon. Friend the Member for Southampton, Itchen (Mr. Denham), will take account of that in his pensions review.

I particularly wished to speak in the debate because the right hon. Member for Wells (Mr. Heathcoat-Amory), in the Budget debate on Monday, and the Leader of the Opposition, in Prime Minister's questions today, quoted from a letter that I sent, before the Budget, to the Chancellor. It was dated 26 June and was acknowledged by the Treasury on 30 June. It concerned the then potential abolition of tax credits to pension funds. It said that that

?would add at least 3 per cent.—or £300 million—to employers' pension costs and compensation would be needed, otherwise there would be further cuts in local services unless there was an increase in the revenue support grant.?

I hope that the following comments will be helpful to the House. No local government pension beneficiary is affected in any sense by the proposals in the Budget, which I support. It is important to remind hon. Members that the local government pension scheme is extremely well managed and is very much a model for the private sector. The hon. Member for Mole Valley (Sir P. Beresford) previously represented Croydon, Central. I wonder why he moved. Perhaps the excellent speech from my hon. Friend the new Member for Croydon, Central (Mr. Davies) was a clue.

The hon. Member for Mole Valley gave the local government pension scheme a clean bill of health and supported its continuance. The fact that Opposition Members could not find any holes in it shows that it is an extremely good scheme. Thousands of people who are waiting to come back into those schemes were missold pensions. I assure the hon. Member for Ryedale (Mr. Greenway) that there is no hold-up in the information being made available from the pension funds that I chair.

Local government pension funds have returned extremely good, high returns. I particularly commend their ethical and environmental investment. I hope that other hon. Members who speak in the debate will pick up on that point, as it is important.

I should comment on local government pension funding, which is already below 100 per cent. Hon. Members may ask "Why?" In 1990, I regret to say that the previous Government encouraged funding for local government pensions to drop from 100 per cent. to 75 per cent. to massage the poll tax bills. The reduction overall, as a result of that change, was some 6 per cent. The Lamont reduction in tax credits increased that figure further.

The hon. Member for Beckenham (Mr. Merchant) outlined the possible impact on the funds for Bromley, but each fund varies. Some are funded at 105 per cent.; the lowest, I believe, is funded at about 75 per cent. It depends, perhaps, on the prudence of the decisions of the officers and members of each of those authorities and whether they felt that they had to support the Thatcher Government.

It may be helpful to the House if I explain the valuation of the Essex fund, which was conducted in 1995. The Essex fund is extremely well run by Keith Neale, the borough treasurer. I particularly picked this example because the Chief Secretary, in his reply to the debate on Monday, accurately pointed out that the 3 per cent. mentioned in my letter paled into insignificance compared with the 5 per cent. that results from ill health and early retirement.

Much of the reduction took place because of the reorganisation of local government, which was encouraged and pushed through by Conservative Members. There are further reductions to the 100 per cent. funding level. Some 1 per cent. comes from salaries, which are ahead of inflation. A further 1 per cent. comes, I am glad to say, as a result of pensioners living longer. The funding level of the Essex fund, which was 97 per cent. in 1992, dropped to 84 per cent. in 1995. I say this in terms of it being an extremely well run fund. Thus the 3 per cent. that I mentioned in my letter needs to be taken in the context of the 13 per cent. drop between 1992 and 1995.

Having written my letter, I received advice that the chair of the Chartered Institute of Public Finance and Accountancy pension panel, Peter Scholes, who is chief executive of the London Pension Funds Authority, takes the view that the removal of the tax credits would add some 1 to 2 per cent. to costs, which is significantly lower than the figure in my letter. He has commented in public about what he felt was a very overrated knee-jerk reaction from the media.

I very much support the proposition made by the Chief Secretary earlier in the debate, that we need to look at the valuation of funds. The valuation needs to change. The largest local authority fund—if I can call it that—is American, the Californian local authority fund, which is very much looking for growth from good management. I thank my hon. Friend the Member for Pontefract and Castleford (Yvette Cooper), who, in an excellent speech, pointed out the difference between the American and British system. We have, perhaps, seen an inflation of the cost of the loss of tax credits by many actuaries. They need to rethink the basis on which they would look at actuarial valuation in the future.

The Chief Secretary quoted from certain newspapers. I shall quote Anthony Hilton from last Friday's Evening Standard, who said:

"If the actuaries valued funds on the basis of their total return, and therefore took account of the capital appreciation in funds, a quite different picture of pension fund solvency would emerge."

Surely the hon. Gentleman appreciates that the action that the Government are now taking will drive more and more pension funds out of investments and equities, so the capital appreciation that he desires is much less likely to happen.

It is for every fund manager to take his or her decisions. I personally believe that the package presented in the Budget offers real hope and opportunity for businesses in this country to develop and expand. I would certainly not wish to see any of the local authority pension funds disinvest in the equity market. Perhaps Opposition Members will give different advice, but that is certainly the advice that I would strongly give.

I echo the information that my right hon. Friend the Prime Minister gave at Question Time, that the next actuarial review is not due until April 1998. The recommendations from that will not come forward until late 1998. The impact—if there is any impact—on local authority budgets will be from 1999 to 2000 onwards. I assure the House that the impact will not be seen immediately in terms of council tax bills or an effect on services. The strength of the funds may mean that local authorities will not need additional revenue support grant. That is possible, given the mood of the country and, as my hon. Friend the Member for Pontefract and Castleford said, a strong rally in the stock market, notwithstanding the past two days of speculation about potential changes in the interest rate.

I have received a letter, however, from the Minister for Local Government and Housing, which plainly states that when the actuarial figures are given following revaluation or the fresh look in 1998 and if it is found that there is a problem, the Government will take such factors into account in determining local authority provision for 1999–2000 and subsequent years. It is a matter of taking a view of the situation at the relevant time.

I have listened to the hon. Gentleman's many comments with great interest. I believe that it will be easily demonstrated that local authorities are out of pocket as a result of advance corporation tax changes. Will he join me in pressing Ministers to ensure that the authorities receive full compensation for the costs of the tax change?

As I said, under the previous Government there was a 7 per cent. reduction in funding without a penny coming to local authorities. I made it clear in my letter, to which I referred, and I make it clear again, that it is important that there are no cuts in services. In the light of the letter that I received from my hon. Friend the Minister, I believe that there is not a problem to take forward. Her letter contained important assurances. It is for us all to ensure—again, I support my hon. Friend the Member for Pontefract and Castleford—that we reassess the way in which pension funds move forward. The future looks better with the changes that were announced last week, not with the bizarre approach that has been taken in the past.

Will the hon. Gentleman give way?

No. I shall continue.

Officials of the Department of the Environment, Transport and the Regions have met local government officials today to consider those matters. I believe that there is no need for additional revenue grant, but we shall see what happens with the revaluation in 1998.

I shall summarise. I believe that additional funds may not be needed to deal with the abolition of tax credit. The 3 per cent. consideration, which is mentioned in my letter, must be seen in the context of the 13 per cent. change between 1992 and 1995.

The hon. Gentleman is delivering the best informed and most interesting speech that we have heard from Government Benches, including the Front Bench. He has made an important point and I think that I have grasped it. Do I understand that he has received an assurance from the Minister for Local Government and Housing that extra finance will be available in the next financial year to meet the cost to pension funds in local government? Will the hon. Gentleman confirm that I am correct in that understanding? Will he comment on what appears to be a pledge to break a promise that the Government would remain within the established guidelines for money for that Department?

There has been no proposal to break that pledge or to move outside the guidelines. The letter clearly states that factors will be taken into account in determining local authority provision for 1999–2000 and subsequent years.

As a business man and chair of the UK standing committee, I believe that the Government's proposed reforms are good for UK companies. I believe also that we shall see real investment through fiscal neutrality. Companies that have been driven to having higher and higher dividends will be able to reinvest to improve their net worth. We are talking of a good proposal that will be good for the UK and good for pensioners.

7.24 pm

First, I should disclose that I have spent 25 years in the investment management industry. I spent the past 12 running a business and I remain a director of a company that manages a number of pension fund portfolios.

I believe that the new Government will come to rue the day that they abolished advance corporation tax refunds for pension funds. It would have been a sufficiently major change without introducing it so shortly after the general election, the Labour party having not set out the proposal in its manifesto. It was, of course, challenged about it. I certainly challenged my local Labour candidate. It is a mistake, and it will be seen by the many people affected as a betrayal. From your point of view as a Government, the one thing I hope of you is that the Minister for Welfare Reform will produce a thorough review and reorganisation of our social security system. I think that you are prejudicing a major element of that—

Order. The hon. Gentleman is using "you" and "your". The Chair is not responsible for the matters that he is discussing.

Thank you for correcting me, Mr. Deputy Speaker.

With the minimum funding requirement coming in this April, it is unwise to change the playing field, there being a need for things to work themselves out.

My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), the shadow Chancellor of the Exchequer, began by highlighting the contribution to the economy that has been made by the deliberate giving of tax incentives for pension fund accumulation. It is known that about 62 per cent. of pensioners already have occupational pension schemes, and I have discovered that the distribution from private sector funds is approaching about £40 billion a year.

If we think about that in another way, if that degree of distribution had to come through the tax system, as it does on the continent, there would have to be about 14 per cent. higher taxation. If that burden fell entirely on income tax, there would have to be about a 40 per cent. increase in income tax. The distribution from occupational pension schemes is overwhelmingly the reason why the UK has a much lower rate of taxation than the various rates in continental Europe.

Why is it that continental European economies are suffering from what I would call Maastricht stagnation stability? It is because their tax takes are far too high. I hope that the Government's deep wish for stability, as expressed by the Chancellor of the Exchequer—we all support it—is nut in reality the appalling Maastricht-encouraged stability of stagnation that the rest of Europe has been experiencing.

We are talking of material change. About 70 per cent. of UK dividends go to non-tax-paying institutions that receive rebates, of which the overwhelming majority are pension funds. The amount per year has been cited, but it will be more than £5 billion by the 1999–2000 tax year. It will be about £50 billion over the next 10 years. The Government's proposals will bite on those who have their own personal pension schemes. If they do not up their subscriptions, they will have pensions that are about 20 per cent. less than they expected. In that sense, there is a dangerous retrospective element in the proposed changes.

People took out personal pensions having contracted out of state earnings-related pension schemes on the expectation that there would not he such material tax changes affecting the pensions industry. Various figures have been cited for the cash-flow consequences for the standard mid-30-year-old. In the main, the figure would seem to be between £150 and £250 per annum, depending on how well he or she was providing for a personal pension. That is equivalent to a rise in his or her tax bill of about 7 per cent.

The shadow Chancellor cited the extraordinary remarks of the Financial Secretary. I heard the Chancellor argue in the House that the changes would not have consequences such as the ones that I mentioned, because equities would appreciate as a result of the wider impact of the Budget. The track record of British companies shows that the pattern of capital investment is affected by a variety of factors, the most important of which is the exchange rate. A second factor is self-evidently a company's cash position: companies have had extremely strong cash positions. The rate of return on investment is a third factor.

There is no evidence that retaining earnings rather than paying out dividends has any material effect on capital investment. The misplaced obsession of Will Hutton, which is based on a misunderstanding of what goes on in Germany, seems to have crept into Government thinking rather too strongly. I refer the Chancellor to the recent work of Dr. Laster and Professor Taffler at the City of London business school. They found that companies paying dividends were more likely to invest, particularly in research and development, and that those dividend-paying companies had a higher rate of such expenditure.

The rise in dividend pay-outs has not been called for or encouraged by pension funds. It has happened largely because, with tax-free flows of money, we have had a good clearing market for the most efficient investment of returns.

I am mainly concerned about the responses of companies and the impact on pension portfolio investment strategy. I believe that both will be negative. The ACT impact reduces scheme funding by 10 per cent. or 11 per cent., which brings many close to the 100 per cent. minimum funding requirement level. Companies are bound to shift: indeed, almost half have already shifted to money purchase schemes rather than final salary schemes. Money purchase schemes contain the cost, put the risk on to the pensioner and, at the end of the day, are pretty certain to produce a lower pension. I have seen in the industry an acceleration towards such a shift, and I believe that it will increase.

The Government seem to have forgotten that they have created a tax distortion in favour of interest. Dividends are taxed and interest is not, so there is no logic in that. The change in strategy will produce a rise in domestic and foreign bond holdings, and interestingly a commensurate rise in emerging market equity investment, thus keeping the overall risk portfolio fairly similar, although it will be at the expense of investment in mainstream UK equities. The bond element, even though it may be prudent in some senses, is an asset that does not have the power to appreciate in capital value. Moreover, I would argue that it is not a particularly wise time in the economic cycle to be increasing bond investment, given that we have had a bull market in bonds for 17 years.

If the Chancellor has genuinely been persuaded by the Will Hutton school of economics, he risks taking measures that will turn out to be as ill conceived as Harold Wilson's old selective employment tax. It is irresponsible to attack pension fund accumulation, which is an area of proven UK success. Moreover, for many investors there will be a retrospective element.

The point has already been made about those who have contracted out of SERPs. Will they have their rebate upgraded, or will they go back into SERPs, which would be undesirable for the nation? Their decisions were taken on the basis of a playing field that has now changed.

Unless the Government increase funding, my estimate of the bottom line for local authorities is that council tax bills will increase by between £10 and £20 per person.

The figure that has been quoted for the number of people with personal pension plans is between 5 million and 6 million. The latest information that I have obtained is that the figure is approaching 7 million people. They will be hit directly. The Government will lose the support of those 7 million people, and the support of the 62 per cent. who already receive pensions will be questionable. This issue is fundamental to the people of middle England, whom the Prime Minister is so keen to keep on side. It is a mistake from the Government's political point of view, and a grave mistake for the nation.

7.35 pm

I should first like to comment on the discussion about misselling, which is a euphemism for conning. In the 1980s, people were conned. It is extraordinary for Conservative Members to say. "It was nothing to do with us, it was all quite innocent. It arose out of the general atmosphere at the time." They created the atmosphere that gave rise to people, such as the 25,000 miners, being conned out of their occupational schemes. It is a bit like the Kray twins saying, "All right, we murdered a few people, but it was the sixties and everyone else was at it."

I want to focus on the Opposition's motion, especially its reference to security in retirement, which is of concern to us all. In late 1995 and early 1996, there were strikes, stoppages and mass protests throughout Germany, France, Italy and Spain because of the attacks on their state pensions. That action resulted from the ludicrous attempts by those Governments to fit into the Maastricht straitjacket: cuts in public expenditure led to strikes and protest rallies. We have not had protests rallies, strikes and stoppages in this country, yet there has been an enormous reduction in the value of the state pension.

For the benefit of the House, will the hon. Gentleman tell us in which year the previous Government failed to increase the state pension in line with the retail prices index?

I shall come to that in due course, so the hon. Gentleman will have to be patient.

In 1979, our state pension amounted to 29 per cent. of average male earnings. By 1995, the figure had dropped to 22 per cent., and at the same time the wealthiest 20 per cent. of pensioners became increasingly well off in relation to the poorest 20 per cent., who became increasingly poor. That was largely a spin-off from the casino economy of the 1980s. As interest rates went up, richer pensioners who depended on investments did a great deal better. The economic policies that were pursued put pressure on public spending, so there was more pressure to cut the state pension. The clearest way to cure poverty among pensioners is to reinstate the link between increases in the state pension and the average increase in earnings rather than prices. That link was done away with in 1981 by the previous Government.

I am sure that the hon. Gentleman does not want to mislead the House, but he will remember that the link with prices was abandoned by the previous Labour Government. Inflation had become so high that they could not afford to maintain the link with prices, so only the link with earnings was maintained. It was the increase in earnings under the Conservative Government that created the anomaly to which the hon. Gentleman referred. We maintained the purchasing power of the pension.

That is wrong. The link with earnings was done away with by the Conservative Government in 1981, and as a result the pension has increased, but not in real terms. The link with prices was maintained during the 1980s.

All sorts of bogus arguments are flying around about the state pension and the state earnings-related pension scheme. It is said that, with an aging population, we cannot afford the state pension. In fact, if the link with earnings were restored, by the middle of the next century the cost of the state pension would be £66 billion rather than £45 billion, the cost that would result from the present rate of increase. That could be covered by an increase in employer and employee combined national insurance contributions by less than the rate of increase during the 1980s under the last Government.

Restoring that link would also be a star move because it would remove the means test that faces many pensioners. Hundreds of thousands of pensioners depend on income support, but hundreds of thousands who are entitled to claim it do not. That is because people who have worked all their lives, have paid into national insurance funds and feel that they are independent and capable find it deeply patronising that they must go to the DSS office, fill in a pile of forms and be patted on the head and told, "Well done—you are entitled to the money that you should have had anyway." Such people should not have to go through such a tortuous rigmarole.

I have received many complaints from constituents about a related issue—the allowance for those over 80, which is 25p a week and has not been increased since its introduction. A number of people aged over 80 have told me that they would prefer the allowance to be abolished, because they find it so patronising to receive an extra 25p a week for turning 80. I think that the allowance should be uprated to a decent level, so that we can view it with some pride.

