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Westminster Hall

Volume 451: debated on Wednesday 1 November 2006

Westminster Hall

Wednesday 1 November 2006

[Mr. Martyn Jones in the Chair]

Council Leaseholders (Works Charges)

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Shaw.]

I am extremely grateful to have this opportunity to raise a series of issues that are of grave concern to tens of thousands of Londoners, including thousands of my constituents, many of whom have very low incomes. Those people bought ex-council properties either through the right to buy or on their subsequent resale, and now face major works bills and service charges that are well in excess of what they can pay. I will describe the experiences of some of my constituents and explain why the argument that the increased value of their homes outweighs the pain of their bills is fundamentally flawed.

I welcome the recent improved deal offered by CityWest Homes to leaseholders in my borough of Westminster, which has come about as a consequence of pressure put on that organisation by my colleagues and me, but more needs to be done. I would like more assistance from the Government to support initiatives that will help my constituents and those in other areas who suffer equivalent problems.

Although I shall discuss these issues with particular reference to my constituents, I asked for this debate because I know that leaseholders in other boroughs also face problems. I commend in particular the hard work of and initiative shown by my hon. Friend the Member for Islington, South and Finsbury (Emily Thornberry), who has achieved more than anyone else, in the face of disinterest from the previous council administration in Islington, to raise the profile of local authority leaseholders in the past two years. She will speak for herself—I am delighted to see her in her place—but I know that some of the stories of personal hardship that she has heard are extremely distressing.

The Minister of State, Department for Constitutional Affairs, has also been very energetic in this campaign. She has been quoted as saying that Southwark council treats its leaseholders like “cash points” with its high charges and overheads, and she revealed that well over £1 million worth of mistakes were found in the leasehold management unit’s accounts in one year only. That is another theme of today’s debate: not only is there a problem with the size of the bills, but transparency regarding charges is often lacking and information is not provided to leaseholders in a way that makes it easy for them to understand their liabilities and responsibilities.

Clearly, although Westminster leaseholders are not alone in their predicament, their problems are particularly acute. That is partly because of the high cost of delivering services in central London and partly because we have an unusually high concentration of ex-council properties in high-rise blocks and on estates, but part of the problem is rooted in local history. Westminster leaseholders include people who were first enticed and encouraged to buy their homes in the 1980s and 1990s, in the years when Shirley Porter ran Westminster council. It is neither accident nor coincidence that one of the estates on which I shall focus today was central to the notorious and illegal designated sales programme. During that period, three tower blocks on the Warwick estate, which probably faces the largest major works bills in the country, were designated for sale with the explicit aim of replacing tenants who were assumed to be Labour voters with Conservative-voting home owners. The aim was also to create a smokescreen around the general sales programme which was, of course, concentrated on politically marginal wards.

In order to make home ownership an attractive option in estates and tower blocks, new leaseholders were offered immunity from major works bills through schemes such as the abatement and indemnity schemes, which were subsequently found to be illegal. Even more germane to today’s debate is the fact that major works were repeatedly postponed because the council lived in fear of alienating leaseholders by revealing the true cost of maintaining their homes. Roof replacements in the Little Venice estate village, for example, were originally planned for the early 1990s, but did not take place until last year. They were deferred for almost15 years because of fears about the consequences for the home ownership programme that the council was promoting.

Twenty years after the homes for votes scandal, today’s leaseholders, including many who did not originally purchase their properties through the right-to-buy scheme, are still paying the price. Why? Two of the reasons for that are of particular concern. First, many blocks and estates were neglected for decades, until the Labour Government brought in the decent homes initiative and gave £200 million to CityWest Homes alone to bring thousands of homes into the 21st century. Secondly, the dozens of different leases issued to purchasers in Westminster, which reflect the variety of different home-ownership schemes that there have been since the 1980s, have made it much more difficult for leaseholders to work together to influence major works programmes and to talk to their landlords.

Does the hon. Lady have any comparative statistics for other parts of London or the country? She makes a powerful political case, which I understand given her background as a former Westminster city councillor, but she has made statements about the complex lease arrangements. Is that an uncommon situation in London as a whole, given the variety of ownership schemes and the importance that has been attached to council and social housing in central London for longer than might be the case in other parts of the country?

The hon. Gentleman might like to address his question to the Minister. I ask her to take all that on board, because that is the kind of research that might usefully by undertaken to help establish what is happening with leaseholders in London. Clearly, the variety of home-ownership programmes in Westminster puts the residents there into a separate category to those in other boroughs. Most other boroughs had some experience of the right-to-buy scheme, but, as far as I am aware, none of them have gone through the process of designated sales or had the plethora of schemes that were unique to Westminster, where leaseholders are now dealing with the consequences of that variety of sales programmes.

On the positive side, the estates in my constituency are a forest of scaffolding, as much needed replacement roofing, lifts and windows are installed. Internal works are also being done, with new kitchens and bathrooms being fitted. Less happily, low-income leaseholders are faced with bills for tens of thousands of pounds. On the Warwick and Brindley estates, bills are topping £58,000. Many of the works being carried out are accompanying, but not part of, the decent homes initiatives. For example, the fitting of lifts is not part of decent homes standard. The Conservatives neglected estates, which are being brought up to standard through the decent homes initiative, and now the Government are being blamed and challenged on the cost of works. I would like councils to be required to have a sinking fund for work that is not part of the decent homes initiative, so that leaseholders pay as they go, effectively saving towards future major works which are bound to recur in 10 or 20 years.

It has been argued that the purchase price of the properties reflected their original disrepair and lack of refurbishment, but many people bought their homes at the limits of their financial capacity. Indeed, they were encouraged to do so, particularly in Westminster, openly in some cases and more subliminally in others. It does not make it any easier for them to pay today’s bills to be told that their property was cheaper to buy then than it would otherwise have been. Some of the works being carried out are likely to enhance value, but many are repairs rather than improvements. Replacing the roof on a tower block is unlikely to affect the resale price of the properties in it. That is one reason why good asset management would require an annual contribution to a sinking fund.

Who are the people who I am discussing? The ones who I am most concerned about own their properties and live in them as family homes. The families of the people in the examples that I will use have lived in those homes for many years as tenants. In some respects, they are the fortunate ones, because right-to-buy purchasers have a better deal than those with assigned leases. However, they also have their roots in the local community, and the neighbourhood, as well as the property, is their home. They do not want to move away because they cannot afford to maintain the property.

Let us consider Mr. S, who lives in a two bedroomed 16th-storey flat with his wife and two children. It was bought for £42,000 in 2003. Even with the proposed five-year extended period in which to repay the major works bill of £58,000, the family would need to make a monthly £1,000 repayment, on top of a monthly £140 service charge and £420 loan repayment, in lieu of the mortgage for their original purchase price. Even with additional equity now in the property, they would have no prospect of being able to sell and to recoup sufficient money to buy another property in the area. If they were to sell, as they are tempted to do, the property would almost certainly go back into the private rental market, reducing the capacity to provide permanent homes in the area.

Mr. K is a bus driver who also has a wife and two children. He and his wife paid £57,000 for their fourth-floor flat in 2002. They are now paying monthly a mortgage of £680, plus a £140 service charge and all other bills, from a monthly income of £1,800. They, too, received an estimate of £58,000 for their major works, again with an estimated requirement of £1,000 a month to repay. The economics simply do not stack up. They are impossible, even with a five-year repayment period, for people in this category. We are talking about those who work in local supermarkets or the health service, and bus drivers; people in the Warwick and Brindley estates whose average yearly household income is £14,000, £15,000, £16,000 or £17,000.

Pensioners have the option of having a charge put on the property so that the major works bills can be recouped at the time of sale or when they leave for other reasons. None the less, it is hard to imagine the shock and anxiety experienced by people who have worked hard to avoid debt and who now have to deal with what they perceive as a debt of tens of thousands of pounds hanging over their heads.

One lady wrote to me saying that she had recently been billed for £16,000. She is an 83-year-old stroke victim who was beside herself with anxiety. All of the systems put in place to tell her that she would not have to find that sum herself and that the bill would be a charge on the property had passed her by.

In some ways, the situation of pensioners is better than that of lower-income households of working age, but to avoid the stress and anxiety experienced by my constituent they need intensive personalised advice and support, preferably from someone one step removed from the landlord. That would enable there to be trust about the disinterested nature of the advice given. Such advice provision does not come cheap, but it should not be paid for from the housing revenue account—effectively at the expense of tenants—either.

Lessees are often seen as the key to mixed communities, which is a concept we all support, on the assumption that they will argue for better standards of management and regeneration. In fact, financial anxiety of the type I have described often pulls in a different direction. For entirely understandable reasons, low-income leaseholders can act as a brake on the improvement and regeneration that we want on our estates, because they worry about the bills that they will have to pay.

A proportion of leaseholders are not only quite capable of paying their bills, but are speculating on the property market. Figures that I have obtained show that a quarter of Westminster leaseholders are in the purchase-to-let market. We should not use public money to support people in that category, particularly as thousands of ex-council properties are let back to people on low incomes in housing need—homeless families—so the taxpayer picks up a weekly housing benefit bill of £300 to £450 to cover someone else’s mortgage.

Even having said that, I am conscious that the only way out some tenants could see was to buy and then re-let, and that the pressure will be intensified by unpayable major works bills. People who are stable members of a local community feel that the only way that they can transfer and get themselves out of housing need is to buy and then move on. The properties then go either to homeless families or into short-let, high-turnover markets, involving students and others who, through no fault of their own, erode the stability of the communities in which they live.

My case for greater assistance to low-income leaseholders is based not only on sympathy for their personal situation, but on a firm belief that we should sustain viable communities, which have been undermined by council house sales, and not encourage more of them into unstable, short-term rentals.

What needs to be done? First, CityWest Homes and Westminster council need to go further and faster in responding to my local leaseholders’ calls for greater transparency and accountability. Too many letters, bills and statements are impenetrable, computer-generated nonsense, and advice has come too late for too many people and it is often not trusted. Administrative overheads are high and need to be justified.

Secondly, right-to-buy and assigned leaseholders should be treated equally. There should be no hardship schemes that could mean that an original leaseholder who moves away and lets their flat gets a chance to defer payment, while someone who bought in good faith from another lessee gets hit by a huge bill, regardless of their personal circumstances.

Thirdly, there needs to be a simpler method of challenge to major works bills, especially given the plethora of different leases in places such as Westminster.

I hope to catch your eye later on in order to make my own contribution to this important debate, Mr. Jones.

On some of the specifics that the hon. Lady raises, will she not accept that Westminster council and CityWest Homes have gone to some trouble to try to engage local residents in the estates? I appreciate that there are a plethora of problems, as she mentioned. On occasion, particularly in relation to the large bills for major works, they have asked residents to come forward with their own quotations. All too often, residents have not come forward with a lower quotation or a different proposal for works to be undertaken. It is fair to say that there have been attempts to try to engage. Does she have any suggestions about how to ensure that residents associations and lessees associations on many of our estates put forward concrete proposals? Obviously, we will do our best as local Members of Parliament to oil the wheels of bureaucracy to ensure that people listen to any such proposals.

I accept that improvements have been made in recent months in responding to the needs of lessees. The chief executive of CityWest Homes, Brian Johnson, is committed to trying to resolve the difficulties. I do not believe that a landlord, be it CityWest Homes, a local authority in another area or an arm’s length management organisation, should require individuals, often members of working families or people with high levels of personal commitments, to take on all the responsibilities involved in challenging the bureaucracy. The complaint is frequently put forward that members of the community do not come forward saying, “This is how we are going to do it. These are our detailed business plans for the alternative running or management of our estate. These are our quotes for major works”. As such people are handicapped in terms of the skills and resources needed to make the challenge, it is assumed that they are not interested, incompetent or unable to be involved in the decisions that affect their lives.

I return to the example of the Warwick and Brindley estates, which is the one that has triggered my greatest anxiety because of the size of the bills. I organised my own meeting, and 100 angry lessees came to me with a list of concerns and complaints, which I was then able to feed on to CityWest Homes. It should not have to fall to the Member of Parliament to go out to reach those lessees. I am prepared to work alongside landlords and say, “I will play my part. You play your part in being proactive and in finding ways to reach people.” Local politicians can be very involved in that too.

Some leaseholders do not have English as a first language, and greater efforts need to be made in that regard. There is great deal of mistrust of the landlords, and people want independent advice because they are not necessarily convinced that the landlords will act in their interest; indeed, the landlords are not acting in their interests, because they have a fiduciary duty to act in their own interests. It is not unreasonable for lessees to believe that their interests are not best served by landlords. Lessees in the sort of financial predicament that I outlined and who face £58,000 bills may not be able to afford independent legal advice. If they have a bill of £58,000 hanging over them, they may feel that they cannot take on £5,000 of independent legal advice. The landlord must respond to that.