That brings me to the subject of the state earnings-related pension scheme, on which there has been considerable debate. It has even been suggested that SERPS should be abolished and replaced with personal pension schemes. I speak from experience when I say that that would be a grave mistake. For a while during the 1980s, I worked as an underwriter. It may surprise hon. Members to learn that a raving firebrand like me was a yuppie for a few years, but it is true—although I could not get out of the job fast enough.

My experience as an underwriter tells me that the idea that private pensions can replace state pensions—which provide for so many disadvantaged people—is fantasy. The private pensions and insurance industries are not going to pay out for people in straitened circumstances who cannot afford to contribute the increased premiums that will undoubtedly result if SERPS is done away with.

SERPS should clearly he rescued from the Tory attacks of the past 18 years. There was a deliberate attempt to undermine the scheme. That is where the conning came in: the aim was to persuade people to leave SERPS and sink the money into other schemes. I remember going to seminars—within the insurance industry, not public seminars—in the 1980s, in which people were told as a matter of fact that Barbara Castle had made an enormous mistake in introducing SERPS, and that they should not stick with the scheme because it would not exist in 20 or 30 years. That was a lie, but it was a lie that was put around—not just to the public, but to people working in the insurance industry. That tells us something about the atmosphere that prevailed during the 1980s, when the casino economy was in full swing.

Another issue with which I have been involved—especially in the run-up to the election—is that of war pensions. The con that the last Government attempted to perpetrate on war pensioners stands alongside the attack on the miners and the butchery of the mining communities, and the fiasco of the exchange rate mechanism, as one of the most shameful episodes of the past five years. There was an attempt to rob war pensioners and their widows of £50 million.

Someone with whom I worked for some years was a victim of that. In 1945, in Bremen, he was in a tank that received a direct hit. His comrade fell across him, covered in blood, and died. He is buried in a war cemetery near Bremen. My friend, who happens to be a journalist, wrote an article in The Guardian about what had happened. At the end of that article, he asked this question: "Did I fight, and did he die, so that others could come back and be robbed by a Government who are so cheap and cynical that they are prepared to listen to actuaries who, no doubt, have said, 'There are fewer war pensioners around, so you can get away with it if you sneak it out after the Budget??" That is exactly what the Government did.

I hope and believe that the new Government will try to build the welfare state and the public services for which my friend and his comrades who died were looking in 1945, and for the sake of which they fought for freedom.

7.44 pm

The Chief Secretary to the Treasury—who, unfortunately, is no longer present—reminded the House that I am an adviser to the Independent Financial Advisers Association. I did not intend to say anything that related to the association until the hon. Member for Workington (Mr. Campbell-Savours)—who is also no longer present—raised the issue of the Financial Services Act 1986, and the views that were expressed when we both served on the Standing Committee.

First, I must point out that I was not an adviser to the association, or to anyone else, at that time. Secondly, I must tell the hon. Gentleman that his recollection is completely wrong. I did not suggest that commissions should not be disclosed; I said—as some Labour Members who are familiar with such matters will doubtless appreciate—that the costs of selling a pension or insurance policy are numerous. They do not just comprise commission. Many companies spend most of their money on advertising and on their own direct sales forces, and do not pay commission to independent financial advisers.

What I told the Committee in 1985–86 was that we ought to disclose all the costs, or it might appear that a product through an IFA who was paid commission was giving worse value than a product sold by a direct seller who was employing a huge internal sales force and massive television advertising. It was necessary to identify the costs of each method of sale. Unfortunately, my view did not prevail, although I argued strongly in favour of it. Had it prevailed, we might not have seen the level of misselling that ultimately occurred.

The hon. Member for Workington mentioned the Coopers and Lybrand report, but did not mention that the report showed that there was considerably less misselling of products sold through IFAs than of products sold by direct sellers such as banks and some building societies. There would have been a good deal less misselling if more people had employed the services of IFAs. Here ends the plug. I was provoked into that statement, and it has nothing to do with the main thrust of my speech.

The Labour patty likes to pretend that it is the great party of pensions, and that pensions derive from its activities. A little history lesson might be worth while. During the last century, people such as the Rev. William Blackley and Charles Booth were active in stirring the public conscience in regard to the plight of the elderly poor, but in many respects we have followed New Zealand and Australia. It was the New Zealand Government's introduction of a non-contributory pension scheme in 1899 that led a Select Committee in the House of Commons to recommend the introduction of a means-tested scheme in the following year. It took a while for the House to get around to it, but the result was the Old Age Pensions Act 1908, which provided a means-tested pension at a maximum of five shillings a week for all those aged 70 and over.

Similarly, it was the example of Australia and New Zealand that led to the Old Age and Widows' Pensions Act 1940, which reduced the pensionable age of women from 65 to 60. Subsequent Governments may have had cause to regret that. The example of what has happened in Australia and in other countries such as Singapore, Chile and Argentina has led to the productive all-party debate about the ways in which pension provision can be reformed and improved.

I am the first to salute some of Labour's ideas, in particular those from the Minister for Welfare Reform, about the way that we might move forward in pension provision. In the all-party group which I have the honour to chair, there has been much discussion about how to ensure that future generations have a better deal than the present generation.

Our current system derives principally from the post-war Beveridge report and the consequent National Insurance (Industrial Injuries) Act 1946. It is often forgotten, especially by Labour Members, that Beveridge argued that it would be prohibitively expensive to proceed with an old-age pension that would subsidise people to the point at which they did not need to make their own savings. He envisaged that the best that the state could do would be to supplement savings. He said that it would be impossible to pay pensions immediately, because it would require at least 20 years to build up a fund sufficient to start paying them. The post-war Labour Government decided to ignore that advice and to proceed on a pay-as-you-go basis whereby current taxation funded current pensions.

Britain has provided no state fund to allow an accumulation of funds to guarantee future payments. That is why successive generations of pensioners have depended on the good will of the Government of the time rather than on an accumulated fund. It should be remembered that the Labour party, to its credit in some ways, had a scheme whereby the Government paid the higher of earnings or inflation. However, because inflation was so high in 1978, the Government could not keep up with uprating pensions in line with inflation and that system was effectively abandoned, to the fury of some of their Back Benchers.

As the hon. Member for Hornchurch (Mr. Cryer) said, the Conservatives restored the link with prices in 1981, but they did not restore the link with earnings. Since that time, successive Governments have recognised that there is a need to improve the way in which saving is carried out for retirement. In 1958, the Conservative Government introduced graduated pensions and there were, subsequently, state earnings-related pensions. Both had significant disadvantages, which led to their effective abandonment.

The great debate today in much of the rest of the world is whether there can be a scheme under which people will have to save to build up a fund out of which pensions can be guaranteed without the need to rely on state munificence. There have been many reports on that. There has been a series of seminars and a "Panorama" report, and the Adam Smith Institute produced proposals for "fortune" accounts. Probably the most notable work was Sir John Anson's retirement income inquiry under the auspices of the Institute for Fiscal Studies. All those studies have contributed greatly to the debate, and I hope that they will contribute to future Labour proposals.

Belatedly, we have recognised that none of our present arrangements will address the scale of the problem that will address our society in the next century. In 1960, our working age population was 32.5 million and it supported a pensionable age population of 6.1 million. That is a support ratio of 5.3:1. By 1991, the pensionable age population had grown to almost 9 million and the support ratio had fallen to 4:1. It is predicted that by 2050 the working age population will have remained fairly constant at about 33.8 million, but that the number of people of pensionable age will have grown to 13.5 million, which gives a support ratio of only 2.5:1.

Even those figures, which are fairly dramatic, underestimate the true scale of the problem because they relate only to people of working age and not to the percentage of the population who are in work. If they were so related, the support ratio would be even more alarming. Clearly, without some urgent action to encourage future funded provision for retirement, the burden on the future working population will be unsustainable.

I have spoken about the actions of some Governments to reduce their liabilities. It is true that the old-age pension has fallen relative to average gross male earnings from 20 per cent. in 1950 to 15 per cent. today. If nothing is done, it will fall to about 9 per cent. by 2030. The cost of restoring the purchasing power to 20 per cent. would be £6.6 billion a year immediately, and almost £50 billion a year by 2030. Plainly, we need an alternative strategy.

These problems have been considered by my own committee, the all-party group on occupational pensions, and in some detail by the Select Committee on Social Security, which produced an interesting report on unfunded pension liabilities throughout the European Union. That report is worth reading because it shows the scale of the problem. By 2030, if nothing is done in the rest of the European Union, the net present value of pension schemes relative to gross domestic product in European countries will be 98 per cent. in France, 113 per cent. in Italy and 139 per cent. in Germany. It is because we have such a large provision of personal pensions that our position is significantly better at only 19 per cent. of GDP. However, even here, unless we take some dramatic action in the near future, the problem will be entirely unsustainable.

Given that scenario, one might have thought that the Government would take steps actively to encourage personal pensions and the provision of pensions by employers. However, their vandalism in relation to advance corporation tax is precisely the reverse. That is not just the opinion of the Opposition. I am sure that Labour Members will have received press releases from almost everybody who has any interest in these matters. Writing of the Government, the Pensions Management Institute states:

"it is very disappointing to see them introducing measures which … will have a negative effect on long-term pension provisions."

Oxfordshire county council says that the Government's proposal will cost it an extra £2 million a year and Sainsbury says that it will have to double the amount that it contributes to its pension scheme if it is to avoid loss. The list goes on.

The Association of Consulting Actuaries is even more critical, and says, as we have heard, that abolishing ACT credit will reduce pension funds and pensions by up to 11 per cent. The amount that will have to be saved by those who have made private provision will go up and up, because it is not just those who are saving for a long time for the future who will be affected, but those who are about to retire.

The switch which is already taking place from investment in equities to investment in gilts, which is necessitated by the measure, has meant that the yield from gilts, and therefore from annuity rates, has fallen. People who are retiring now and buying annuities with savings from their pension schemes will immediately get smaller annuities than they expected. Therefore, the Labour party has robbed a generation of people of decent pension provision that they thought they had provided for themselves. It has taken that from the most prudent people in society—those who have bothered to save. What sort of message does that give, when we all know, as I have tried to demonstrate, that we need to encourage more saving?

Moreover, requiring companies to make enormous additions—and we have heard what Sainsbury thinks of the proposal—to their final salary schemes will mean the death of such schemes. They have already been declining. There are fewer than 5,000 in the UK with more than 100 members and 16 per cent. of smaller companies have closed their final salary schemes as costs have risen.

That process will continue. I predict that, unless the Government reverse their policies, final salary schemes will, effectively, be abandoned by employers throughout this country. Many major employers are already openly saying that, for new employees, they will not have a final salary scheme; it will only be money purchase. The people who will suffer are future pensioners.

I could go on much longer, but I realise that many other hon. Members wish to speak. However, I urge the Labour party to return to the consensus that I thought was beginning to be built before the last general election. We should consider ways of not just encouraging but perhaps even requiring people to save for their future—to build up for every individual a fortune account, a rainy day account, something that people can access when they become terminally ill or irreparably sick, or when they retire.

If we do that together, we will have fulfilled our duty to the retirement population. However, if we gone down the road that the Labour party has gone down—of believing that, by subterfuge, it can take money away from pensioners and pretend that it is not happening because most people do not understand how ACT works—we face disaster.

8.1 pm

In recognising the number of declarations of expertise and interest that have been made in the debate, I feel forced to declare that my only interest is that of my constituents. When even my hon. Friend the Member for Hornchurch (Mr. Cryer) makes a declaration of interest, I find myself surprised and disadvantaged in that regard. I hope that my contribution is none the worst for that. After all, it is my pensioners' experiences that should he informing the debate.

The shadow Chancellor of the Exchequer pointed out that there are only two sources of income for any pension revenue: that of the individuals who make a contribution to their own pension plan and that of individuals who make a contribution in their working life to their state pension. I would not disagree with that. Nor would I disagree with the fact that we have a growing, aging population and that we face challenging demographic changes, but is that not why this is the right time to have a proper pension review and to examine everything that informs how we decide our security in retirement?

It does not seem logical that taking those two things on board—how we bring revenue together and how we stack that up so that we can afford to pay for a proper retirement for our aging population—should lead us to accept the basic pension plus scheme because, as we have to accept, pensioners are already struggling. For example, about a third of them are already on means-tested benefits and there was nothing in the scheme to help those pensioners. This is the right time to say to our poorest pensioners that we need to do something to help them and that we will talk to them about what it is exactly that they need.

It seems to have been suggested, certainly by the hon. Member for Bournemouth, West (Mr. Butterfill), that people have to be prudent and to save. Let us remember that many of our constituents are not in a position to do that. In setting up my pension arrangements, I was advised that I had to invest at least 10 per cent. of my salary to get a good return and to have a good basic pension. Many of my constituents are not in a position to make a contribution of 10 per cent. of their salary, if they have one. Many of them are low-paid and make some provision for their old age.

I am concerned that, when those people draw that private pension, which they have prudently saved for, they will be disadvantaged by the anomalies in the means-testing system. I hear many complaints—I am sure that all hon. Members do—from constituents who have made investments and who find that they do not enjoy any advantage because they are precluded from means-tested benefits.

Would it not be more sensible to consider the whole package of arrangements for the elderly in our communities to ensure that a review takes account of those matters? Basic pension plus did not seem to provide for that. Indeed, it seemed to place an extra burden on my youngest constituents. During the election campaign, many 20-year-olds were concerned because they would rightly be required not only to pay for the pensions of the elderly who have already paid their national insurance contributions and rightly expect to receive a state pension—the most common complaint among pensioners in my constituency is that, in making their NI contributions all those years ago, they felt that they were making an investment and they now find that those contributions have been eroded—but to pay for their own pensions in private schemes, to the tune of perhaps 10 per cent. of their income.

That is a big burden for young people at a time in their lives when they might be buying a house on a mortgage or repaying a student loan. There is a heavy burden on them already. It does not seem fair that my constituents should bear that burden. For that reason, I was not impressed with basic pension plus, and nor were my constituents.

I suggest that, if the hon. Lady is that interested in basic pension plus, she should read it properly. The whole process was bound around rebates over the lifetime of people's contributions to guard against just the problems to which she has referred. She also has to address the other point: that the Minister for Welfare Reform is bound to consider the issue and that he will then have to take into account the process of the national insurance fund never having been a fund for people in the future.

It seems that the hon. Gentleman accepts the fact that this is the right time for a review. That is exactly what I am saying. We have to review the whole pension situation. To come up with a plan without proper consultation—certainly my constituents were not consulted—and to pre-empt the decision—

There was to have been a Green Paper.

Keep going.

I shall keep going. I thank my hon. Friend for that advice. This is the right time for a review, and my constituents will welcome it.

Pension misselling caused some of my young constituents to be concerned about whether private pension provision was a sound investment. For example, the constituent I mentioned earlier lost nearly £7,000. He took his case to the ombudsman and is still waiting for a reply. He is dissatisfied with the way in which he has been treated. It will seem a little rich to him for Conservative Members to talk now about pension misselling. He will want to know—certainly I want to know—why they have waited until now to discuss pension misselling.

Why was it not dealt with a long time ago? Is this not the right time to have proper regulations? In fact, it is not the right time: it should have been done at the beginning. It is wrong to have a financial market that is not regulated properly, with the result that my constituents, who have small sums of money available to invest, lose a lot of money. It there was any robbery going on, it was of my constituent, as he would tell hon. Members.

My constituents and I feel strongly that change is necessary and I think that the whole House agrees with that. The question is whether we will get the balance right between the contributions made to the pensions system from the state sector and the contributions made in the private schemes. We need to have regulations and proper thought in place to ensure that all our pensioners are dealt with fairly and properly.

8.10 pm

The Chief Secretary to the Treasury said this afternoon that the Government's Budget plans are plans for the long term. In fact, they are the exact opposite; they are short-term plans designed to raise money to satisfy the appetite of the new Government for immediate public spending. It is a perfect example of that old adage:

"You can fool all the people some of the time, and some of the people all the time, but you can not fool all the people all of the time."

I must tell the Chief Secretary that he has not fooled Conservative Members because we know what his plans for changes to ACT and the windfall tax really mean to the people of Britain.

The Government want the country to believe that the windfall tax is a tax that nobody has to pay. That could not be further from the truth. It hits the very people who should not be hit by any taxes. If the Government were really planning for the long term, they would be encouraging people of all ages and all financial capabilities to invest for their retirement.

In fact, the Budget discourages investment in pension schemes because it reduces people's confidence in them. My constituents have, quite rightly, been putting their money into pension schemes year after year, believing that at the end of their investment time they would receive a certain sum. The new Labour Government come along and simply take money out of the schemes, thereby reducing the amount of money that will be available for all our constituents when they need their pensions and reducing confidence in pensions as a safe form of investment. That is happening at the very time when we most need to encourage investment in pensions.

The hon. Member for Pontefract and Castleford (Yvette Cooper) who, sadly, is not in her place, said that Conservative Members have a new-found interest in pensions. That is simply not so—it could not be further from the truth. In fact, we recognised many years ago that, for various reasons, it was essential to encourage people to make investments in pension schemes to look after themselves and their families when they no longer worked. We recognised that because we read the simple sign—what is sometimes referred to as the demographic time bomb.

That is a myth.

It is not a myth.

I refer the hon. Gentleman—[Interruption.] I apologise. I refer the hon. Lady to a splendid volume by the hon. Member for Havant (Mr. Willetts) called "The Age of Entitlement?. It contains a chapter on the myth of the demographic time bomb. It describes how previous Governments have exaggerated the effect of the baby boomers reaching retirement age in order to impose on the country a system of private pensions rather than national pensions.

I am afraid that the hon. Gentleman is wrong on two points. I thank him for apologising for his first mistake and recognising that I am an hon. Lady. However, I am afraid that the hon. Gentleman is wrong on his real point.

Read the book.

I understand what the hon. Gentleman is saying about the book, but even if there has been an exaggeration, there is still a demographic time bomb. There is no doubt about that. Currently, the ratio of people in work to those drawing a state pension is about 3.3:1. When I and other people who have recently become Members of the House reach retirement age, that ratio will be about 2.4:1. Even if some of the stories about the demographic time bomb are slightly exaggerated, there is still an issue that must be addressed. The previous Government were addressing it and the new Government are doing the exact opposite.

My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) gave us some salient figures on this. I will not attempt to repeat them, but they can be read in tomorrow's Hansard. My hon. Friend's analysis was right. Because we have recognised the extent of the burden that would fall upon public expenditure in 20 or 30 years in providing for pay-as-you-go pensions, we have taken steps over many years to encourage investment in private pensions. That has been done by providing incentives, and it has worked. Although the hon. Member for Newport, West (Mr. Flynn) does not recognise this point, the Minister for Welfare Reform does recognise it and he has taken up the recommendations of the Anson report, which was also referred to in detail by my hon. Friend the Member for Bournemouth, West.

The Anson report, backed by the Minister, recommends that it is necessary to impose a second pension on most of the earning population of this country. The attitude of the previous Government, which I thoroughly supported, was that imposition of that sort was unnecessary and that there should be encouragement rather than imposition. Therefore, incentives were put in place and the encouragement worked. As a result, the United Kingdom has more than £600 billion invested in funded pension schemes, which is more than the rest of the European Union put together.

I was most amused when the hon. Member for Hornchurch (Mr. Cryer), who is also not in his place, spoke about the fact that in recent years we have seen strikes in France and Spain because their Governments were cutting state pensions. That is not surprising.

We will see them in Britain now.

I would not be at all surprised.

Matters were dealt with differently in France, Spain and other European countries because those countries failed to take the necessary steps early enough to create funded pension schemes which would produce a real level of income for their populations on retirement. It is not at all surprising that there were riots in France and Spain, and we would not be surprised if the Government's lack of financial planning brought about such a result in this country, although none of us would want that. Because of the incentives to invest in pensions, in 20 or 30 years' time, when many of us will be in need of pension provision, the state pension fund will not have to support so many people, so the burden on public expenditure will be very much less.

If the Labour Government were really interested in planning for the long term rather than for the short term, they would not have been so critical of the basic pension plus plan proposed by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) when he was Secretary of State for Social Security. That plan was the right answer to the problem.

The hon. Member for Colne Valley (Kali Mountford) misunderstood what the plan was all about. I can forgive her for that—indeed, I have every sympathy with her—because she probably listened to the misinformation put out by the Labour party last April. It is not surprising that she misunderstood it—so did millions of others who were made afraid of what would happen in their old age, when exactly the opposite was the truth.

It does not matter what the Labour Government say now: the basic pension plus plan will have to come in at some time. Demographic developments over the next few decades will prevent the pay-as-you-go scheme from continuing. It will not be sustainable, so basic pension plus, or something similar, will be introduced. My hon. Friends and I will not be surprised if, in a few years' time, the Government publish a Green Paper which they will call by some other name, but which in fact will be basic pension plus. It will have to happen.

The difference in attitude between the Opposition and the Government is that we believe in encouraging saving and investment and in changing the culture of state dependency by giving people the opportunity and the incentive to save and provide for themselves and their families. We want to help people to look after themselves and to encourage families and family life. The Government simply produce policies that do the opposite.

There is great disappointment in my constituency with what the Government are doing. Those who have worked hard and put their money into pension schemes or some other form of savings, or who are small shareholders in the privatised utilities, are very disappointed that, having tried to provide for themselves, the first thing the new Labour Government do is take their money away from them and diminish their savings. Of course, it comes as no surprise to Conservative Members.

The hard-working people of Epping Forest want to know what the Government intend to do about funding their future pensions. Unless there is some sort of plan that encourages even more private investment in pensions than to date, in 20 or 30 years' time the burden on the public purse will be very heavy. Instead of continuing with Britain's advantage over the remainder of the European Union—indeed, the rest of the western world, as no country has such well funded pension schemes as Britain—and the benefits built up by the Conservative Government over the last decade and more, the people will be disappointed, and Britain will suffer the same problems as France and Spain.

8.24 pm

During the dying days of the Conservative Government, they introduced three wheezes designed to win the election. One was basic pension plus; another was the plan to privatise residential homes so that elderly people would have no choice other than to go into private homes; and the third was to buy a new royal yacht with public money.

That prompted me, at the time, to ask a Government spokesman whether there was truth in the old saying that those whom the Gods wish to destroy they first make mad. Those three proposals did a great deal of damage to the Conservative party, and resulted in it being wiped out in my country of Wales, in Scotland and in Cornwall, leaving only a small number of Members on the Conservative Benches.

Those of us who are old lags in these debates will remember that, on 12 March, we discussed basic pension plus, when the Secretary of State announced, in all its glory, that, when it matured, a man on average earnings retiring in 2040 would get a total pension of 18.1 per cent. of earnings. That is a disgracefully poor level—something to which we have not descended over the past 50 years. It was a very poor scheme.

I am not trying to be wise after the event on the question of the misselling of personal pensions. I will not quote the question I asked Baroness Thatcher in 1989 and 1990 on that issue.

I took Barclays bank to the Advertising Standards Authority for what I thought was a wickedly deceptive advertisement. To sell its personal pensions, Barclays gave away two free tickets to the cinema. I also complained to the relevant authority about the advertising by Midland bank. If one wants to destroy something, one gives it a bad name. A serp was an oleaginous creature that looked thoroughly repulsive—not something anyone would want around his home. The advertisement said, "Don't be a serp, when you could get yourself the sum of £5,000."

The Conservative party has no sense of guilt about what it did at that time. It was not offering a gift, just a refund of the contributions people had paid. It was an unjustifiable incentive—popularly known as a bribe—through the national insurance scheme, and was entirely inequitable for those who did not take out personal pensions.

I commend to hon. Members not only "The Age of Entitlement", but "Ruling Britannia" by Andrew Marr, which examined two laws passed which demeaned the House. One set up the Child Support Agency, and the other brought in personal pensions. If we want to modernise our procedures, it is important to look at those failures.

Only one Member who served on the Standing Committee foresaw the dangers of personal pensions. All through the mad years of misselling, the Conservative party was made aware of what was happening, but did nothing about it. Many Conservative Members would cheerfully declare an interest before speaking in debates, because they were profiting either directly or indirectly from the bonanza of misselling. About 2 million people were involved. We know the derisory number of people who have since been compensated. I am very happy that Ministers are taking on pension companies, as the previous Government should have done but never did.

Beveridge has already been mentioned in this debate. It is worth remembering the point behind the Beveridge reforms, and the words of Beveridge himself. He talked about the "gross inefficiency" of contemporary pension schemes—particularly industrial pension schemes, in which a man from the Pru or the Wesleyan and General came round houses to collect 1s 7d a week.

Beveridge said that, for every pound saved in those schemes, 10 shillings—one half the amount, for those hon. Members who are so young that they do not know or remember—was lost in commissions and because of the inefficiencies and multiplicity of the companies involved. It was a hugely wasteful system, which was why Beveridge argued for a national insurance scheme.

The hon. Member for Epping Forest (Mrs. Laing) referred, presumably to people who are not in private schemes, as "dependent". They are, however, making contributions to the state pension and to the SERPS scheme, and their pension is not a handout, a gift or welfare, but part of an insurance scheme. Beveridge said that, if we ran the scheme as a national one, we would cut down on administration charges.

I certainly did not mean to imply that there is dependency. I was making the point that we have a pay-as-you-go scheme, which is a perfectly reasonable scheme for those who have worked hard all their lives and paid into it. They paid for the previous generation, and the current generation is paying for those who are now retired. They worked hard and paid into the scheme.

The point is that, in future, there will simply not be enough working people to pay for retired people. I entirely accept the hon. Member's point that that is not dependency, and that people are simply drawing money that they have paid in.

That is based on the assumption that our working life will remain as it is. Someone who is aged 62, such as myself, may feel that he or she is approaching the peak of life and intends to work for a very long time. Most people of my age feel that way. Some people presume a very static life style, and assume that things will not change, but things will change enormously. Elderly people such as myself feel very patronised when we are told that we will have to retire at 60 or 65. In the next century and possibly before, people will make worthwhile contributions way beyond the age of 60 or 65.

I should, however, reinforce the point made by the hon. Member for Havant (Mr. Willetts) in his book. He supported the previous Government's exaggeration of the myth of a demographic time bomb, because he was not in favour of SERPS, which he thought was inequitable as a system.

There is no doubt, however, that the Government have worked on the "time bomb". We have long been aware of a demographic time bomb, and of baby boomers—one of whom is now President of the United States—who would fill the school system when they were teenagers. We know that there will be such a time bomb. We also know when it will start and when it will finish. It will, however, last for a finite period, and we cannot allow it to distort all our policies.

My questions are mainly for Ministers. I should, however, like to remind Conservative Members who were Ministers in Conservative Governments for all those long years of the promise made, in June 1979, by their then spokesman, Lord Jenkin, when he was defending the proposal to break the link between pensions and average earnings. He said that he wanted to

?make it clear … that it remains the Government's firm intention that pensioners and other long-term beneficiaries can confidently look forward to sharing to the increased standards of living of the Country as a whole.?—[Official Report, 13 June 1979; Vol. 968, c. 439.]

That is a significant promise. The next day, he commented on a proposal to retain the earnings link in a modified form, and claimed that the Government's proposal would have the "same broad effect". That was a very clear promise on retaining the tie.

Far from having the "same broad effect", however, breaking the earnings link has resulted in today's pensioners losing more than £20 a week. I asked the Library to provide me with the latest figures, and was told that the basic pension is now £62.25. The Library estimates that, had pensions increased in line with earnings, that figure would be £87.

Ministers argue that, on average, pensioners in 1997 are better off than pensioners in 1979. The reason, of course, is that most of those who were pensioners in 1979 are no longer with us, because they have died, and many current pensioners are benefiting from the previous Labour Government's pension legislation, receiving a combination of SERPS—which is now a considerable sum if people have been paying into it since the late 1970s—and increasingly valuable occupational pensions.

The picture is very different for those who are now in their 80s and were over pension age in 1979. Since 1979, there has been no increase in their living standards, although average earnings in real terms have increased by at least a third. Even people retiring today are not that well-off. They need an occupational or SERPS pension of at least £20 a week simply to make up for what has been lost in the basic pension. Under the Tories, unemployment among older workers deprived many of them of an opportunity to contribute to any type of second pension.

The promise in the Labour manifesto is now in early-day motion I, which I recommend that all hon. Members read, because it will be referred to many times in the next 12 months. The manifesto promised:

"We believe that all pensioners should share fairly in the Increasing prosperity of the nation."

There are many ways in which some pensioners can share in increasing prosperity.

Does the hon. Gentleman agree that it is slightly odd to begin a programme enabling all pensioners to share in the nation's prosperity by taking £5,000 million a year from those pensioners?

Does the hon. Gentleman think that it is equitable that tax advantages were enjoyed by some pensioners but that there were no tax advantages on SERPS contributions? Does he think that it is equitable that a sum was taken out of the national insurance fund, which is the property of everyone, to benefit a small number of pensioners who joined personal pensions?

That is what happened. One group of pensioners—those who were bribed to leave decent occupational schemes, or unwisely advised to leave SERPS—gained advantages that other pensioners did not receive. As it turned out, many of them suffered because they were badly advised in that. The system is already inequitable for those who contribute to SERPS.

Is it not a fact that state earnings-related pension schemes are not funded, that they come within the group of pensions that are forked out for by current taxpayers? What is so wrong and wicked about what the Government propose is that they are taking money from people who are setting aside something from their net income for their old age. That is the trick which the Government are playing on people.

I am shocked by the hon. Lady's immoderate language. Tomorrow I shall send her a copy of a pamphlet entitled "Our Pensions", written by Tony Lynes, which has a splendid forward by the hon. Member for Newport, West. I am sure that she will enjoy it greatly. It maps out ways in which SERPS should be reformed; the main suggestion is that it should become at least a partly funded scheme.

If we are to continue with a pension for the next century, SERPS should be funded. I am sure that, having read the pamphlet, the hon. Lady will join us in our enthusiasm for SERPS. It is also suggested that SERPS should be managed independently of the national insurance scheme, and run by managers who will be responsible for maximising and investing much of the fund.

The basic advantage of SERPS and other state schemes is that the total cost of administration—the wasted money—is only 2 per cent., or, in many years, even less. Someone investing in a private scheme now will lose a minimum of 25 per cent. in commission, charges and administration. Someone who does not contribute to the scheme for a long time could lose 90 or 95 per cent.

How could Conservatives talk about the advantage of money purchase schemes without saying what a gamble they are? They encouraged people to join such schemes, but, if they study what happened to annuity rates between 1990 and 1994, they will find that someone who was to retire in 1990 but put off his retirement until 1994 and who was a customer of Norwich Union—the position is the same with other, similar companies—would have lost 35 per cent. of his pension. A third of his pension would have gone because of changes in the annuity rates and what they could buy.

Money purchase schemes are a gamble, far worse than any other scheme. The previous Government deliberately encouraged 6 million or 7 million people, or however many it was, to join such schemes, even though no one can say what the annuity rates will be in a month's time, let alone in 20, 30 or 40 years. The precise figures of the terrible losses are only wild estimates, and could be miles out. The Opposition are taking a cynical view of what the Government are doing.

The Government are talking about the surpluses of the invested pension funds, but these are sums or money built up by wise investment by the people who operate the funds. The money belongs to the people who invested, and it is that money which may mean that, by the time they come to draw them, their pensions are often much higher than they expected. It is that money—the so-called surpluses—which the Labour party is seeking to plunder.

The Government are removing an unfair advantage that people contributing to some schemes have. If the advantage is spread to SERPS, it would be equitable. It has never been enjoyed by people contributing to SERPS. Why on earth should one favoured group enjoy it simply because the previous Government wanted to unload what they saw as the burden of the state pension?

Will the hon. Gentleman give way?

I was going to conclude, but I shall certainly give way to the hon. Gentleman.

I am doubly grateful to the hon. Gentleman for giving way again.

I fear that it is necessary to repeat the question asked by my hon. Friend the Member for Billericay (Mrs. Gorman), but perhaps I can put it a little more clearly. Does the hon. Gentleman agree that, if SERPS were an unfunded scheme, as it has been until now, it would not have made a jot of difference to the entitlement of those in it had they had received or not received the tax credit, because the money would have been absorbed in the Consolidated Fund without any increase in the entitlement?

The hon. Gentleman is tempting me to go over what happened under the previous Government with the Treasury supplement. I do not know whether he is familiar with the supplement, which was paid for a long time and removed by the former Leader of the House when he was at the Department of Social Security. That was the chief loss to the national insurance scheme in that period.

The previous Government played fast and loose with the national insurance scheme by raiding it. That is why we all agree that we need reforms and new schemes. Instead of the complications, waste, huge commissions and inefficiencies of the private pension industry, we would be better of with one national scheme that was run very efficiently.

I shall conclude by speaking about my party's approach to pensions. My hon. Friend the Minister listed in awritten answer on 30 June ways in which all pensioners could share fairly in the increasing prosperity of the nation. He said that it would be

"through contributory pension entitlements, through other benefits, or through the income derived from savings.?—[Official Report, 30 June 1997; Vol. 297, c. 65.]

However, the only means that anyone has so far suggested by which all pensioners could share in increasing prosperity is to restore the earnings link for the basic pension.

We are aware of the problems involved, but that is what my party—now the Government—should be aiming at. Even if we do that, we shall not be helping those dependent on income support above their basic pension, so we also have to increase the earnings link for them. I believe that this splendid, magnificent, reforming Labour Government will do that, and we look forward to a golden age of pension reform.