Some leaseholders want a general cap on their bills, as there is on some estates where there have been major regeneration projects. The danger is that public money would subsidise companies and big landlords in the buy-to-let market as well as vulnerable individual lessees and that would be an unacceptable use of public money. However, the Government should support efforts to get round the problem so that we target help on those who need it most. I have no great wish to help what I understand to be 770 limited companies and 173 multiple-property owners among the 9,000 Westminster leaseholders, although I wonder whether a policy that results in one in four of the properties sold through the right-to-buy scheme being sublet, including 1,000 being rented back to homeless families, represents good value for money. As things stand, caps can be funded only through the housing revenue account, so tenants would subsidise home owners. Any locally funded subsidies to leaseholders should come from general fund capital or revenue.

Fifthly, landlords must be facilitated and supported in providing more flexible repayment options in cases of hardship, including longer loan periods, buy-back options to protect households at risk of repossession by converting leases to tenancies, and reverse staircasing. The housing revenue account could help here and lessees could have the right to staircase down by selling part of their equity back to the council to help to fund major work, and to become shared owners. They could then staircase back up if and when their financial position improved. The council would receive equity instead of payment. That would all come with a cost. CityWest homes has £2 million of capital tied up in deferred payment schemes and that is likely to rise. That cost pressure must be recognised and I look to the Government for support.

Sixthly, the Government should support work with the Council of Mortgage Lenders to improve cost-effective equity release schemes for younger purchasers.

Seventhly, housing providers must be given the authority to establish sinking funds to prepare for future contingencies and to support tax-free savings accounts as another voluntary option to help to pay for future work.

Eighthly, recognition must be given to the financial cost of offering advice and Ministers could liaise with colleagues in the Department for Constitutional Affairs to ensure that housing advice services are strengthened and not compromised by the proposals in the Carter review.

Frankly, if I am finding all the problems that I have described in properties managed by CityWest Homes, which has just received three stars from the Audit Commission, I dread to think what is happening elsewhere in London. The truth is that thousands of individuals, pensioners and young families are in despair, and facing bills that they cannot pay and the prospect of leaving or even losing their homes. Many are confused by their liabilities and angry about charges that they did not anticipate and were not warned of. Many struggle to understand the documents that are sent out to them and do not know where to turn for help. All are paying the price for a legacy of neglect of council housing during the 1980s and 1990s. It is time for the Government to respond to those problems, to work with landlords on the front line of delivering service to lessees and to help to underpin some of the financial and practical pressures that are put upon them.

I congratulate my constituency neighbour, the hon. Member for Regent's Park and Kensington, North (Ms Buck), on initiating this debate. I stand here as another Westminster Member of Parliament, but not to praise or to bury Westminster city council. More importantly, the debate reflects the breadth of life in central London. It is often assumed that in my constituency I have an enormous number of wealthy people and would not have to deal with any of the social problems that are an integral part of the hon. Lady’s day-to-day case book. The reality, of course, is that there are some wealthy areas in my constituency, as in hers, but that the community is diverse. We all want to protect that diversity.

The hon. Lady and I have played a minor part in an important document produced for the Westminster housing commission to try to acquire a vision for the next 20 or 30 years on housing-related issues, many of which depend on some discretion at local level. I fully appreciate why a cold chill comes into her heart at the thought of discretion being in the hands of Westminster city council,but looking to the future and bearing in mind the past 10 years, there has been great success in much of the work that has been undertaken. I hope that that will continue in the years ahead.

Above all, this debate hinges on the notion of stable communities. The issues that the hon. Lady raised in some constituency cases are replicated in my postbag. It is tragic that long-standing residents—perhaps going back several generations—of a city centre are forced to move or that their children must move. The Government must be more flexible and ensure that we are not forced to put homeless people or asylum seekers into our scarce social housing.

I was glad that the hon. Lady made the important point that a key worker in the context of a city centre is not simply someone working in the public sector. They could be working in the private sector. Postmen, people who work in local supermarkets and stores, and so on are the glue of our communities and ensure that they are maintained.

For the record, will the hon. Gentleman confirm that asylum seekers are not allocated local authority housing?

I am entirely happy to do so. My point was simply that if people do not have a long-standing connection with an area, there is a breakdown in an important aspect of a community. That obviously arises with housing association properties, if not local authority housing.

The hon. Lady will be aware that a trend in recent years has been that many people who bought their leasehold flats from Westminster city council and, I suspect, many other London councils and local authorities throughout the United Kingdom, have proceeded to sell them to housing associations, which then turn to local authorities for people to put into those properties. Those people have little direct connection with the area and may not be there for long, so do not play a full part in ensuring that the community that makes up any estate is maintained.

Leaseholders own a share of their property and benefit in part from the investment, but the problems that have been raised today hinge on the Government’s failure to recognise the disproportionate effect that the decent homes programme has had on leaseholders, including right-to-buy leaseholders, many of whom are, as the hon. Lady said, elderly pensioners who are simply not in a position to make any great capital outlay.

I support the underlying aims of the decent homes programme—no one would disagree with what it is trying to achieve—but there is often a problem with unintended consequences. I regret that some of the proposals have been so prescriptive. There seems to be little flexibility to respond to local priorities expressed by residents—for example, lift access and security. As the hon. Lady rightly pointed out, in city centres with many high-rise blocks lift access is much more important for decent homes than in many other parts of the country.

Nowhere in the Government’s original proposals for the decent homes programme do the documents mention the effect on leaseholders specifically. Tenants may have updated kitchens and bathrooms, but for leaseholders it represents a headache of bills running into many tens of thousands of pounds.

In London alone, leaseholders make up a significant proportion of residents in local authority housing.In the city of Westminster, which is partly in my constituency and partly in that of the hon. Lady, there are more than 9,000 leaseholders representing some42 per cent. of the council’s residential stock.

Although leaseholders have always been aware that they are liable to be charged under the terms of their leases for works to improve and maintain their homes, the cost of such works is a major issue because the pace of the Government’s decent homes programme continues to increase. In Westminster, the council has invested more than £200 million in housing stock as part of the programme, with the vast majority of the funds coming from its own resources. To meet the Government’s determination to drive the programme forward, the offer of significant borrowing facilities has been used to incentivise the council to achieve the decent homes target by the end of the year. Again, we support much of that, but Government pressure to achieve the target conflicts directly with the interests of leaseholders, who understandably try to limit the charges. That is particularly true for purpose-built blocks, which are a common feature in London, because the cost of major works is generally higher, and that is the case, for example, in Churchill gardens in Pimlico, in my constituency.