8.44 pm

I represent a constituency to which many people retire. Pensions are a key consideration, as they were throughout the general election campaign. The withdrawal of the advance corporation tax credit has come as a complete bombshell to my constituents, and to all those other thousands of people who are saving now to be self-reliant when they retire. I want to know whether the Labour party planned the abolition of the ACT credit before the election, and, if so, why it was not in the Labour manifesto. I hope that that question will be addressed in the Minister's winding-up speech.

Hon. Members on both sides of the House accept that, over the next 40 years, the proportion of the population aged over 60 or 65 will grow significantly, and that the elderly will be supported by a static or declining working population. The support ratio, referred to by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), which measures those of working age as a proportion of those of pensionable age, is predicted to worsen from 3.3:1 in 1990 to just over 2:1 in 2030.

As medicine continues to advance, that position will deteriorate further. It is anticipated that the number of over-75s will increase from 3.9 million in 1990 to 6.3 million in 2030. The consequences, not only For pensions but for community care, health provision and long-term nursing, are enormous.

How is that to be financed? There is a limit to tax-financed public spending, which even the Government seem to recognise. Today, public spending on old people amounts to half the total social security budget, or some £40 billion per annum. The current pay-as-you-go unfunded state pension will become increasingly expensive for future working generations as the population ages. The Government Actuary has calculated that, at current prices, spending on retirement pensions will be £55 billion in 2030, compared with £29 billion in 1994–95. That increase will have to be funded by fewer working people.

Like all Conservative Members, I had hoped that there was a growing cross-party consensus that private pension provision, as a supplement to state provision, was a crucial part of the answer to the problem. The problem will not go away: just as one cannot buck the markets, one cannot buck the demographics. Even the European Commission has cottoned on to that, as can be seen in a Green Paper published on 10 June this year, called "Supplementary Pensions in the Single Market".

Those in continental Europe are in a far worse position that we are and I shall quote some statistics to illustrate that. Pension fund assets as a percentage of gross domestic product were 3.4 per cent. in France, 5.8 per cent. in Germany, 1.2 per cent. in Italy, 2.2 per cent. in Spain and 80 per cent. in the United Kingdom. UK pensions investment is some £650 billion—more than the rest of Europe put together. Our pensions industry has been one of the great success stories of the last Conservative Government, and it would seem that the Commission has started to see the light just as the Labour Government begin to close their eyes.

The Commission's Green Paper concludes:

"Improved returns on pension fund investments are in the interests not only of workers, who have to contribute out of earned income to their pension schemes, but also of employers who also contribute. Reducing the costs of supplementary pensions for employers cuts the cost of employing a person and so directly contributes to creating jobs and to economic growth".

To most people, that is a statement of the blindingly obvious, but not to the Government, who have just increased the cost of pensions by abolishing the ACT credit. It is bad for investment, for jobs, for competitiveness, for the public finances, for pensioners and for future pensioners. The National Association of Pension Funds said that the Budget had been

"the biggest attack on funded pension provision since the war. It will affect not only companies, but millions of ordinary people."

The Chancellor believed that he had found the perfect way to raise money without anyone noticing. This was to be the perfect crime, because there was no apparent victim. Attack personal pension funds and companies with defined benefit schemes, and, it might be thought, no voter will notice—but of course they will. The 28,000 employers with final salary schemes, with 11 million members and 7 million existing pensioners, will notice, as will the 7 million individuals who have taken out their own personal pension plans.

There can be few worse examples of short-termism than raiding people's long-term retirement savings to finance today's Government spending. If this is, to use the Prime Minister's elegant phrase, "long-termism in action," Lord help us.

The long-term funding of pensions is one of the great issues confronting all developed countries. Self-provision for long-term savings must play an important role. Surely the Minister for Welfare Reform, at least, will agree with that.

The removal of the ACT credit is opportunist and short-term. It is robbing tomorrow to pay for today. It is penalising millions of people who were taking responsibility for their old age. In its first Budget for 18 years, Labour has shown that it cannot be trusted with the nation's pensions.

8.51 pm

If I had not come to the House as a result of the general election of 1 May, and had stayed in my job, give or take a few days I would have taught young people for 25 years. I invested a great deal of time and energy in those young people, but for many years I knew that their prospects of equipping themselves properly with skills that the country needs and of obtaining secure and rewarding jobs had been capped by the performance of the economy. I knew that the boom-bust pattern that we came to expect from the previous Government, and the appalling lack of investment in the productive capacity of the economy, would have an impact on their future.

Our manifesto commitment to the electorate was to reverse that position, and undeniably it was overwhelmingly endorsed. Often, on doorsteps in my constituency, I found that older people were worried that we were not giving those young people a future.

The Government will definitely be judged on our ability to sustain and increase economic growth, which means taking tough decisions—no one is denying that—and building an infrastructure on firm ground, not on shifting sands as in the past.

Labour Members have rehearsed reasons why forecasts of the impact of advance corporation tax on pension schemes have been skewed by the way in which actuaries value those funds. We have been presented with evidence that dividend growth in the United Kingdom is high compared with that in the United States of America, where a much more conducive investment climate has been created. The distortion of the tax credit and its short-term impact have been highlighted, as has the inability of management to take unfettered decisions about pension funds.

I have been extremely interested in some of the historical evidence with which we were presented at the start of the debate, showing that Conservative Members, past and present, have justified their approach to removing money from pension funds a few years ago, but have somehow now developed selective amnesia.

There is no denying that we need a root-and-branch pensions review; and that we shall have, with plenty of good discussion. But the people of this country voted for a change this time: they voted positively for a Labour Government who, they knew, would invest in the future and would be fair. Our proposals offer fairness.

8.54 pm

I listened with interest to the hon. Member for Erewash (Liz Blackman) because I wondered, when she was talking about the mandate and the basis on which the British public had decided to opt for a change, whether she would have the audacity, and possibly also the intellectual power, to be able to demonstrate that in the course of making that judgment the British public had the ability to detect—weeks in advance of the general election—that the Labour party, if elected, and despite the absence in the manifesto of any such commitment, would abolish the ACT credit on dividends. Of course the hon. Lady could not demonstrate that, for the simple reason that there was not the slightest indication for several months before the election campaign, during the campaign or even in the period immediately after it, that that the Government's intention.

This debate is an excellent opportunity to compare and contrast the records of the former Government, whom I was proud to support from outside the House, and the present Government. We may compare the records of a Government who served this country for 18 years and of an Administration who, to date, have served—or perhaps I should say mis-served—the nation for 69 days. By any yardstick—even if I were not a partisan contributor to the debate—it would not be difficult to arrive at the conclusion that our rhetoric was matched by reality and that Labour's rhetoric to date has been contradicted by reality.

I am sure that the Minister will not deny that the Conservatives set out over a period a three-pronged strategy. We said that we would uphold the value of the state pension as the foundation of pensioners' incomes in retirement—that was the first prong. The second prong was to encourage individuals, not just by exhortation but by practical incentives, to provide for themselves in their retirement. Thirdly, as a party that believes it is a responsibility of Government to look after those who are unable to look after themselves, we said that we would provide through the taxpayer additional assistance for the poorest pensioners. On all three counts we manifestly succeeded.

The effect of that success is plain for all with eyes to observe. It is plain by virtue of the fact that pensioners today are, on average, 60 per cent. better off than in 1979. It is obvious by virtue of the fact that 90 per cent. of pensioners have recourse to funds other than the state pension. It is plainly obvious by virtue of the fact that 62 per cent. of pensioners have occupational pensions; and by virtue of the fact—this should be the subject of cross-party pride—that the proportion of pensioners who are in the bottom 10 per cent. of income earners has fallen from 35 to 18 per cent. Finally, it is plain by virtue of the fact that by all agreed measures of reasonable living and basic decency, the number of pensioners enjoying the basic elements of a decent standard of living—consumer durables, reasonable incomes, and so on—is far greater than it ever has been. By all those yardsticks the Conservative Government were successful.

The plan of my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), the former Secretary of State for Social Security, to build on that success in pension provision was widely applauded. It received support from the Association of British Insurers and from Legal and General; it also received support from an enormous variety of people with professional expertise and competence in pension provision, because they recognised in the plan the seed corn of a far greater provision for the multiplicity of pensioners today—and, more particularly, tomorrow—than the efforts of any previous Government had been able to devise. So we came up with something that received support not only from the Conservative Benches but from people outside who knew that a time bomb was ticking and that a solution was required.

In the past 69 days, all that the Government have contributed are two policies, the effect of which has been to damage the prospects for tomorrow's pensioners. The first is the abolition of the tax credit on dividends. In simple terms, stripped of jargon and technicalities, what matters and is, I presume, indisputable, is that, as a result of that policy, the amount of tax that pension funds can reclaim will be cut, as sure as night follows day. The consequence of that must be clear for all to see. It means that companies will be obliged to top up contributions to company schemes, which will necessarily impact on the sums that they can devote to other purposes. It seems reasonable to conclude that investment in the company's future will therefore suffer.

I found it extraordinary that, although the hon. Member for Pontefract and Castleford (Yvette Cooper), whom I am delighted to see back in her place, paid close attention to Conservative Members' arguments, which was much appreciated, she seemed determined to deny to herself even the possibility of a reduction in the short term, let alone the long term, of industrial investment by companies as a result of the tax change introduced by the Chancellor. It must logically follow that, if companies must busily top up funds depleted as a result of that policy, something else will have to give. In a sense, there is a cake, and however it is divided its total size, does not change. It is therefore not credible to argue that there are no consequences. An opportunity cost is involved in all those decisions and judgments.

Similarly, the damage in respect of the imposition of the windfall tax is clear. One must reflect on the number of shares held in those utility companies by or on behalf of pension funds. It is flippant and unworthy of serious political debate for the Government, with a smugness that ill befits them only 69 days after their return to office, simply to prate in response to our objections that the stock market is doing thoroughly well. If they are so drunk on the temporary enjoyment of their newly acquired power to believe that that state of affairs will obtain for any length of time, they deserve to suffer. Those utilities will be hit and their investment plans threatened. They will be obliged to borrow, which will have implications for the infrastructure. In each and every case, damage will be inflicted.

I challenge the more fiery intellectual powers in the Labour party, of whom some of us have been informed that the hon. Member for Pontefract and Castleford is a prominent example, to dispute and repudiate the arguments that Conservative Members have advanced against what they have done.

The Chancellor of the Exchequer has been masquerading, not just for the past few weeks but for several months, as a long-term visionary. He has been aided and abetted in his task by the Minister without Portfolio, the hon. Member for Hartlepool (Mr. Mandelson). The objective has been to convey to the electorate, especially through the mass media, the impression that the Government are thinking strategically, that they have big ideas and that they possess a concept of a long-term future that will be beneficial.

I regret to say that the reality is very different: the Chancellor has been exposed as a fraud—as a manipulative short-term opportunist, driven by the immediate needs of the moment as he embarks on a smash-and-grab raid on Britain's pension funds and pensioners' interests.

Order.

I give way.

The hon. Gentleman is not giving way; he is sitting down. As he is a new Member, may I tell him that the term "fraud" is not a term that I would like to be used about any hon. Member.

Mr. Deputy Speaker, I apologise unreservedly: I certainly would not want to accuse the Chancellor of the Exchequer of anything ignoble. Perhaps it would be correct to say—and perhaps I will return to your good books, Mr. Deputy Speaker in so doing—that the Chancellor of the Exchequer has been guilty of some bad judgment, and that entirely inadvertently he has given credence to untruths. That might be a more satisfactory description of the way in which he has operated. The effect, I suggest to the House, is the same: the Chancellor gave the impression of long-term provision, but the reality is not only that long-term provision will not best be served by the policies that he has advanced, but that it will be undermined.

My party has long struggled under the disadvantage that historically people have thought that Labour is the party of the pensioner and of pension provision. The truth is proving rather different. We, in a quiet, practical, piecemeal way, have devised policies that will serve the next generation of pensioners. In their first two months in office, the Labour Government have massively damaged the prospects of that effective future provision, which should be the subject not of partisan debate, but of all-party agreement. That is a source of regret.

I invite the Government to reconsider their position, to recognise the dangers of non-consultation and to show some humility in the face of the overwhelming objection to their policies that the affected parties have expressed. If, as a result of that, the Under-Secretary of State for Social Security, the hon. Member for Southampton, Itchen (Mr. Denham)—not tonight, for that would smack of panic, but over a period of weeks—would say to the House, "We were wrong; we made an error of judgment; the Opposition had some valid objections; we have taken them on board; we will introduce different proposals," I and the country would be as delighted as we would be amazed.

9.6 pm

I should begin by declaring an interest of two kinds—first, as the director of a bank, and secondly, as an individual living in the United Kingdom.

The Budget was announced as a Budget for jobs—a matter of great rejoicing for all who live in the UK. Members on both sides of the House would agree that the generation of sustainable employment is one of the great objectives of the state and society.

Conservative Members understand the logic that was applied by the Chancellor when he proposed the great change in the administration of ACT credits and their removal. That was the logic of managerial economics. The Chancellor told us on Budget day that he envisaged that by removing the tax credit on ACT, he would encourage firms—perhaps even force firms—to redirect the application of their cash now from paying dividends, an item that the Chancellor may regard as evil, improper or dubious, and instead to direct their cash flow into an item that the Chancellor regards, and which I and Conservatives generally regard, as noble: investment, because only investment in capital machinery and in research and development can keep the UK in the forefront of the industrial world.

That was the language of managerial capitalism, for which Conservative Members are profoundly thankful. For us to be facing a Labour Government who speak the language of capitalism is a state of affairs vastly preferable to that which we might have faced under previous Labour Administrations, had they been returned to office. However, the move that has been made on ACT tax credits—an ostensibly obscure subject—reveals that it is purely the language of capitalism that the Chancellor and his colleagues have learnt, without in the least understanding the way in which the capital markets in this country and around the world operate, or the way in which industry operates in a capitalist economy.

I hope that the House will forgive me if, in the next two or three minutes, I try to illustrate the grotesque error—based on absolute and profound ignorance of the operations of industrial companies—that the Chancellor has made. When large companies—most of the gross domestic fixed capital formation and investment in this country comes from large companies—take investment decisions, their managers have been trained in business schools to apply the test of a threshold rate. They look for a rate of return on their investment that matches the weighted average cost of their capital. In so doing, they make a judgment about the return on investment compared with the cost to them of raising capital.

The ostensibly small change that the Chancellor has introduced will have a clear effect to which many of my right hon. and hon. Friends have alluded: it will lead that great bulk of British funds that currently invest in equities—and which occupy, between them, shareholdings about equal to 75 per cent. of the total equity portfolio of listed stocks in this country—to redirect their investment from this country's equity into fixed debt and equities overseas. That will reduce the supply of funds for equity in this country.

The Chancellor may have advanced to that stage of Samuelson's invaluable work on economics that tells us that, if one removes part of the supply without affecting the demand, one will increase the price. In this respect, capital is no different from any other commodity: if the supply of equity funding is reduced and the demand remains constant, the price of equity funding will rise. The required return on equity capital in this country will rise inevitably and substantially as a result of the Chancellor's current manoeuvre.

There will be no equivalent reduction in the cost of debt financing because—pace Mr. Hutton, who I fear has not reached the first page of Mr. Samuelson's book and who would do well to attend even the modestly socialistic courses in advanced economics offered by the university of Cambridge, let alone the rather better courses available at other universities in this country—the redirection of funds into the debt markets will have not the slightest effect on interest rates for debt because the Chancellor has handed control of those interest rates, rightly or wrongly, to another body: the Bank of England, which will use its efforts in the interest rate domain to control macro-economic considerations and the development of inflation and to manipulate the exchange rate to a degree by setting interest rates.

No amount of increase in funding for debt in this country will reduce short-term—and even, to an extent, long-term—interest rates by any significant degree. The Chancellor's moves will result in an increase in the cost of equity, with no corresponding decrease in the cost of debt. Therefore, the weighted average cost of capital of British industry will rise substantially and permanently. As a result, many investment projects that managers are allowing through the net because they pass the hurdle rates will fail. Power stations that would have been built, will not be built. Telecommunications switches and large transmission lines that would have been installed, will not be installed. A whole range of large-scale investments in this country will be wiped off the slate.

This is supposed to be a Budget for jobs, but when investment in this country is thus reduced it will have two effects on jobs. First, it will have the direct effect of substantially reducing jobs in civil, mechanical and electrical engineering and in a whole range of construction activities. Secondly, it will have an indirect effect: by reducing the level of investment in this country, firms will be made less competitive, less able to match the activities of their competitors overseas and hence less able to continue to employ people in this country.

In that way—and beyond the issues raised by Conservative Members in many eloquent speeches in the past few hours—the Budget, by changing ACT tax credits, will have an effect on pensions and, through them, a wholly negative effect on jobs. That must be regretted by everyone in this country—not only pensioners, but those who are yet to become pensioners and who would like to have jobs.

9.14 pm

It is with slight trepidation that I follow my hon. Friend the Member for West Dorset (Mr. Letwin), who gave such a lucid and clear explanation of the problems in the analysis that the Chancellor is using in making these changes, but I shall attempt to do so none the less.

A number of my hon. Friends mentioned the background to these changes—a background of British success. The change in the past 18 years in pension provision by individuals and in pensioner incomes has been profound. The difference between the situation in Britain and Europe was also mentioned by a number of hon. Members.

I do not claim to have the expertise of my hon. Friend the Member for Ryedale (Mr. Greenway) in these matters, but I understand the difference between money purchase schemes and final salary schemes. The real growth in pension investment has been in company-based money purchase schemes and in private pension plans.

My hon. Friend the Member for Epping Forest (Mrs. Laing) mentioned that the transition from public to private responsibility provided a foundation for well funded pensioner incomes into the long term which simply will not be matched by a reliance on the state pension, or even on an amended version of SERPS, as suggested by the hon. Member for Newport, West (Mr. Flynn). The simple fact is that the transition from public to private was necessary and is recognised as desirable not only by Opposition Members but by more enlightened Members on the Government side of the House.

The pension plus proposals, which were mentioned a number of times in the debate, would have accelerated that change. They would have accelerated the evolution, which is why they were welcomed during the election campaign by many experts, by the industry and, indeed, by some Labour Members. I mention in particular the Minister for Welfare Reform, the right hon. Member for Birkenhead (Mr. Field), who in an article in The DailyTelegraph in February welcomed the proposals outlined by pension plus and was silenced, or at least muted, by his right hon. and hon. Friends on the Front Bench for so doing. The truth is that the recognition of the need to transfer that responsibility to individuals is clear and profound.

The second change I wish to mention is the change in pensioner incomes, which have grown over the past 15 years even more than the average income of non-pensioners. A significant part of that growth has been because of the fact that new pensioners now have more than one income. Their extra income is clearly a personal pension plan or company pension. The number of pensioners who have dual incomes—new pensioners, as people are becoming pensioners every day of every week—is growing all the time. That has to be attributed to the success of the policies, which were mentioned by my hon. Friend the Member for Buckingham (Mr. Bercow), of the Conservative Government over the previous 18 years.

The encouragement of people to make provision for their old age has been highly successful and has led to pensioners enjoying a higher standard of living over the past 18 years than they had previously, and one that is higher than that of their contemporaries in other countries across Europe.

It is precisely because of the difference between us and Europe that my right hon. Friend the shadow Chancellor, when Secretary of State for Social Security, pointed out that, if we threw in our lot with Europe, we would be absorbing a significant burden from across the water, from which we had freed ourselves. He also pointed out that France in particular and Germany to a lesser extent have pay-as-you-go pension schemes and have not made the changes that we have made and would have created a burden on the British taxpayer, which he identified and warned us against.

The consequences of the abolition of tax credits has been well explained already. The net effect is bound to be a diminution of the size of funds and damage to the prospects of those who were hoping to enjoy the benefits of those funds on their retirement. As if that were not enough, we have the double effect of the proposed changes with the impact of the windfall tax, which was well illustrated by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood).

The impact of the windfall tax will bear upon the customer, the shareholder and the consumer. Most significantly, it will bear upon funds that invest in utilities that will be affected by the windfall tax. That is a double whammy. We are talking of a double effect. The abolition of advance corporation tax credits and the impact that the windfall tax will have on investment funds are bound to lead to a less rosy picture for pensioners.

If that is so, why have the Government gone down such a road? They have done so because it will bring them immediate financial benefit. There can be little doubt that the argument that the consequences will be invisible, that individuals will not realise that they are affected, thinking that this is some harmless and technical change, is based upon deception. It is a devious political manoeuvre, instead of confronting people with open and honest tax rises. That is the cynical political argument for attacking pension funds. It is an attack on people's futures. They will not know what is going on and, therefore, they may not react politically and oppose the changes that are being made.

Will my hon. Friend give way?

No, I understand that I need to speed up rather than give way. I apologise to my hon. Friend. I would normally be happy to give way.

In conclusion—I am moving seamlessly from page three of my notes to page 33—a considerable number of people will be affected by the Government's proposals. A conservative estimate of the numbers involved in the schemes that I have defined is about 7 million. They will be directly and detrimentally affected. I ask Opposition Members, including those on the Front Bench—

We are the Government.

I still think of those who sit on the opposite Benches as the Opposition because they still behave in a slightly amateurish and shambolic way, as they did in opposition.

I ask the Government: are their measures fair? Are they appropriate? Are they wise? Are they measures that in the long term will attract criticism, approbation or the condemnation of those directly affected and of all those who care about Britain's future, including the future of Britain's pensioners?

9.22 pm

We have had a fascinating debate, partly because so many hon. Members who contributed to it seemed to know what they were talking about. During my period in Parliament over the past five years, that is something of an exception to the rule. I shall tread carefully on this one, so as not to upset those hon. Members who clearly did not know what they were talking about.

We seemed this evening to run out of Labour Members who wished to contribute to the debate. This is not the first time that that has happened. It happened last week on Friday during the Budget debate. I say that only in passing and not as a partisan point.

I wish to refer to many of those who have contributed to the debate, and I shall do so as quickly as possible, given the time, in the form of a list. My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) made it clear that his expertise continues. He continues to illustrate the important points that relate to the issues that we are discussing. My neighbour, my hon. Friend the Member for Epping Forest (Mrs. Laing), made a powerful speech in describing the problems for future pensioners when they come to retire. Her points were well made.

My hon. Friends the Members for North Norfolk (Mr. Prior) and for Bognor Regis and Littlehampton (Mr. Gibb) and my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) spoke about the success of our policies and pointed out that the Government seem intent on attacking ordinary pensioners. They said that the key to our future economic success is the fact that we have so many funded pensions.

My hon. Friend the Member for Ryedale (Mr. Greenway), with his expertise and knowledge, explained the difficulties of sorting out the problem of misselling and why they continue to exist. It is well worth re-reading his speech.

My hon. Friends the Members for Arundel and South Downs (Mr. Flight) and for West Dorset (Mr. Letwin) showed their financial expertise. Their short speeches bear re-reading, because they explained why the Chancellor seems to have misunderstood the way in which markets will invest, particularly the pension fund market. Many of those funds will move into fixed debt or even equities overseas, which is hardly what the Chancellor needed. My hon. Friend the Member for Buckingham (Mr. Bercow) spoke of the Government's smugness and the way in which this measure was presented.

The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) made a good speech. Obviously, I did not agree with all of it, but I particularly agreed with his attack on the withdrawal of ACT dividend tax credits. He made a straightforward point: how can a £5 billion raid on the economy help to increase the trust of pension companies that the Government must have if they are to reform the pension system? That was a powerfully made point, and the hon. Gentleman seemed to agree with us that, as my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) said, we require a Green Paper so that we can discuss this matter. I am glad that Liberal Democrat Members agree with that.

Many Labour Members made interesting speeches. A number of them wanted to restore the earnings link. I hope that the Minister will tell us whether the Government will succumb to the blandishments and pressure from various Labour Members, especially the hon. Member for Hornchurch (Mr. Cryer). Many of us remember his father, who sat in a similar position in the Chamber, although on the other side. He gave us a hard time, but we respected him for his great skill and knowledge, and I welcome the hon. Gentleman to the House.

Some Labour Members even spoke of moving the goalposts. Many of them attacked the way in which actuaries now calculate the funds, as though, having raided them, this could make it all better by having yet another great Government review. No doubt they will come back to that.

I want to correct the Chief Secretary to the Treasury, because he did not complete the quotation from the former Chancellor of the Exchequer, Norman Lamont. In the final part of his speech, he said:

"when the basic rate is eventually brought down to 20p, tax reliefs for basic rate taxpayers will, of course, be worth 20p in the pound, too. In this Budget, I have brought forward that change by restricting three specific tax reliefs to 20 per cent., not just for basic rate taxpayers, but for all taxpayers."—[Official Report, 16 March 1993: Vol. 221, c. 195.]

It was interesting that, in its green budget, the Institute for Fiscal Studies commented on the adjustment to tax reliefs to match the tax. It said:

"By cutting the rate of income tax on dividends to 20 per cent. to be in line with the cut in ACT, the Government of the day ensured that 'most ordinary shareholders' were unaffected by the change."

I am sure that the Chief Secretary wanted to have that corrected before we continued.

The debate has shown that the Budget is a return to Hutton. The Chancellor has put up this screen—that the Government have made these changes for ideological reasons. In abolishing ACT, taxing pension funds, driving down yields and reducing the equity base of British industry, the Budget was structured around that ideology. The Chancellor's critique was clearly flawed, but he has built the Budget around it.

Two points undermine that thesis. First, it is claimed that the majority of United Kingdom companies, particularly pension funds, are short-termist in their stockholding—in other words, in their total investment policy. A range of evidence undermines the credibility of such claims: WM Co., which is one of the most respected companies monitoring fund performance in the marketplace, has found that the opposite happens. Its recent survey found that funds typically hold individual stocks for between eight and 18 years. That is hardly what anyone could describe as a short-term holding.

The Government claim also that, if the pressure on United Kingdom companies to pay high dividends to institutional investors can be reduced, the number of companies spending on research and development will naturally increase—insinuating that it is low as a result of the present position. However, recent research by the City university business school demonstrated that companies that pay dividends are more likely to invest in research and development, and that the R and D expenditure of dividend-paying companies is significantly higher than that of non-dividend-paying companies. That rather blows that one out of the water. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) put that point very well in his speech.

Even given their own ideas, however, rather than increasing long-term investment, pension funds may now ask the companies whose pension scheme they administer to make good the shortfall that will result from increasing the total contributions of their work force. They could even demand bigger dividends from the companies in which they own shares. Both outcomes would reduce, not increase, resources for investment. The Government seem to be hiding behind a smokescreen in claiming that their proposals will change the way in which the market works, and the way in which businesses invest in the future. That is completely untrue.

The most obvious victims of the abolition of dividend tax credits on ACT are the UK's 6 million personal pension holders, and its 750,000 members of company money purchase schemes.

I sat here all evening waiting to hear an argument from an Opposition Member that was worthy of a speech, but I decided not to use the time to which I understood I might be limited.

Will the hon. Gentleman consider the position of a pension company that owns an important manufacturing firm in my constituency? Bespak has just reported a 26 per cent. jump in profits; its dividend is up by 13 per cent., and it has an eight-week investment programme in King's Lynn, in my constituency. As a result of its ownership of that company, the pension company's ACT will be 0.5 per cent. of its capital value. Are we not ignoring the main arguments and dwelling on minor issues, given that the capital value—[Interruption.]

Order. The intervention is far too long.

I suggest that the hon. Gentleman should go out and argue with all the pension fund managers and the pensioners who will experience a heavy loss as a result of the Budget, rather than trying to score points.

Pension Store has found that, for example, a 30-year-old whose fund would have been worth some £258,000 on his retirement at the age of 65 can now expect only £206,000, some 20 per cent. less. He would have to pay an extra £20 a month to make up the shortfall. The young will be hit hardest by the changes, because they have not had the opportunity to accumulate a large fund at the higher rate of return. They also need to invest a higher proportion of contributions in UK equities, the only securities hit by tax changes, to achieve high capital growth at relatively low risk.

The National Association of Pension Funds estimates that approximately 50 per cent. of all occupational pension schemes are in deficit, which lends falsehood to the Chancellor's statement at the time of the Budget. Those funds will be plunged further into deficit by the pensions tax, and many just above the surplus line will join them in deficit. My hon. Friend the Member for Bournemouth, West made that point when he referred to the Sainsbury fund, which I believe will go from a surplus of some £200 million to a deficit of about £30 million.

As many hon. Members pointed out, local authorities will also be in difficulties, because they will find it necessary to raise council tax. The Post Office is now even talking of putting a penny on the cost of a stamp. Local authorities, the Post Office and many others will find that this is a retrogressive tax. The authority in Kensington and Chelsea is talking about an extra cost of £1 million a year. What do the Government propose to do to sort some of this out?

The hon. Member for Putney (Mr. Colman) said that he had received a letter from a Minister in what used to be the Department of the Environment—it is now a new multi-ministry. The letter stated that the problems of financing would be taken into account in the new settlement. Does that mean that there will be extra money? How will this be sorted out?

Employers could be pushed into devolving responsibility for pension provision, and future savers could lose because, in effect, they will have to take a pay cut. It seems that employers will move towards money purchase schemes, which will mean that their contributions will be lower. As a result, employees will suffer a pay cut. Further evidence from the United States shows what happens when savers have to set up money purchase schemes with companies. They were given the opportunity to choose their investments and, of course, they chose conservative investments, particularly government bonds. As a result, the final yield was lower than it might otherwise have been, and they lost yet again.

The main point of the Budget change seems to revolve around SERPS, about which my right hon. Friend the Member for Hitchin and Harpenden asked some questions. He questioned the Government during the Budget debate and today, and I hope that the Minister will return to those questions. My Government encouraged people to opt out of SERPS. As we know, that was done through a rebate system. The amount of the rebate was calculated by the Government Actuary in accordance with the cost of occupational and personal pension schemes that provided benefits equivalent to SERPS. The abolition of the ACT credit will make it more costly to provide benefits that are equivalent to SERPS.

Unless there is an out-of-sequence review, the current rebates will remain in force until 5 April 2002. That means that a rebate order that is made now to redress the balance would not come into effect until 6 April 1999. Obviously, the rebates should be increased to take account of the loss of valuable investments. Can the Government estimate the cost of operating the rebates? When do they plan to announce a new rebate order? Any adjustment in the amount of contracting-out rebates would affect the overall funding of the national insurance fund and the contributions that are needed to meet fund outgoings.

Was that all taken into account in the Red Book? Presumably that was one of the acknowledged outcomes of the abolition of ACT, on which, the Government told us, they consulted. Therefore, there must have been costings. Could they be made available to the House?

Of course, there is an alternative strategy. It is simply to leave the rebates unaltered, which would drive people into a decision about returning to SERPS. The tax on personal pensions has reduced the incentive to opt out, and many people will look again at SERPS with a view to opting in. [Interruption.] Many Labour Members welcome that. If that is the Government's intention, they have made a political decision to move people back into SERPS and increase the level of unfunded pensions. If that is what they intend, perhaps the Minister will make it clear. Do the Government intend to leave the rebates as they are and encourage people back into SERPS?

The Minister for Welfare Reform has said:

"Failure to close SERPS will mean substantial tax bills for generations".

He is obviously at odds with his Government. The Minister has now taken his place on the Treasury Bench. Perhaps as the Government have gone back to the drawing board on tax changes, the Minister has gone back to the drawing board on SERPS, and possibly on his position.

Furthermore, the future of stakeholder pensions is at risk. An interesting point to follow is where that leaves Labour on the position for future generations at which we have said we want to look carefully with the Government. It seems that their plans to introduce second-tier stakeholder pensions have already been undermined.

The stakeholder pension is designed to be run by approved private pension companies which rely on the market place, on dividends, to increase funds. However, under Labour legislation, any return will be diminished, because the Chancellor has abolished the tax rebate that pension funds claim on dividends received. Therefore, the Government's new ideology, as evidenced in the Budget, will ensure that the stated objective of security in retirement is increasingly difficult, if not impossible, to meet. I remind the House what was in the Labour party manifesto:

"The provision of adequate pensions in old age is a major challenge for the future?.

Labour was right. It has made the challenge even more difficult, particularly for the Minister for Welfare Reform, who will now have much difficulty working this little conundrum out.

Labour has gone back to Hutton and back to SERPS, and the Minister for Welfare Reform is going to have to go back to the drawing board. The people have a new tax with which to cope, and so has the Department of Social Security. It is all about firing at the Chancellor's false target—somehow to correct this so-called short-termism. In firing at that target in the Budget, the Chancellor has hit a load of innocent bystanders, members of the ordinary public who will have to pick up the pieces and pay the price for what is clearly a return to old Labour ways.

This new tax, for tax it is, will be a levy not just on the corporate sector. The Government thought that they could pass it off as a secret tax, and they have made a mistake. Where in Labour's election manifesto did it say that Labour would attack pension funds and raise taxation? Labour denied that endlessly everywhere. Where in the manifesto did it say that Labour would push the public back into SERPS? It did not say that.

The Prime Minister said that he and the Government would govern as new Labour, having been elected as new Labour, yet when we look back at the way in which they have behaved, far from governing as new Labour, the Government intend to govern as old Labour, hiding tax changes from the public, sneaking them in and forcing the public to pay up in due course. [Interruption.] The hon. Member for Hove (Mr. Caplin) knows all about it; that is why he is agreeing with it. To take £5 billion out of the economy and try to pretend that the public will not suffer is absurd and a deliberate attempt to mislead them. If that is new Labour, bring back old Labour.

Let me give the final confirmation that Labour intends to govern just like that. Until now, the Prime Minister and new Labour have been long on wonderful visions, but the public will now have to wake up to the fact that, far from visions, it is just one long tax-and-spend nightmare.