As has been said, the bills run into many tens of thousands of pounds and have the potential to cause significant hardship for those who are unable to pay them. Often, it is the original right-to-buy leaseholders who are unable to pay, and many of them are now elderly and have nothing other than a fixed income.

The hon. Gentleman claims that much of the upgrade work is being paid for from the council’s own resources, although I do not believe that. If it is indeed the case, however, why is so much of the work needed to catch up on maintenance that was neglected for two decades? If work is paid for from the council’s own resources, why was it not scheduled throughout the 1980s and 1990s? The reason why many of the bills are now so high is that they are for works that have not been done for decades.

The hon. Lady makes her point, and I cannot judge the situation in her constituency, although she will have a view about the state of some of the estates there. Inevitably there have been mistakes, and relatively little work has been done over the years, although the same will apply in many other parts of the country. I understand why it is in the hon. Lady’s interests to make a slightly partisan political point, but I think that all of us now want to look to the future, and the decent homes programme is obviously an integral part of that. However, it needs to be utilised as flexibly as possible.

Is the hon. Gentleman surprised to learn that the experience of estate dwellers in the Islington area was also that their estates were allowed to rot for 18 years as a result of a lack of investment and interest on the part of the previous Conservative Government?

Funnily enough, as the hon. Lady knows, I used to be an Islington resident, albeit in the Islington, North constituency, which is so ably looked after by her political soul mate there. I am sure that there is a battle over the issue that she describes and that one reason why she takes an interest in it is that a Liberal Democrat council has emerged in recent years, although it might well be argued that there was a Labour council for much of the time that she is talking about. Again, however, I do not want to make a narrow partisan point. There are issues about redevelopment, particularly on many of the estates that were built in the 1960s and 1970s, which are in urgent need of work. One could argue that there has perhaps not been a consistent maintenance programme over the past 20 or 30 years and that we have therefore reached the Waterloo point at which significant spending must be carried out.

Local authorities have been doing everything that they can to support leaseholders, but the Government’s prescriptive framework for delivery—I understand that it needs to be prescriptive to ensure that works are done—means that many authorities feel that leaseholders are losing out most on many programmes. In that respect, I have been in touch with several of my local tenants’ and leaseholders’ associations, and Richard Beville of the Churchill Gardens Lessees Association kindly prepared some brief notes for me, which I want to put on the record.

Mr. Beville notes that the position of council lessees has not really improved in the past decade, despite many promises from the Government,

“as social landlords were exempted from many of the provisions”

of the most recent Act. He continues:

“It should be far easier than it is for the residents of socially owned blocks to obtain the rights to manage their homes and the freeholder’s powers to interfere should be reduced and discouraged”

to an extent. He feels that the leasehold valuation tribunals have not allowed straightforward

“solutions to disputes between landlord and tenant”.

As a result, the freeholder frequently employs expensive Queen’s counsel and then appeals

“to the Courts if the decision goes against him.”

Mr. Beville notes, therefore, that the real purpose of the LVTs—to provide a level playing field—has not been properly achieved, and the hon. Member for Regent's Park and Kensington, North noted that many leaseholders feel that they are up against it because of the professionalism and sheer spending power of the bodies that they face in many of the tribunals.

Mr. Beville goes on to say that leaseholders have faced

“huge charges from which no capping or relief is available.”

Like the hon. Lady, he notes that the lessees on the Warwick estate in her part of Westminster are currently paying bills to the tune of £58,000 each. In the same way, all the lessees in Churchill gardens, in Pimlico, are expecting bills of around £20,000. I was at their annual general meeting only last week, and it was heart-wrenching to hear the personal stories about genuine concerns from people who live there. It is expected that those bills will need to be paid over the next five years and that the programme of works will amount to£20 million. For many of the people living there, those costs are simply unaffordable and need to be reduced. The hon. Lady’s innovative thoughts about staircasing up and down are all very important, but the immediate worry for many of the folk who live in such places is the prospect of bills of tens of thousands of pounds.

Inevitably, prices in many bits of central London have reached almost absurd levels. If one goes to any estate agent and looks at former council properties with a couple of bedrooms on estates, one sees that they cost literally £500,000 or more. To that extent, it is perhaps easy to put a charge on a property, particularly for elderly folk who are looking to pass it on to their children or loved ones when they die. At that point, a relatively small charge could be made on the overall value of the property, but that is not really an option for many, and there is a day-to-day worry in people’s minds.

Previously, when large amounts of Government funding were made available to councils through housing action trusts and estate action bids, lessee costs for the work were capped at a maximum of £10,000 as a condition of the funding. Some capping still takes place when PFI funding is used, but there is currently no cap for lessees when the funding is channelled through arm’s length management organisations—hence the understandable demonstrations on the part of many lessees.

There are also one or two serious problems with the Government’s preferred equity release and loan scheme, which has involved just one small building society, the Dudley building society. Despite Government marketing and publicity, the take-up among leaseholders has been low for several reasons. Often, the scheme is geared towards private sector home owners, who want to make home improvements rather than pay decent homes bills. Often the scheme is too complex, and the administration costs have been so high—about £1,200 per applicant—that many households have failed to complete when the true cost of the scheme is revealed.

I am acutely aware that other hon. Members want to speak, so I shall try to keep my remaining comments to a minimum. However, we will obviously be addressing this issue extensively in the many years ahead, because housing is a very important issue in central London. At one level, one can be slightly glib about the issue as a Member of Parliament and say that it is a matter for local authorities and hard-working local councillors, and hon. Members on both sides of the political divide will agree that high-calibre, committed local councillors are involved. We must, however, look at many of the important decisions that have been made in the past. In that respect, some of the blame—this will warm the heart of the hon. Member for Islington, South and Finsbury (Emily Thornberry)—must go to the previous Conservative Government, who made so many of the rules on local housing so prescriptive. Many of the problems that we are identifying go back to the early 1980s, when many decisions became centralised, perhaps understandably, in an effort to keep local government expenditure to a minimum for general economic reasons. That has been a very unhealthy development, which I fear that the current Government have maintained.

Those involved need to use some imagination, particularly in our parts of central London, where we want a much more mixed community. Of course, the reality of living in central London is that we now have a totally polarised community. One has either to be so well off—effectively, that means working in financial services or an industry that is dependent on them—that one can afford to buy a property, or so poorly off that one qualifies for social housing. That group in the middle is increasingly being squeezed.