9.42 pm

This has been a well-informed and good-humoured debate, starting with the discussion about whether it is an insult to claim that a Conservative Member was a Minister in the previous Government. I understand that the shadow Chancellor of the Exchequer wishes to point out that he was not a junior Minister in the Department of Social Security when advertisements were published encouraging people to leave their personal pensions; he was a junior Minister in the Treasury, which was responsible for the regulation of personal pensions.

What is striking is how, despite it being an Opposition day debate, each argument from Conservative Members has collapsed in response to their record in government, their lack of concern and their inaction on the very issues that they sought to raise. The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) raised the question of local authority pension funds, but my hon. Friend the Member for Putney (Mr. Colman) pointed out how, to fund the poll tax disaster, local authorities were forced into underfunding, and how the previous Government's other measures, such as those encouraging early retirement, caused financial difficulties for the funds. However, we heard not a word from Conservative Members about those damaging consequences.

The hon. Members for Arundel and South Downs (Mr. Flight), for Epping Forest (Mrs. Laing) and for West Dorset (Mr. Letwin) spoke about investments, and the hon. Member for Ryedale (Mr. Greenway) spoke of having 20 years' experience in investment, yet I was left none the wiser as to why this country's investment performance has been so poor over those 20 years. In contrast, my hon. Friends the Members for Pontefract and Castleford (Yvette Cooper) and for Erewash (Liz Blackman) stated, quite rightly, the central importance of investment to the British economy if we are to build for the future and be able to pay for pensions. They talked about the importance of building up the value of the capital investment in British industry, which we have set out to achieve by the moves that we have been discussing today.

I apologise for missing the speech of the hon. Member for Bournemouth, West (Mr. Butterfill), but I understand that he spoke about occupational pensions in his usual well-informed and thoughtful manner. However, my hon. Friends have reminded us of the damage that would have been done to such pensions by the proposals for basic pension plus and the tax changes that were involved.

The hon. Members for Buckingham (Mr. Bercow) and for South Holland and The Deepings (Mr. Hayes) gave us a rosy view of the lives of pensioners in Britain today. My hon. Friend the Member for Hornchurch (Mr. Cryer) reminded us of many of the attacks on pensioners that took place under the previous Government.

The hon. Member for Ryedale—I welcome this—commended what he called the wholly appropriate action of my hon. Friend the Economic Secretary to the Treasury in tackling pension misselling. I thank him for what he said. The right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) said that he looked forward to the introduction of individual savings accounts.

My hon. Friend the Member for Newport, West (Mr. Flynn) added his name, partially at least, to the list of Labour modernisers by advocating a funded SERPS for the future. The hon. Member for North Norfolk (Mr. Prior) returned to the question of ACT credits. I must say that, for all the dire consequences that have been forecast tonight, we did not hear a word of them in 1993 when the process was set in train by the previous Government. That leaves me feeling that we have heard arguments of convenience rather than of commitment or principle.

When ACT relief was reduced previously, ACT was reduced to the same level. Will the Minister tell the House whether on this occasion the Chancellor proposes, in contradiction to the Budget, to reduce ACT to zero, having reduced the relief to zero?

The hon. Gentleman knows that the measure was introduced in 1993 to fund the crisis caused by the ERM debacle. We heard none of the criticisms then that we are now hearing.

The shadow Secretary of State for Social Security talked about the manifesto. What Conservative Members do not like but the people of this country do like is that we have kept our manifesto promises, in contrast to the Conservative Government after the 1992 election.

The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) asked a couple of important questions.

Will the hon. Gentleman give way?

I shall give way when I have dealt with the points raised by the hon. Member for Roxburgh and Berwickshire. He asked about the position of local government pension schemes.

We believe that pension funds should benefit from improved company performance as a result of the moves that we have taken to encourage quality long-term investment, which will be reflected in long-term share values. The reduction in corporation tax will greatly assist company performance. Although the loss of tax credits will have some impact on the income of local authority pension funds, the extent to which the changes feed through to local authority budgets will depend on the overall judgments made by the funds' actuaries as they undertake the revaluations due next year. Their conclusions will not be reflected in contribution rates before the financial year 1999–2000 at the earliest. The Government will take all those factors into account in determining the level of local authority provision for that and subsequent years.

rose—

I must deal with some further points.

The hon. Member for Roxburgh and Berwickshire also asked about national insurance. What matters is the long-term performance of investments and the health of the companies providing occupational and personal pensions. It is the long-term rates of return on pension fund investments that are reflected in the national insurance rebates. The Budget is designed to create a better climate for investment and long-term growth. Any Government will always consider carefully representations made about the need to ask the Government Actuary to look at the long-term assumptions underlying the national insurance rebates for contracting out of SERPS.

Will the Minister tell the House on which page in Labour's manifesto is the commitment to abolish the tax credit on dividends? It appears to have escaped the notice of Conservative Members.

We promised to produce a Budget for investment, for skills, to get people off welfare and into work, to safeguard the health service and to raise standards in schools. That is what we are doing. That is why the people of this country are pleased and proud that they voted Labour at the general election. We have honoured our manifesto commitments.

I welcome tonight's debate. The future of pensions is a major political challenge. It should not be—after 18 years in power, the Conservative party should be able to claim that nothing needs to be done. That cannot happen. Conservative Members spoke as if pensions were a triumph of the previous Administration. That would bring hollow laughter from the pensioners hit by value added tax on fuel; from those whose pension planning was undermined when the Conservative Government destroyed the cross-party consensus on SERPS; from the one in three pensioners who today have to rely on means-tested benefits; from the 1 million or so of the poorest pensioners who do not receive the income support to which they are entitled; and from the hundreds of thousands who read the Government's advertisements telling them that they could leave their occupational pensions—and did so and were missold personal pensions. That scandal was followed by inertia and inaction.

We have heard that more people have died a few months ago than have been compensated. The figures revealed by the Economic Secretary tell their own story. Yet the party that masterminded that disaster had the nerve to call this debate tonight. We have heard many speeches about occupational pensions, but we did not hear a word of concern from Conservative Members as membership of occupational schemes declined steadily under the previous Government, especially among men. We never heard a word of concern as the coverage and quality of some occupational schemes declined under the previous Government. The number of active members of occupational schemes fell from 11.6 million in 1979 to 10.7 million in 1991.

The hon. Gentleman obviously did not hear my speech, as he acknowledged. I said that occupational schemes were declining. However, I also said that the Government's action on advance corporation tax was likely to make that decline accelerate.

I shall come to the hon. Gentleman's point later, if I do not take many more interventions.

Today, 12 million people are outside occupational pension schemes, many in low-paid or modestly paid work. What is their choice after 18 years of Conservative government—SERPS, worth far less than it once was, or personal pensions? Personal pensions may be all right for some, but for too many it means that their savings and taxpayers' contributions are eaten up in fees and charges. Up to £1 in every £4 of savings can be eaten up by the time they retire. The cumulative effect of charges on a 25-year plan with monthly premiums of £60 can be as high as 30 per cent. If someone has a period out of work, even more of their savings will disappear.

I have never heard so many speeches from Conservative Members about personal pensions as I have heard tonight. I have been present at every pensions debate for the past five years, but I never heard a word about the people for whom personal pensions were inappropriate and the extent of savers' and taxpayers' contributions eaten up in fees and charges. Not a word was said, not an action taken, as taxpayers' and savers' money was poured down the drain. The concern of Conservative Members this evening for those with personal pensions has been fascinating. It has certainly not been in evidence in the past. We have heard arguments of convenience, not arguments of commitment or principle.

The previous Government's record has left behind not only poverty for many of today's pensioners, but similar poverty facing many of tomorrow's pensioners. The Conservative Government got their strategy wrong. They failed to ensure that people's money was used to invest for the future; they failed to regulate properly to protect savers and savings; they failed to ensure that people could get access to a decent second pension to meet their needs in the modern labour market.

In the dying days of their Administration came an admission of failure. The previous Government introduced a scheme—basic pension plus—the boldness of which was matched only by the damage that it would do. They would have abolished the basic state pension and imposed an ever larger bill—rising to £300 billion over the next 40 years—on today's working population and on our children and grandchildren. They were warned that basic pension plus would consign occupational pensions to history. They were right to admit that their policies had failed, but they were wrong in the remedies that they proposed.

That is the background to today's debate, and that is why I welcome it. I should now like to explain how we should move forward. We should first be absolutely clear about the conditions that make an effective pension policy possible and affordable. The ability to achieve security in retirement depends crucially on the health and success of the wider economy and on the opportunities for all to share in that health and success. The long-term performance of the economy and the ability of everyone to participate in economic success are the key to future pensions.

If we have a low-wage, low-skill and low-investment economy in which millions of people are in and out of work, it will always be difficult to develop a successful pensions policy to meet the needs of all. Too many people will slip through the net, as they have in the past, retiring without decent pensions. An economy that fails to be competitive in the global economy will always struggle to meet the competing demands of today's retired people, of tomorrow's pensioners and of today's working generation.

On the basis of a long-term concern for future generations and the debt requirement, will the Minister tell the House whether the Government's policy is that SERPS should continue and be expanded or whether, as the Minister for Welfare Reform maintains, it should be wound up?

The hon. Gentleman may have just used the 30 seconds that it would have taken to cover that point, but I shall do my best to deal with it. The Government's priorities and the Chancellor's Budget are all about tackling those deep-seated problems.

Answer the question.

Stop interrupting and I shall answer it.

The Government had to establish—and we have—the correct fiscal regime for investment. We also had to commit ourselves to the conditions for stable and sustainable growth, and we have done so. In doing so, we are not only aiming to build a stronger economy, but providing the essential underpinning for decent pensions. By opening up, through the new deal, new opportunities to leave welfare, to enter work, to earn an income and to join a pension scheme, we shall enable more people who currently have no pension to enjoy one in future.

Investment, skills and the opportunity to work and saveare the platform on which our economy and our pension policy will be built. Before the general election, we made it clear that a wide-ranging review of pensions would be a necessity for the Government because of the legacy that we would inherit. Some of the issues that we shall have to address arise directly from the failures of the previous Government.

We shall have to—and we want to—talk directly to pensioners and to their organisations. The Chancellor has already taken action to cut VAT on domestic fuel and to make available better and cheaper insulation. [HON. MEMBERS: "SERPS"] That action will be supported by the new deal for young people. He has also taken action to make further cuts in some fuel bills. All those actions will help older citizens to keep their homes warm in the winter.

Unlike the previous Government, we shall retain the basic state pension as the foundation of pension provision and ensure that it is increased at least in line with prices. [HON. MEMBERS: "SERPS?"] We are already commissioning research to establish why so many pensioners do not claim the income support to which they are entitled. We are committed to examining ways of delivering more automatic help to the poorest of today's pensioners.

For most people, security in retirement depends on two pensions—the essential foundation of the basic state pension and an adequate second pension. Occupational pensions are one of the best ways of providing the second pension that people need in retirement. [HON. MEMBERS: "SERPS"] Unlike the previous Government, who were prepared to say goodbye to occupational pensions, we shall work with the pensions industry to examine ways in which the framework for occupational schemes can be strengthened and made more effective.

We shall of course retain SERPS for those who wish to remain members of it. [HON. MEMBERS: "Hear, hear."] I got there, and I am sure that it was worth waiting for. We must continue to value the contribution that employers can make to their employees' security in retirement.

The Government's aim is not to abolish the basic state pension but to establish the right balance between public and private provision. However, too many people, particularly those on low and modest incomes, find it difficult to find a second pension that gives good value for money, flexibility and security. There are many who cannot contribute to second pensions because of caring responsibilities. They contribute immensely to our society, but too many retire as a result on means-tested benefits. Our framework of stakeholder pensions will extend the opportunities to belong to a pension scheme that is flexible, secure, gives value for money and does not hit people's savings if they have a period out of work.

We shall examine ways to use the structure of SERPS to provide better support for carers through a citizenship pension. Many of those without decent second pensions are women. Our action on pension sharing at the time of divorce is just one step—

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That the original words stand part of the Question:—

The House divided: Ayes 190, Noes 353.

Division No. 51]	[10 pm
AYES
Ainsworth, Peter (E Surrey)	Goodlad, Rt Hon Alastair
Allan, Richard (Shef'ld Hallam)	Gorman, Mrs Teresa
Amess, David	Gorrie, Donald
Ancram, Rt Hon Michael	Gray, James
Arbuthnot, James	Green, Damian
Atkinson, David (Bour' mth E)	Greenway, John
Atkinson, Peter (Hexham)	Grieve, Dominic
Baldry, Tony	Gummer, Rt Hon John
Ballard, Mrs Jackie	Hague, Rt Hon William
Beggs, Roy (E Antrim)	Hamilton, Rt Hon Sir Archie
Beith, Rt Hon A J	Hammond, Philip
Bercow, John	Hancock, Mike
Beresford, Sir Paul	Hawkins, Nick
Blunt, Crispin	Hayes, John
Body, Sir Richard	Heath, David (Somerton & Frome)
Boswell, Tim	Heathcoat-Amory, Rt Hon David
Bottomley, Peter (Worthing W)	Horam, John
Bottomley, Rt Hon Mrs Virginia	Howard, Rt Hon Michael
Brady, Graham	Howarth, Gerald (Aldershot)
Brake, Thomas	Hunter, Andrew
Brand, Dr Peter	Jack, Rt Hon Michael
Brazier, Julian	Jackson, Robert (Wantage)
Breed, Colin	Jenkin, Bernard (N Essex)
Brooke, Rt Hon Peter	Johnson Smith, Rt Hon Sir Geoffrey
Browning, Mrs Angela
Bruce, Ian (S Dorset)	Keetch, Paul
Bruce, Malcolm (Gordon)	Key, Robert
Burnett, John	King, Rt Hon Tom (Bridgwater)
Burns, Simon	Kirkbride, Miss Julie
Burstow, Paul	Kirkwood, Archy
Butterfill, John	Laing, Mrs Eleanor
Campbell, Menzies (NE Fife)	Lansley, Andrew
Cash, William	Leigh, Edward
Chapman, Sir Sydney (Chipping Barnet)	Letwin, Oliver
	Lewis, Dr Julian (New Forest E)
Chidgey, David	Lidington, David
Chope, Christopher	Lilley, Rt Hon Peter
Clappison, James	Livsey, Richard
Clark, Rt Hon Alan (Kensington)	Lloyd, Rt Hon Sir Peter (Fareham)
Clark, Dr Michael (Rayleigh)	Loughton, Tim
Clarke, Rt Hon Kenneth (Rushcliffe)	Luff, Peter
	Lyell, Rt Hon Sir Nicholas
Clifton-Brown, Geoffrey	MacGregor, Rt Hon John
Collins, Tim	McIntosh, Miss Anne
Colvin, Michael	MacKay, Andrew
Cormack, Sir Patrick	Maclean, Rt Hon David
Cran, James	McLoughlin, Patrick
Curry, Rt Hon David	Madel, Sir David
Davey, Edward (Kingston)	Malins, Humfrey
Davis, Rt Hon David (Haltemprice)	Maples, John
Davies, Quentin (Grantham)	Mates, Michael
Day, Stephen	Maude, Rt Hon Francis
Donaldson, Jeffrey	Mawhinney, Rt Hon Dr Brian
Dorrell, Rt Hon Stephen	May, Mrs Theresa
Duncan, Alan	Merchant, Piers
Duncan Smith, Iain	Michie, Mrs Ray (Argyll & Bute)
Evans, Nigel	Moore, Michael
Faber, David	Moss, Malcolm
Fabricant, Michael	Nicholls, Patrick
Fallon, Michael	Norman, Archie
Feam, Ronnie	Öpik, Lembit
Flight, Howard	Ottaway, Richard
Forsythe, Clifford	Page, Richard
Forth, Rt Hon Eric	Paice, James
Foster, Don (Bath)	Paterson, Owen
Fowler, Rt Hon Sir Norman	Pickles, Eric
Fox, Dr Liam	Prior, David
Fraser, Christopher	Redwood, Rt Hon John
Gale, Roger	Rendel, David
George, Andrew (St Ives)	Robathan, Andrew
Gibb, Nick	Robertson, Laurence (Tewk'b'ry)
Gill, Christopher	Roe, Mrs Marion (Broxbourne)
Gillan, Mrs Cheryl	Rowe, Andrew (Faversham)

Ruffley, David	Townend, John
Russell, Bob (Colchester)	Tredinnick, David
St Aubyn, Nick	Trend, Michael
Sanders, Adrian	Tyler, Paul
Sayeed, Jonathan	Tyrie, Andrew
Shephard, Rt Hon Mrs Gillian	Viggers, Peter
Shepherd, Richard (Aldridge)	Walter, Robert
Simpson, Keith (Mid-Norfolk)	Wardle, Charles
Smith, Sir Robert (W Ab'd'ns)	Webb, Professor Steve
Smyth, Rev Martin (Belfast S)	Wells, Bowen
Soames, Nicholas	Whitney, Sir Rayrnond
Spelman, Mrs Caroline	Whittingdale, John
	Widdecombe, Rt Hon Mss Ann
Spicer, Sir Michael	Wilkinson, John
Spring, Richard	Willetts, David
Stanley, Rt Hon Sr John	Willis, Phil
Steen, Anthony	Wilshire, David
Stunell, Andrew	Winterton, Mrs Ann (Congleton)
Swayne, Desmond	Winterton, Nicholas (Macclesfield)
Syms, Robert	Woodward, Shaun
Tapsell, Sir Peter	Yeo, Tim
Taylor, Ian (Esher & Walton)	Young, Rt Hon Sir George
Taylor, John M (Solihull)
Taylor, Matthew (Truro)	Tellers for the Ayes:
Taylor, Sir Teddy	Mr. Oliver Heald and
Temple-Morris, Peter	Mr. Nigel Waterson.

NOES
Abbott, Ms Diane	Casale, Roger
Adams, Mrs Irene (Paisley N)	Caton, Martin
Ainger, Nick	Cawsey, Ian
Allen, Graham (Nottingham N)	Chapman, Ben (Wirral S)
Anderson, Donald (Swansea E)	Chaytor, David
Anderson, Janet (Rossendale)	Chisholm, Malcolm
Armstrong, Ms Hilary	Church, Ms Judith
Ashton, Joe	Clapham, Michael
Atherton, Ms Candy	Clark, Rt Hon Dr David (S Shields)
Atkins, Charlotte	Clark, Dr Lynda (Edinburgh Pentlands)
Austin, John
Banks, Tony	Clark, Paul (Gillingham)
Barnes, Harry	Clarke, Charles (Norwich S)
Barron, Kevin	Clarke, Rt Hon Tom (Coatbridge)
Battle, John	Clarke, Tony (Northampton S)
Bayley, Hugh	Clelland, David
Beckett, Rt Hon Mrs Margaret	Clwyd, Ann
Begg, Miss Anne (Aberd'n S)	Coaker, Vernon
Bell, Stuart (Middlesbrough)	Coffey, Ms Ann
Benn, Rt Hon Tony	Colman, Tony (Putney)
Bennett, Andrew F	Connarty, Michael
Benton, Joe	Cooper, Yvette
Berry, Roger	Corbett, Robin
Best, Harold	Corston, Ms Jean
Betts, Clive	Cousins, Jim
Blackman, Liz	Cranston, Ross
Blears, Ms Hazel	Crausby, David
Blizzard, Bob	Cryer, Mrs Ann (Keighley)
Blunkett, Rt Hon David	Cryer, John (Hornchurch)
Boateng, Paul	Cummings, John
Borrow, David	Cunliffe, Lawrence
Bradley, Keith (Withington)	Cunningham, Jim (Cov'try S)
Bradley, Peter (The Wrekin)	Cunningham, Rt Hon Dr John (Copeland)
Bradshaw, Ben
Brown, Rt Hon Nick (Newcastle E)	Curtis-Thomas, Mrs Claire
Brown, Russell (Dumfries)	Dalyell, Tam
Browne, Desmond (Kilmarnock)	Darling, Rt Hon Alistair
Burden, Richard	Darvill, Keith
Burgon, Colin	Davey, Valerie (Bristol W)
Butler, Christine	Davidson, Ian
Byers, Stephen	Davies, Rt Hon Denzil (Llanelli)
Caborn, Richard	Davies, Geraint (Croydon C)
Campbell, Alan (Tynemouth)	Davies, Rt Hon Ron (Caerphilly)
Campbell, Mrs Anne (C'bridge)	Davis, Terry (B'ham Hodge H)
Campbell, Ronnie (Blyth V)	Dawson, Hilton
Campbell-Savours, Dale	Dean, Mrs Janet
Cann, Jamie	Denham, John
Caplin, Ivor	Dismore, Andrew

Dobbin, Jim	Johnson, Miss Melanie (Welwyn Hatfield)
Dobson, Rt Hon Frank
Donohoe, Brian H	Jones, Barry (Alyn & Deeside)
Doran, Frank	Jones, Ms Fiona (Newark)
Drew, David	Jones, Jon Owen (Cardiff C)
Drown, Ms Julia	Jones, Dr Lynne (Selly Oak)
Dunwoody, Mrs Gwyneth	Jones, Martyn (Clwyd S)
Eagle, Angela (Wallasey)	Keeble, Ms Sally
Edwards, Huw	Keen, Alan (Feltham & Heston)
Efford, Clive	Keen, Mrs Ann (Brentford)
Ellman, Ms Louise	Kemp, Fraser
Ennis, Jeff	Kennedy, Jane (Wavertree)
Etherington, Bill	Khabra, Piara S
Fatchett, Derek	Kidney, David
Field, Rt Hon Frank	Kilfoyle, Peter
Fisher, Mark	King, Andy (Rugby & Kenilworth)
Fitzpatrick, Jim	King, Ms Oona (Bethnal Green)
Flint, Caroline	Kumar, Dr Ashok
Flynn, Paul	Ladyman, Dr Stephen
Follett, Barbara	Lawrence, Ms Jackie
Foster, Rt Hon Derek	Laxton, Bob
Foster, Michael John (Worcester)	Lepper, David
Foulkes, George	Levitt, Tom
Fyfe, Maria	Lewis, Ivan (Bury S)
Galloway, George	Lewis, Terry (Worsley)
Gapes, Mike	Liddell, Mrs Helen
Gerrard, Neil	Linton, Martin
Gibson, Dr Ian	Livingstone, Ken
Godman, Dr Norman A	Lloyd, Tony (Manchester C)
Godsiff, Roger	Love, Andrew
Goggins, Paul	McAvoy, Thomas
Golding, Mrs Llin	McCabe, Stephen
Gordon, Mrs Eileen	McCafferty, Ms Chris
Grant, Bernie	McCartney, Ian (Makerfield)
Griffiths, Jane (Reading E)	McDonagh, Siobhain
Griffiths, Nigel (Edinburgh S)	Macdonald, Calum
Griffiths, Win (Bridgend)	McDonnell, John
Grocott, Bruce	McGuire, Mrs Anne
Grogan, John	McKenna, Ms Rosemary
Gunnell, John	Mackinlay, Andrew
Hain, Peter	McNamara, Kevin
Hall, Mike (Weaver Vale)	McNulty, Tony
Hall, Patrick (Bedford)	MacShane, Denis
Hanson, David	Mactaggart, Fiona
Harman, Rt Hon Ms Harriet	McWalter, Tony
Heal, Mrs Sylvia	McWilliam, John
Healey, John	Mahon, Mrs Alice
Henderson, Ivan (Harwich)	Mallaber, Judy
Hepburn, Stephen	Mandelson, Peter
Heppell, John	Marek, Dr John
Hesford, Stephen	Marsden, Paul (Shrewsbury)
Hewitt, Ms Patricia	Marshall, David (Shettleston)
Hill, Keith	Marshall, Jim (Leicester S)
Hodge, Ms Margaret	Marshall-Andrews, Robert
Hoey, Kate	Martlew, Eric
Home Robertson, John	Meacher, Rt Hon Michael
Hood, Jimmy	Meale, Alan
Hoon, Geoffrey	Merron, Gillian
Hope, Phil	Michael, Alun
Hopkins, Kelvin	Michie, Bill (Shef'ld Heeley)
Howarth, Alan (Newport E)	Milburn, Alan
Howarth, George (Knowsley N)	Mitchell, Austin
Howells, Dr Kim	Moffatt, Laura
Hoyle, Lindsay	Moran, Ms Margaret
Hughes, Ms Beverley (Stretford)	Morgan, Ms Julie (Cardiff N)
Hughes, Kevin (Doncaster N)	Morgan, Rhodri (Cardiff W)
Humble, Mrs Joan	Morley, Elliot
Hurst, Alan	Morris, Ms Estelle (B'ham Yardley)
Hutton, John	Morris, Rt Hon John (Aberavon)
Iddon, Dr Brian	Mountford, Kali
Illsley, Eric	Mudie, George
Ingram, Adam	Mullin, Chris
Jackson, Ms Glenda (Hampstead)	Murphy, Denis (Wansbeck)
Jackson, Helen (Hillsborough)	Murphy, Jim (Eastwood)
Jamieson, David	Murphy, Paul (Torfaen)
Jenkins, Brian (Tamworth)	Naysmith, Dr Doug

Norris, Dan	Smith, John (Glamorgan)
O'Brien, Bill (Normanton)	Smith, Llew (Blaenau Gwent)
O'Brien, Mike (N Warks)	Snape, Peter
O'Hara, Edward	Soley, Clive
Olner, Bill	Spellar, John
O'Neill, Martin	Squire, Ms Rachel
Organ, Mrs Diana	Starkey, Dr Phyllis
Osborne, Mrs Sandra	Steinberg, Gerry
Pearson, Ian	Stevenson, George
Pendry, Tom	Stewart, David (Inverness E)
Pickthall, Colin	Stewart, Ian (Eccles)
Pike, Peter L	Stinchcombe, Paul
Plaskitt, James	Stoate, Dr Howard
Pollard, Kerry	Stott, Roger
Pope, Greg	Strang, Rt Hon Dr Gavin
Pound, Stephen	Straw, Rt Hon Jack
Prentice, Ms Bridget (Lewisham E)	Stringer, Graham
Prentice, Gordon (Pendle)	Stuart, Ms Gisela (Edgbaston)
Prescott, Rt Hon John	Sutcliffe, Gerry
Primarolo, Dawn	Taylor, Rt Hon Mrs Ann (Dewsbury)
Prosser, Gwyn
Purchase, Ken	Taylor, David (NW Leics)
Quin, Ms Joyce	Taylor, Rt Hon John D (Strangford)
Quinn, Lawrie (Scarborough)	Thomas, Gareth (Clwyd W)
Radice, Giles	Thomas, Gareth R (Harrow W)
Rammell, Bill	Timms, Stephen
Rapson, Syd	Tipping, Paddy
Raynsford, Nick	Todd, Mark
Reid, Dr John (Hamilton N)	Touhig, Don
Robertson, Rt Hon George (Hamilton S)	Trickett, Jon
	Turner, Dennis (Wolverh'ton SE)
Robinson, Geoffrey (Cov'try NW)	Turner, Dr George (NW Norfolk)
Roche, Mrs Barbara	Twigg, Derek (Halton)
Rogers, Allan	Twigg, Stephen (Enfield)
Rooker, Jeff	Vaz, Keith
Rooney, Terry	Vis, Dr Rudi
Ross, Ernie (Dundee W)	Watts, David
Rowlands, Ted	White, Brian
Roy, Frank	Whitehead, Dr Alan
Ruane, Chris	Wicks, Malcolm
Ruddock, Ms Joan	Williams, Rt Hon Alan (Swansea W)
Ryan, Ms Joan
Salter, Martin	Williams, Alan W (E Carmarthen)
Savige, Malcolm	Williams, Mrs Betty (Conwy)
Sawford, Phil	Wills, Michael
Sedgemore, Brian	Winnick, David
Sheerman, Barry	Winterton, Ms Rosie (Doncaster C)
Sheldon, Rt Hon Robert	Wise, Audrey
Shipley, Ms Debra	Wood, Mike
Simpson, Alan (Nottingham S)	Woolas, Phil
Singh, Marsha	Wray, James
Skinner, Dennis	Wright, Dr Tony (Cannock)
Smith, Rt Hon Andrew (Oxford E)	Wright, Tony D (Gt Yarmouth)
Smith, Angela (Basildon)	Wyatt, Derek
Smith, Rt Hon Chris (Islington S)
Smith, Miss Geraldine (Morecambe & Lunesdale)	Tellers for the Noes:
	Mr. Jim Dowd and
Smith, Jacqui (Redditch)	Mr. Robert Ainsworth.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments), and agreed to.

MR. DEPUTY SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved,

That this House condemns the failure of the last Government to foster security in retirement lot either today's pensioners or pensioners of the future; supports the present Government's objective of a decent income for all in retirement; believes that the best way to achieve this is by developing second pensions building on the foundation of the basic state pension; commends the Government's decisive action on the past mis-selling of private pensions; endorses the measures taken in the Budget, particularly the reforms to corporation tax, which will help to create a climate encouraging higher investment and a higher sustainable growth rate increasing the capacity of the economy to support decent pensions; supports the Government's welfare-to-work proposals, which will improve the employment opportunities for thousands of people, enabling them to save for their own retirement; and welcomes the Government's commitment to review pensions and achieve security in retirement for all.

Delegated Legislation

Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

Social Security

That the draft Pneumoconiosis etc. (Workers' Compensation) (Payment of Claims) Amendment Regulations 1997, which were laid before this House on 24th June, be approved.— [Mr. Kevin Hughes.]

Question agreed to.

Parliamentary Privilege

Resolved,

That it is desirable that a Joint Committee of both Houses be appointed to review Parliamentary Privilege and to make recommendations thereon.— [Mr. Kevin Hughes.]

Petitions

Dedham Vale

10.18 pm

This petition is presented—[Interruption.]

Order. There must be no conversations in the Chamber while an hon. Member is presenting a petition.

The petition represents the views of the ordinary voters of Dedham Vale, who are threatened by the erection of telecommunications masts in their historic landscape—a landscape immortalised in the paintings of John Constable and deserving protection. Several hundred signatures are hereto attached:

"Wherefore your Petitioners pray that your Honourable House should urge the Secretary of State to ensure that DOE planning guidance for the protection of the natural heritage should take precedence over mobile telecommunications development; and further urges the Secretary of State for the Environment to be prepared to overturn the Inquiry Inspector's decision in respect of the above application, to ensure the protection of the historic landscape of Dedham Vale."

To lie upon the Table.

Ongar War Memorial Hospital

10.19 pm

This petition concerns the fate of the Ongar War Memorial hospital in my constituency. The hospital was built entirely by the good people of Ongar as a permanent memorial and living tribute to those who died in the first world war. The petition states:

The Petition of residents within the constituency of Brentwood and Ongar declare that they object to the proposals of the Essex and Herts community NHS trust to cease inpatient treatment within the Ongar War Memorial hospital, and the removal of all its beds.

The Petitioners therefore request that this House of Commons urge the Secretary of State for Health to review the proposals of the community trust.

And the Petitioners remain, etc.

The petition is signed by more than 5,200 people, which represents the bulk of the people of Ongar.

To lie upon the Table.

James Miles And Paul Loseby

Motion made, and Question proposed, That this House do now adjourn.— [Mr. Kevin Hughes.]

10.20 pm

I thank you, Mr. Deputy Speaker, for allowing me to raise in Parliament the important case of the detention in Venezuela of two young people from my constituency. I welcome and am grateful for this opportunity to speak on behalf of my constituents and their families, who are presently undergoing a great deal of suffering, anxiety and distress.

Anyone who doubts the significance of Adjournment debates should take heart from their effectiveness in prompting urgent action. Just five hours ago, my office was telephoned by the Foreign Office and given dramatic new information on the case, to which I shall refer shortly.

Some hon. Members will remember the media coverage of the detention of two men, James Miles, aged 18, of Hungerton boulevard, Leicester, and Paul Loseby, aged 20, of Greenwood road, Leicester, at Caracas airport on 4 November last year. That is how I first heard of the case. Somewhat alarmingly, Paul's mother, Mrs. Wendy Loseby, also heard of her son's arrest through a news bulletin rather than from official sources.

The young men were on their way back from a holiday when they were apprehended with 10 kg of cocaine strapped to their chests. James and Paul say that they were frightened and distraught. On international television they said that they were forced to carry the drugs after a man put a gun to their heads near a gate of the airport terminal. The two young men insist that they approached airport customs officers to tell them about the drugs and how they came to be on their person, but due to a misunderstanding resulting from the language barrier, they were arrested and have been detained ever since.

One can imagine the distress and trauma that the families of those young men have undergone during the past eight months. Steven and Georgina Miles and Graham and Wendy Loseby are respectable, ordinary, decent, hard-working people who have found themselves in a position totally beyond their comprehension. It is a nightmare for them. They have no access to large sums of money or experience of media attention. They were not prepared for, and never anticipated, facing a problem remotely of that proportion in this country, let alone on the other side of the world. The stress on the whole family arising from that unhappy situation cannot be quantified.

Today, in a dramatic and astonishing turn of events, my office received a call at 4 pm from Mr. Danny Woodyear in the Foreign Office, to be told that, on 2 July, James and Paul were sentenced to four years for possession of drugs, but not for trafficking.

On the face of it, that seems to be consistent with the version of events that they described. Neither the parents nor the Foreign Office were informed that that remarkable system of justice allowed for a sentence without a trial. We have not received confirmation that a trial took place with the defendants present.

I wonder what the Minister of State will make of those developments when he replies to the debate. We have been told that an appeal must be lodged, and that it will take two months to progress the appeal. None of that information was communicated to the parents until this afternoon.

The Mileses must find money each week for food for the young men. Whereas other inmates have families who bring food by hand into the prison, as is the custom in Venezuela, the Mileses and the Losebys are not in a position to do that, and must rely on expensive and not always reliable alternatives.