There are no easy answers. I suspect that a problem that has been known to us in central London in the past 15 to 20 years, and which has now accelerated, is now growing fast in many other parts of suburban London too. I often worry that there are too many unintended consequences of any Government action, which can make such problems somewhat worse. However, this debate is important. I know that the hon. Member for Regent's Park and Kensington, North will want the Minister to answer some specific questions in good time; but equally I am sure that we shall return to the debate, and I thank the hon. Lady for most of her comments this morning.

Order. Before I bring other hon. Members in, I should like to explain that I am not demoting the Opposition Front-Bench spokesmen, but we have a problem with the microphones on their side, so they have kindly agreed to demote themselves to their Back Benches.

I congratulate my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) on managing to secure this debate on an important subject, and I thank her for her kind words, although I feel that they were undeserved. For many new Members, it is of enormous assistance when we first come here and find Members of Parliament such as my hon. Friend, into whose slipstream we can fall. Her comments are of course richly applicable the Minister of State, Department for Constitutional Affairs, to my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman) for her work in fighting for leaseholders. It is very important that the poor should be represented strongly by inner-London Members of Parliament, and it is fantastic to be able to fall in with such a strong team.

I have had a large number of letters and e-mails from leaseholders about today’s debate. They feel that no matter how strongly they try to explain their difficulties their case is not represented strongly enough, and that nothing is happening. There is enormous frustration. Perhaps I may begin by painting a picture of Islington; I apologise for having to do that, but people tend to make an assumption about Islington that is only partly true. They know it as leafy lanes, Georgian squares, coffee shops and the media, but that is because people who work in the media live in those leafy lanes and Georgian squares, and spend their time in the coffee shops. They do not spend a great deal of time on the other side of the road, on Islington’s estates.

Nearly half the people who live in my constituency live in council estates or former council estates. The average income of people living in council properties is £5,000 a year, according to the housing needs survey. That of people living in housing association estates is £6,000 a year, and that of people with homes in streets is £40,000 a year or more. Unfortunately, in my constituency, when a poor person moves out of social housing in Islington, an even poorer and more desperate person moves in; properties are increasingly in demand, and to get one people need to be so desperate as to get sufficient points to enable them to be rehoused. Equally, when a rich person moves out of one of the streets in Islington an even richer person moves in, because now housing prices are such that a small flat in Islington costs £300,000. That is 10 times the average income of a Londoner. I hate to think what will happen to my constituency in the years to come, because we do not have the people in the middle. Leaseholders often represent that group, and they are a very important part of my constituency. I strongly believe in mixed communities. We need to be able to work and live together. I am proud that my constituency is as mixed as it is, but economically we are becoming increasingly divided.

The picture that I want to give of my constituency is not only one of the rich tending to live in streets and the poor on estates—a result of what happened in the 1980s. While one famous and indefatigable national political leader was selling off council properties, another famous, strong-minded and indefatigable leader—of Islington council—was buying up street properties on the council’s behalf. The Minister for Industry and the Regions, my right hon. Friend the Member for Barking (Margaret Hodge), was at that time buying street properties on the open market and turning them into social housing. Thus we have a mixture: some people live in social housing in streets, and a number of leaseholders live on estates. I have lived for 14 years in a street in Islington, where nearly half the properties were owned by the council as social housing; but they have all been sold, and the street is now private housing. There is movement.

I want now to explain the core of the matter, and the fundamental injustice felt by leaseholders in Islington about the way that they are charged. I believe that when the Conservatives were in charge of this country they left estates in Islington and elsewhere to rot. They did not invest in them as they should have, and the estates were in a disgraceful condition. The state of the lifts and stairwells was disgusting. People were not treated with sufficient respect, and the level of investment that was needed was not something that a Labour council could deal with alone. Such investment must be made with the assistance of a Government, and at the time we did not have a Government who were interested.

We now have a generous and hyperactive Labour Government who want to make sure that social housing properties in places such as Islington are brought up to the decent homes standard. When we were elected in 1997 only 25 per cent. of the social housing in Islington was at that standard. We are now investing £157 million in doing up the social housing in Islington, so that we can be proud of it and people can be proud of living there. It is a good thing for us to be doing. The difficulty is that those who are caught in the fire are leaseholders who have bought their social housing, because they thought that that was the right thing to do, and who are now being hammered by huge bills.

As I described earlier, our properties are split into, on the whole, street properties and accommodation that is run by Homes for Islington, which is an arm’s length management organisation. The difficulty is that the law says that when street properties are done up, which happens under the private finance initiative, there must be a £10,000 cap. It would not be a caricature to say that leaseholders who live in the streets are often professional couples who have bought from original right-to-buyers and who now benefit from living in a flat in a Georgian square that was originally bought by my right hon. Friend the Member for Barking. When their properties are being done up they have to pay only £10,000, whereas pensioners—the original right-to-buyers—who live on the estates are being charged limitless amounts of money. It is terrifying and fundamentally unfair.

My first request today is that the Government should seriously consider adding arm’s length management organisations to a little bit of legislation: the Social Landlords Mandatory Reduction of Service Charges (England) Directions 1997 apply to someone whose property is being done up under the single regeneration budget or the estates renewal challenge fund, so why cannot we also include arm’s length management organisations? If we could just do that, leaseholders on estates in my constituency could have their charges capped at £10,000. At the moment enormous injustices are happening.

I completely agree with my hon. Friend, but does she also recognise that any cost of applying the cap should not benefit companies and that the cost of the cap should not fall on tenants because of ring-fencing within the housing revenue account? If a local authority chooses to fund a cap as my hon. Friend suggested, the resource should be found other than from the pockets of local authority tenants.

Yes. We should be considering that matter, among others. I wrote to the 80 leaseholders who had originally written to me, and sent them a survey. I do not know whether any politician has ever had the response that I did. Guess how many I got back? I got 80. I asked them about hardship and whether they felt they had been consulted and about fairness. I sent the results to the Department.

I then wrote to more leaseholders. I have pruned the responses from people whose answers were not as disciplined as I wanted, and I have sent the Department 134 cases, detailing the hardship and difficulties that Islington leaseholders have suffered. The Department is reviewing the effect of the decent homes standard on leaseholders, and I hope that that record of the experiences of Islington leaseholders, which I sent to the Department, will be taken seriously and inform their decisions. Something must be done.

Six thousand leaseholders have bought what was formerly social housing in Islington—a very large number. We must consider other factors to ensure fairness for leaseholders, and the legislation allows councils to exercise some discretion. Although we are all in favour of decentralising power and allowing local authorities to make decisions locally based on local information, what happens when we give a local authority the power to exercise discretion and fairness and, as with the Liberal Democrat council in Islington, it refuses to exercise any discretion or do anything to assist leaseholders who are pensioners, suffering because of bills of £35,000 and on pension credit?

The discretion allows the authority to extend the repayment period, but leaseholders receive bills—huge estimates—and they are told that they will have only two or three years to pay them. They come to me and say, “Emily, what are we going to do?” and I reply, “I’m putting pressure on the Government, and I’m trying to put pressure on the local authority,” to which they respond, “You’ve been doing this, Emily, but nothing is happening.” Authorities can extend the repayment period, provide loans, put a charge on the property—a discretion that the Liberal Democrat council in Islington is prepared to exercise—and even reduce the bills, but they must consider matters case by case.

I agreed with the hon. Lady until her comments verged on the political. Is she aware of the report to Islington council’s executive group in February, setting out the scheme that it now has in place? It seems to answer her point.

The important point about the document to which the hon. Gentleman refers, as with many similar documents, is that it has a fantastic title and it can obtain good coverage in the local paper. However, I invite him to consider carefully what the Liberal Democrat council is actually going to do to assist leaseholders, as opposed to the headlines. He will see that it is not going to do anything. There is nothing of any substance; it is all spin.

Several difficulties can be addressed by exercising discretion and considering the issues case by case. I shall go through some cases. Mrs. A lives on pension credit, and is being charged £10,000. She says that that is very harsh, and she pays £240 a month. Another pensioner, Mrs. B, living on pension credit, has been charged £4,627. Her husband has undergone major surgery for cancer twice in the past four years, and they are struggling to keep their heads above water as it is. Mrs. C, who is expected to pay £8,468, also has a husband with cancer, and Mr. D, who is lucky enough to have a job, says that the £20,000 that he is being charged is one year’s pay.

Mrs. E, another pensioner living on benefit, is being charged £29,287, and she says that because they are leaseholders, it does not mean that they have ways of paying such bills. Mrs. F, another pensioner, will be paying £39,614 for repairs on her flat. She has lived on the estate since 1971, and in all that time no major repairs have been undertaken. Mr. G will be charged £41,000.

We all want our social housing to be brought up to a decent standard, but some Islington leaseholders are being asked to pay an unfair share of the cost. There should be a fair limit. Mrs. A is expected to pay £10,000 out of the £32,000 needed to repair her home, but that is because her property is being done up under a private finance initiative, so she receives a £22,000 subsidy on the work. However, Mrs. F, a pensioner in similar circumstances, is expected to pay the entire £39,000, almost four times as much, just because her property is an arm’s length management organisation property. When Islington tenants voted for an ALMO to take over their properties, would not the possibility of the leaseholders among them receiving limitless bills have affronted their inherent sense of fairness and decency and affected their views on whether they should vote for the ALMO?

We must help the poorest. Of the 134 leaseholders whose cases I have sent to the Department, 10 per cent. say that the bills do not cause them hardship, so 90 per cent. say that they do. They also say that they are not receiving value for money, and I agree profoundly. The difficulty is that on the face of it, the framework contracts for which organisations bid under the European Union Official Journal tendering process will include a tender for the cost of a new kitchen or bathroom, but nothing if the building is listed and, for example, one needs tiles from eastern Europe. The builders may originally say, “It’ll cost you £10,000 for a new kitchen,” but when they need to undertake outside works the cost can spiral out of control.

Owing to the new framework agreements, leaseholders do not feel that they are consulted. If they were consulted, they would be able to consider, for example, three builders and their prices, and during the consultation they would be able to opt not for the most expensive, but for the middle price or the lowest. However, because there is already an agreement anda system of preferred bidders, when so-called consultation takes place the leaseholders are not even asked which builder they want. They do not feel consulted, and they are right. There is also therefore little control over the prices that are charged.

In the end, it is largely public money that is being spent. When there are a couple of leaseholders in a block it often does us all a good turn, because they blow the whistle, saying, “That scaffolding has been up for eight weeks, they haven’t done any work on it and we are being charged for it to be up for eight weeks.” The alarm bells start ringing, because public money is being spent. The leaseholders still get charged, and we do, too, indirectly as taxpayers, but leaseholders play a helping role.

Leaseholders are not even told that they have a right to opt out of window installation under the decent homes standard. If one has just installed new windows, why would one need further new windows? It would be a clear waste of money. The leaseholders have a right not to have new windows put in, but in Islington they are not told about it. When they find out, they are told that because they have their new windows, they do not need to pay for new ones as long as they pay for a surveyor to assess them, and for a lawyer. For a leaseholder in Islington to keep their new windows when a property is done up, they have to pay £1,000—to keep their new windows. That is not fair, and people can see that it is not. They also cannot help but wonder, “How much can new windows cost, and how much more than £1,000 can they cost?”

There is a right to appeal, but it is to the leasehold valuation tribunal. Some leaseholders have none the less had some success. One indefatigable woman, Mrs. Wong, has appealed against her service charges generally, and she has enjoyed some success. She is now taking Islington council to the Audit Commission, and I shall certainly support her. We will also refer the matter of leaseholders’ charges in general to the commission. That might be another way in which we can get fairness. But it is a slow process, and the leasehold valuation tribunal is scary and intimidating, as is going to the Audit Commission. Why cannot leaseholders in Islington simply get justice?

This has been a worthwhile debate, and the essence of it is decent homes versus leaseholder means. That has been ably illustrated by hon. Members from at least two London boroughs, and I suspect that it applies to a number of others. I had hoped that we might avoid deep political controversy, but the hon. Member for Islington, South and Finsbury (Emily Thornberry) has tempted me into it. She drew extensively on her relevant experience in Islington but skipped over other relevant information that should have been brought to the Chamber’s attention.

May I take this opportunity to confirm that there no Liberal Democrat councillors in either my constituency or that of the hon. Member for Regent's Park and Kensington, North (Ms Buck)?

It does not sound to me as though the hon. Gentleman is any better off for that.

To put the debate on a less partisan level, I wish to make the point that the information that I have been given—I cannot speak at first hand in the same way as other hon. Members—is that there are some 10,000 leaseholders in Islington with leases from the council. The council still has 27,000 social housing units, although they are now run by Homes for Islington, a separate ALMO. That means that about a quarter of the former stock is held by leaseholders. When the welcome and long overdue decent homes programme gets under way, a lot of leaseholders will find themselves in blocks and buildings for which, like it or not, they will be liable to pay for a slice of the action.