As one can imagine, the strain on resources and on the families' physical and mental health is tremendous. In addition, there is the far greater expense of fees for lawyers dealing with the case. Worse than all that is the uncertainty, the not knowing, and the waiting, day in, day out, to hear whether there has been any progress or development in the case. Unlike the practice in our system of justice, Paul and James did not have to return to court. Bizarrely, their parents were not even told that they had to face a trial.

Over the past eight months, I have been involved in campaigning—first, to get as much information as possible, and secondly, to have those young people brought to this country, for their own sake and for the sake of their families. I pay tribute tonight to Mr. and Mrs. Miles and Mr. and Mrs. Loseby, who have worked in a united and disciplined way. I also pay tribute to Charlotte Seebohm, Steve Evison and Bishop Bill, all of whom have been involved in the campaign.

Under the previous Government, I secured meetings with the then Foreign Office Minister, the hon. Member for Woodspring (Dr. Fox), and the Home Office Minister, the former Member for Leeds, North-East, to pursue various measures that might alleviate the young men's conditions and secure justice, and in particular on the issue of repatriation. Ironically, until the men are sentenced, they are not regarded as prisoners, and so cannot be repatriated.

I paid for Mr. Miles senior to visit Venezuela to see his son and his son's friend, to try to secure a lawyer and to meet officials there. A shocked Mr. Miles described his son's living conditions as a cell 30 ft by 30 ft—roughly the size of two sitting rooms—open to the air, with 73 people currently living in it. There is a hole in one corner for the toilet. Water is sometimes turned off, often for a week at a time.

Until Mr. Miles bought some sort of mattress, the young men were sleeping on a concrete floor. The place is infested with vermin and cockroaches. Paul and James are covered in flea and mosquito bites, have lice and have had scabies. There is a great deal of fighting in the cell. Paul and James have never had exposure to or experience of such hardships. One can scarcely imagine the physical and psychological effects of having to live in such an environment.

I have twice met the Venezuelan ambassador. On the second occasion, I was accompanied by both sets of parents. Much to our surprise, the ambassador arranged a telephone call to enable the parents to speak to the sons. The ambassador was extremely helpful, and seemed sympathetic to the idea of repatriation. However, further progress would require some general agreement of an internationally legally binding nature. In the case of Thailand, for example, such an agreement is already in place, and since 1991 has allowed for the repatriation to the United Kingdom of 30 prisoners, most of whom were involved in drugs-related offences.

Although the ambassador subsequently called on me at my office in the House, and although I do not doubt his sincerity or concern, that has not been reflected in the attitude, actions and deeds, or lack of them, by the legal system in Venezuela.

On 22 May 1997, I received answers from the Minister of State, Foreign and Commonwealth Office, who stated that the British Government had approached the Venezuelan Government about accession to the Council of Europe convention on the transfer of sentenced persons, and are still awaiting the Venezuelans' reply.

Government policy is that, on humanitarian grounds, prisoners should be able to serve their sentences in their own countries. Venezuela is a highly unstable country, both politically and economically. In 1996, inflation was 103 per cent., and economic pressures of that magnitude have, in turn, led to a great deal of unrest. There have been several failed attempts at military coups in the past few years.

Venezuela's human rights record is also dubious—most notoriously in the prison and police services. In prisons, there are frequent instances of torture to obtain confessions, corruption and appalling overcrowding. Last year's Amnesty International report states:

"Prison conditions continued to deteriorate and often amounted to cruel, inhuman or degrading treatment. Although the government acknowledged the lack of security for prison inmates, serious overcrowding and extremely poor sanitary conditions, they failed to act to reform the prison system."

A press report from November 1996 states that, since 1992, 360 prisoners have died in custody. In January 1994, 100 prisoners died during a riot and a fire at Sabaneta prion, Maracaibo, and, more recently, in October 1996, 30 prisoners were burnt to death at the notorious La Planta gaol in Caracas.

James Miles and Paul Loseby are currently being held in a detention centre, La Vega, rather than a prison, thanks to initial pressure placed on the Venezuelan authorities. I record my gratitude, and that of their parents, that they were not transferred to La Planta. However, as I have already informed the House, the young men are still held in severely overcrowded conditions, with no separation of prisoners according to the severity of their alleged crimes or any other rational grounds. If the young men were to be transferred to the even worse prison conditions, I would seriously question their ability to survive such an ordeal.

May I say at this point that I—together with, I am sure, every hon. Member—categorically condemn any use of drugs, trafficking or dealing of any sort. Those responsible should be punished severely for their inexcusable activities and for the devastating effects that drugs have on people's lives and on society as a whole. I condemn wholeheartedly such practices in any circumstances for whatever reason, and agree, in principle, that sentences should be tough and that strong deterrent measures must be enforced worldwide.

Mr. and Mrs. Miles and Mr. and Mrs. Loseby also condemn drug dealing, but they categorically maintain that their sons are innocent victims in the real crime that has clearly been committed. These young men, who were on holiday in a foreign land far from home, were allegedly held at gunpoint and made to carry drugs against their will. However, as we have seen in numerous cases of miscarriage of justice, the relevant authorities consider that they have solved this case by arresting the two young men.

The real criminals not only go unpunished, but remain free to continue their evil work and to ruin more lives. Whatever the precise nature of James's and Paul's involvement, it is crystal clear that extremely sinister forces remain at large and in the shadows. As these two young men fester and rot in a detention centre, evil and wicked people continue their multi-billion dollar trafficking in death, amid the apparent indifference of self-satisfied authorities who appear to have selected their sacrificial victims.

What can the British Government do? I am delighted to see the Minister of State on the Front Bench this evening, as I know that he takes these matters very seriously. It is time to put an end to the weeks and months of waiting and not knowing because of the bureaucratic lethargy and inefficiency of the Venezuelan judicial system. It is time to act, and to fight for justice for the families of the young men.

Was their trial free and fair, with proper legal representation and translation? Now that the trial has apparently taken place —bizarre though the circumstances were—can the Government try to ensure that the young men are repatriated promptly to serve their time in a British gaol? Like his predecessors, I hope that the Minister will exert as much diplomatic pressure as possible on the Venezuelan authorities to ensure that the matter progresses.

Pressure for the judicial system to speed up its handling of this case will be extremely helpful. The waiting is adding to the distress of the families, not to mention the financial burden that they are ill equipped to shoulder. As I have said, conditions are bad, and the health of both young men and their families has been chronically affected.

The fact that James and Paul have apparently been tried and sentenced makes the repatriation agreement all the more urgent We need pressure, pending the formalisation of an agreement, to allow the young people to be repatriated to serve their sentence in Britain. In the meantime, we need to see improved input from the consular section of the British embassy. It is not good enough to have to wait seven days to be told that the trial has taken place.

There is no way in which the family can continue to support the young men in the way that they have until now. I must tell the House that, if there is no tangible progress within the next three weeks, as soon as practicable after Parliament rises I shall go to Venezuela myself to see the young men, assess their conditions, meet the lawyers acting on their behalf, and exert whatever pressure I can on the relevant authorities in Caracas. I shall, of course, do so only after consulting my hon. Friend, and only if he and the parents feel that my visit will be helpful.

This country enjoys good relations with Venezuela. That fact alone should be an advantage in our attempt to get an acceptable solution to this problem. We should rely on our allies to act fairly with our citizens, as we most clearly do with theirs.

Surely it is against the principle of natural justice that two families should also be punished with their children. We recognise that British citizenship does not confer immunity in terms of committing an offence overseas, and nor should it, but at the same time the Government have an absolute obligation to their citizens who face difficulties overseas. Whatever the cause or circumstances, one also feels that the terms and conditions of detention and punishment should be broadly commensurate with what we now generally hold to be minimal standards for the treatment of any human being, irrespective of his or her offence.

This is a matter of human rights that transcends questions of frontier or nationality. There are many victims of such appalling circumstances in Venezuela, and numerous other countries, about whom, sadly, we can do absolutely nothing. In the case of young James Miles and Paul Loseby, there is something that we can do.

I have attempted to outline a course of action tonight. I sincerely hope that the new Government will take notice and respond.

10.37 pm

I am grateful to my hon. Friend the Member for Leicester, East (Mr. Vaz) for bringing this matter to the attention of the House. The case of James Miles and Paul Loseby involves drug-related issues. I should like to take the opportunity to state at the outset in the strongest possible terms that the Government are fully committed to the fight against drugs, and will do all they can to stamp out the evil of international drug trafficking. We will co-operate with any country that shares that commitment.

I very much welcome my hon. Friend's comments on that point. He was right to talk about the evil of drugs and the way in which drugs have damaged, indeed ruined, the lives of so many young people. Both of us will know from our constituencies the way in which drugs operate as a social evil.

I also welcome this opportunity to record the actions of the Foreign and Commonwealth Office in this case. I shall first outline our knowledge of the case to date and refer to the help that we have provided for Mr. Miles, Mr. Loseby and their families. I should also put it on record that we respect my hon. Friend's strong commitment to his constituents. His support will mean a great deal to the families concerned.

The facts are as follows, James Miles and Paul Loseby were arrested at Caracas airport on 4 November last year as they were about to board a flight. They were found to have 10 kg of cocaine strapped around their waists. They claimed that a man with whom they had been socialising had threatened to shoot them if they refused to carry the cocaine. Mr. Miles and Mr. Loseby were subsequently charged with drug trafficking. They were found guilty of possession of drugs, and they have been sentenced to four years' imprisonment.

The British embassy in Caracas was told on 6 November by the Venezuelan police about the arrest of two—I stress unnamed—British citizens. Consular staff sought immediate access, which was granted on the afternoon of 7 November.

The consular division of the Foreign and Commonwealth Office contacts families of British nationals who are detained overseas as soon as they have enough information to enable them to do so. In this case the Venezuelan authorities allowed local television and press access to the young men before the consular visit took place. That, as my hon. Friend said, was deplorable. As a result, stories of their arrest appeared before the consular division was aware of the full facts. This pre-empted a call to the families from consular staff in London.

The press stories created confusion, because mistakes were made in reporting the names and ages of the detainees. A consular officer in Caracas established the real identities of Mr. Miles and Mr. Loseby during the visit on 7 November. The House might be interested to know that Mr. Loseby was travelling on a passport in the name of Paul Richard Clark, which added to the consular confusion.

Consular staff cannot guarantee that they will always be able to alert families of detainees before the stories hit the newspapers. Sometimes the detainees do not want the Foreign Office, or in some cases even their families, to be informed. For reasons of consular privacy, we cannot inform families unless we have been spoken to and obtained permission of the detainee.

What is the role of our consular services? The job of our consular staff in Venezuela is to ensure that Mr. Miles and Mr. Loseby have access to a lawyer; that they know their legal position and have information about the legal and prison system; that they receive the same level of treatment as other prisoners and are not discriminated against in any way; and that any medical problems are dealt with quickly. Any complaint of ill treatment is taken up, and will be taken up, vigorously with the police or prison authorities.

Our staff can, and will, pass messages and money for prison comforts from their families. The welfare of British prisoners is a high priority for the Government. We are acutely aware that the needs of their families are important, too. We help them as far as possible to keep in regular contact with the prisoners.

It is important to stress that our role is essentially humanitarian. We do not provide legal advice. It is for the Venezuelan courts to decide whether Mr. Miles and Mr. Loseby are guilty of drug trafficking. Mr. Miles and Mr. Loseby have been encouraged to take legal advice to help them with their defence and to guide them through their trial. We now, of course, know the result of that process.

So much for our actions in Venezuela. At home, as my hon. Friend will know, the families of Mr. Miles and Mr. Loseby called on our consular division in London in November 1996. They spoke at length with the officials responsible for the welfare of Mr. Miles and Mr. Loseby, and, together with my hon. Friend, met the head of consular division, who explained fully the role of the Foreign and Commonwealth Office.

I am pleased to say that Mr. Miles's father visited his son and Mr. Loseby at La Vega in November 1996. Consular staff in Caracas helped him by meeting him at the airport, arranging his accommodation, providing transport to La Veda, and gaining him extra access to the prisoners. Consular staff in London helped to secure a grant for Mr. Loseby from the Royal British Legion for possible medical expenses.

My hon. Friend made strong reference to the legal proceedings. Mr. Miles and Mr. Loseby initially employed a lawyer, who had been selected and paid for by Mr. Miles's father. They were unhappy with the progress the lawyer was making, and chose a different one, who was officially assigned to their case by the court in April. This change of lawyer caused further delay in the already lengthy legal proceedings. But Mr. Miles, Mr. Loseby and their families did not ask the British embassy or the consular division to apply pressure to expedite the proceedings.

I am astonished to hear that, because Mr. Miles and his wife and Mr. and Mrs. Loseby have been in constant contact with the Foreign Office to try to ensure that the case is progressed. I have brought this matter to the attention of the House because of that pressure.

My hon. Friend mentioned the legal proceedings. He and his colleagues, including the Foreign Secretary, have made an outstanding start in the Foreign Office. One of the great principles of the new Administration is that morality should underlie Britain's foreign policy. Does the Minister believe that it is morally or legally right for defendants to be sentenced in a foreign country that is an ally of Britain after a trial at which they were not present? Is that a proper way for the legal system to operate?

I am grateful to my hon. Friend for his comments on the new Labour Government's foreign policy. They will be well received by my right hon. Friend the Foreign Secretary: he will be delighted to know that we are gaining support from my hon. Friend and in many other places.

My hon. Friend referred to prison conditions in Venezuela, and perhaps I could comment on that.

My hon. Friend has charmingly taken the compliments, but has not answered my question. My concern is not about prison conditions in Venezuela, but about the fact that my constituents, who are British citizens, have been sentenced without attending a trial. How can it be right for the Government to allow a friendly country to sentence our citizens when they were not even present at their trial?

I shall deal with that point. If my hon. Friend waits a moment, he will get the answer to his question.

I accept what my hon. Friend said about prison conditions in Venezuela, which are extremely difficult. They fall some way short of what we consider acceptable. We have complained about this to the Venezuelan authorities, and, together with our European Union partners, have pressed for improvements in prison conditions. Mr. Miles and Mr. Loseby believe that the La Vega police cells, where they are currently held, provide a safer and more comfortable environment than any of the Venezuelan prisons.

Under Venezuelan law, the young men should have been sent to a prison within eight days of their arrival in La Vega. However, our ambassador in Caracas persuaded the Venezuelan authorities, on behalf of the two accused persons, that they should be kept in La Vega until a verdict was reached. The time that they have spent in La Vega will count towards their sentence, which was recently announced.

Our embassy in Caracas has remained in regular and almost daily contact with Mr. Lyon, Mr. Miles and Mr. Loseby's current lawyer. Our ambassador undertook to provide consular staff in Venezuela with reports of developments in the case. On 5 May, he anticipated that a verdict might be reached in a matter of months, but he stressed that that was only an estimate, and we now know that events have moved on.

I shall deal with the two important issues to which my hon. Friend referred. The embassy contacted the court, and the court has confirmed that both men were found not guilty of trafficking in drugs, but guilty of possession. They have been sentenced to four years in prison. Venezuelan law allows for a sentence of four to six years. We immediately advised Mrs. Miles, and left messages with my hon. Friend's paging service.

Today.

That is when we received the information. We have been unable to contact Mr. and Mrs. Loseby: we have been told that they are on holiday.

Both men intend to appeal, and efforts are being made to ensure that they remain at La Vega until the appeal has been heard.

My hon. Friend referred to due process. We would be unhappy if due process in Venezuela was not being followed in the way that we consider to conform to universal standards, and we have made that point.

My hon. Friend spoke of the need to establish whether it was possible for the two convicted citizens to be returned to the United Kingdom. As he knows, we have pressed the Venezuelan Government to join the Council of Europe convention for the transfer of convicted persons, and we will continue to press the point. We hope that the Venezuelans will listen to our argument, and that it will then be possible for the two to return to the United Kingdom to finish their sentences.

I hope that I have dealt with my hon. Friend's points. This is a difficult case—I understand all the difficulties—but, as my hon. Friend said, drug taking and drug trafficking are awful businesses, and we must all be very vigilant.

Question put and agreed to.

Adjourned accordingly at ten minutes to Eleven o'clock.

Volume 297: debated on Wednesday 9 July 1997

House Of Commons

Prayers

European Fighter Aircraft

Fishing Fleet

Middleton, Norfolk (Bypass)

Freedom Of Information

Gcse Results (Stoke-On-Trent)

New Writ

Oral Answers To Questions

Northern Ireland

Sinn Fein-Ira (Relationship)

Unemployment

Peace Process

Educational Standards

Sean Quinn Glass Factory

Prime Minister

Ministerial Visit

Engagements

Nato Summit

Bill Presented

Social Security

Disability Discrimination (Provision Of Voting Facilities)

Disability Discrimination (Provision Of Voting Facilities)

Opposition Day

Pensions

Delegated Legislation

Social Security

Parliamentary Privilege

Petitions

Dedham Vale

Ongar War Memorial Hospital

James Miles And Paul Loseby