I gather that if leaseholders are lucky, they might get away with a bill for only £500, but if they are unlucky they may get a bill, such as the one to which the hon. Member for Islington, South and Finsbury referred, for £41,000. The average bill for leaseholders in Islington will be about £11,000. Contrary to what the hon. Lady said, that has been a matter of concern to the Liberal Democrat administration in Islington, which has been struggling to deal with it. It produced a significant change to its procedures by ensuring that notification was improved, which deals with the hon. Lady’s important point that there should be a level of certainty about the quotations given and the liabilities that a leaseholder faces.

There is great uncertainty in Manchester at the moment, because the proposed stock transfer will lead to a number of leaseholders not getting a vote but still being left with a bill to pay. They have not had any indication of the costs that they will incur. Does my hon. Friend agree that the Government ought to afford additional protection to leaseholders in areas where council stock transfers are taking place and leaseholders do not get a vote?

My hon. Friend makes a valuable point. He makes it clear that the problem is not exclusive to central London but arises elsewhere. There has been a tendency in public policy to take the view that if someone has chosen to buy their council home, they deserve everything that is coming to them and have foregone their right to be consulted or involved in the process. I agree that leaseholders who have bought their homes are in an exposed position, and perhaps that is a wider point for the Government to pay attention to.

The sense of unfairness is increased by the fact that regeneration programmes and PFI schemes have a cap of £10,000, to which the hon. Member for Islington, South and Finsbury properly referred. I hope that the Minister will tell us why one category of leaseholders has a £10,000 cap protection and another does not. Islington council wanted to know the answer to that question, and in March its then leader wrote to the Deputy Prime Minister in his role as Secretary of State, asking whether the Government would consider introducing a cap. He made the point that it ought not to be funded by a recharge to the housing revenue account, which, as the hon. Member for Regent's Park and Kensington, North (Ms Buck) rightly pointed out, would mean that tenants would be subsidising leaseholders. That would be deeply unfair. The letter said that the funding must come from a common pot from central Government.

I say to the Minister that according to my information from the leader’s office at Islington council, no answer of any sort has been received to that letter sent in March to the Deputy Prime Minister. I agree that it went to the Office of the Deputy Prime Minister at a difficult moment when it was probably more concerned about changing its name plates than answering correspondence, but I hope that the Minister can assure me that she will return to her office straight after the debate and ask somebody why the letter was not answered. I hope that she will indicate that help will be given to leaseholders.

I do not know whether the letter to which the hon. Gentleman refers is one dated sometime in December. If so, I have a copy of it. It is from the ODPM and signed by Baroness Andrews, who wrote it to Steve Hitchens.

Judging by the interventions from all parts of the Chamber, it sounds like we should all sit round a table and produce the correspondence that we have received from different people. Maybe we already have the solution but nobody has managed to put it together.

I know that the Minister wants as much time as possible to speak, and I want to give her that time. I simply say that there is a significant problem. A considerable group of people are at a serious disadvantage and are being discriminated against, and the Minister can provide a solution. I look forward to hearing it.

I hope that the microphone is working, Mr. Jones, so that I can speak to the assembled.

I congratulate the hon. Member for Regent's Park and Kensington, North (Ms Buck) on securing this debate. Fortunately, as I represent Poole, I do not see much of the problem in question, but it evidently causes great angst and difficulty for many thousands of people, particularly in London but also in other parts of our country. It is surprising that there has not been rather more debate on it. I know that the hon. Member for North Southwark and Bermondsey (Simon Hughes) introduced a private Member’s Bill at one point because of the problems in his borough, but I suspect that today will be the first of more debates if the figures that have been given are affecting hard-working families.

The Conservative Government had a successful policy in right-to-buy, but towards the end of their period in office they appreciated that there were problems with leaseholders. That was why the Housing Act 1996 made provisions for capping some of the charges to leaseholders. That led to the reduction of service charges directions of 1997, which capped charges on many leaseholders at £10,000 in a five-year period. Of course, those events were 10 and nine years ago, since when there have been substantial changes in housing policy. I hope that the Minister might comment on the reasons for the move away from that, particularly when it comes to ALMOs.

The hon. Member for Islington, South and Finsbury (Emily Thornberry) made the good point that there are not an awful lot of ALMOs at the moment. However, given that stock transfers are not taking place at the same rate as previously, I suspect that we shall see a large build-up in the ALMO sector, because the system works quite well. However, if there is a disadvantage, the Government will have to examine it.

As we all know, there are cost implications. Who pays? There is nervousness among local people and local government about whether the housing revenue account or the Government should pay. The question of who pays would also need to be considered if one were to review how the cap would work.

One of the major changes in housing policy and the debate over recent years has been the acceptance that it is good to have mixed communities of tenants and owner-occupiers on estates. As we have heard, however, because of the law of perverse incentives, the policy is unfortunately leading to the opposite. People are being put under pressure to sell and move. As the hon. Member for Regent's Park and Kensington, North said, properties end up being rented out by companies, rather for individuals who have lived on an estate, sometimes for generations. That is something that Ministers ought to take seriously.

We have also heard that some authorities are very good, given the parameters within which they operate, and that some are less good. The issue therefore needs a substantial review. Some of the better authorities look at limitations on works, easy payment, voluntary legal charges, loans and equity release, and give leaseholders full information on their choices. The Government have a scheme called “House proud”, which is run by the Dudley building society, but although it is meant to help, I understand that it is not functioning particularly well, not least because of the administrative costs of £12,000 for people who try to access the scheme and solve the problems that they have been given. More interest needs to be shown in how we use public policy to help the tenants who are putting leaseholders in such terrible difficulties.

The issue is a major problem. There are thousands of tenants in that position in central London, as we have heard. Westminster has 9,195 leaseholders, Kensington and Chelsea has 2,500 and Southwark has 1,400. They are just three inner London boroughs, so the problem needs to be dealt with.

What are the solutions? A number of solutions have arisen from the debate. We need to look at the legislative framework to see whether more legislation is necessary to give more protection to leaseholders, who feel very vulnerable in the current circumstances. We have all broadly signed up to the decent homes standard, but it is having a severe impact on that category of person, particularly in central London.

We need to consider consultation. There are some good models of consultation with leaseholders, but local authorities are quite often not used to dealing with that category. They are used to dealing with their tenants and have the structures in place to do so, but leaseholders are not always the easiest people to get to, although under the current circumstances rather more of them are banding together in groups to represent their case.

Transparency is a problem. When people are given a high bill, the first question they ask is how it reached £16,000, £20,000 or £30,000. We need to do a lot more to explain to people not only what works might be needed, but how such bills are arrived at. The hon. Member for Regent's Park and Kensington, North mentioned an interesting idea about advice and support. Giving a little bit of Government money towards advice and support might be a great advantage to people who are in that situation. If a local authority is trying to give somebody a large bill and that person does not know quite why, advice and support might be one way of sorting things out. The other interesting idea was to have a sinking fund for leaseholders. Logically, most people in central London do put money aside for years for large works, so the idea of providing funds is something to consider for the future.

A number of issues need to be looked at. The problem causes major heartache and concern. I am guesting today for our housing spokesman, who is no doubt doing important things, but when this debate was scheduled I received a number of phone calls and e-mails. There is a pent-up demand for policy makers and the Government to set out rather more clearly what will happen in the future. I understand the frustrations of the hon. Member for Islington, South and Finsbury, although leaseholders have said nice things about what she is doing in her constituency.

There is a real problem. Doing nothing is not an option, because people are sinking and drowning in a situation that is not of their own making, but which has arisen as a consequence of the laudable objective of the decent homes standard. Even if the Minister cannot give us all the answers today, I hope that she will go away and reflect on some of the stories that she has heard in this debate. I leave her ample time to address some of the concerns that have been expressed, particularly by hon. Members with inner-London constituencies.

The Parliamentary Under-Secretary of State for Communities and Local Government
(Angela E. Smith)

I thank hon. Members for the tone and content of this debate. The Chamber is freezing cold today, so we might have expected a little heated debate, but the content and tone of the debate, and the recognition of the scale of the problem, have been welcome. I also thank hon. Members for allowing me adequate time to respond.

The main congratulations go to my hon. Friend the Member for Regent's Park and Kensington, North(Ms Buck) on securing the debate. There is a great consensus on the issue, but we would not enjoy that consensus were it not for my hon. Friend’s having raised the issues and the scale of the problems for her constituents. My hon. Friend the Member for Islington, South and Finsbury (Emily Thornberry) has also brought the issues to the fore since she has been in the House—I thought that her constituency was Islington, North, so my London geography needs some work. I shall try my best to respond to all the issues that have been raised in the time available.

I particularly welcome the fact that my hon. Friend the Member for Regent's Park and Kensington, North not only raised the scale of the problem in her constituency, but highlighted the complexity of the issue and how we got there in the first place. She recognised the complexities, contradictions and the difficulties faced in trying to address the problem, which are the kinds of issues that I should like to discuss.

Some background would be helpful. Between 60 and 70 per cent. of local authority leaseholders in London bought their flats under the right-to-buy scheme, but some early buyers have now moved on, and many people have bought ex-council flats on the open market. Right to buy has helped more than 1.7 million people to realise their aspirations to own their homes. It has brought home ownership within the reach of many who had perhaps not anticipated being able to buy their own home, but it has also led to significant problems. I welcome the tone of the comments that the hon. Member for Poole (Mr. Syms) made, but I was a bit disappointed that, although he welcomed the policy of right to buy, he said that there was a realisation later of the problems. It would have been helpful had some of those problems been recognised early on. We are talking about the cost to leaseholders today but, as many hon. Members will know, there have been other issues, such as antisocial behaviour. When such problems occur on a mixed tenure council estate, they are made all the more difficult to address because the estate is mixed tenure.

We must recognise that major refurbishments raise serious issues for local authority leaseholders, particularly older people and those on lower incomes. The problem largely affects people who live in flats in which major works are undertaken, which might involve replacing the roof or the windows of a block and, as we have heard, where the condition has deteriorated to such an extent that the work costs much more than it would have done some time ago. However, a balance must be struck between leaseholders’ interests and the benefits of those works to others, such as tenants and the local community generally.

Most leaseholders are required by the terms of their leases to pay annual service charges for general maintenance and major works charges towards the cost of works of repair or refurbishment of their blocks. It is the major works costs that people now find difficult to afford. The scale of that should be seen in context, however. A survey of 23 London boroughs showed that only 5 per cent. of the more than 100,000 local authority leaseholders there face bills of £10,000 or more, but large bills, which can come all at once, as my hon. Friend said, can exceed £50,000. Those can be extraordinarily daunting and frightening. Although the scale of the problem is not huge overall, it is concentrated in specific areas and there are pockets where it is most acute. [Interruption.] That was probably a leaseholder trying to gain entrance. The fact that fewer people are involved does not in any way diminish the scale of the problem or the worry felt by those affected.

I shall say something about the context. There is no dispute that right-to-buy leaseholders bought their flats at a significant discount, and at a valuation that reflected the condition of the property. Values have increased significantly. In 1980, the maximum discount was £25,000, a big proportion of the average market value in those days. That was raised to £35,000 in 1987; between 1989 and 1999, it went up to £50,000.

Recent open market sales show that flats in some of the blocks being refurbished are now worth more than £220,000. Major refurbishment may in some cases increase values further. Leaseholders, therefore, own valuable assets, but unless they are in a position to realise them, or they are assisted in doing so, they will have no help in paying their bills.

The major repair programmes now being undertaken by many local authorities are making good the£19 billion backlog of repairs faced by the Government in 1997. My hon. Friend the Member for Regent’s Park and Kensington, North outlined some of the excessive repairs that needed to be carried out in her constituency when she became its Member of Parliament. Her example of the Little Venice estate village displays that acutely.

Repairs undertaken now are made possible by additional resources and by the facility provided by the decent homes programme, which I am pleased to say has been welcomed by all hon. Members here today. As good landlords, local authorities must carry out works to all the flats in a block, whether they are tenanted or occupied by leaseholders. No one would dispute that that is necessary. We have made bringing council housing up to a decent standard a priority. When repairs are not done and properties deteriorate, prospects become worse for owners and tenants and costs become higher.

The Minister’s remarks have focused my mind on an issue that the Government could assist us with. Given the fact that most leaseholders have manageable bills of £10,000 or less, it is clear to my hon. Friend the Member for Islington, South and Finsbury and me that the problem is concentrated on estates and high-rise blocks. Targeted assistance is required for those households, whose bills are likely to be excessive and for which the decent homes initiative did not manage to catch the challenge. I am not asking the Minister to respond now, but I should be grateful if she went away and thought about how those leaseholders could be assisted and came back to us.

I am taking away all the comments made by my hon. Friends the Members for Regent’s Park and Kensington, North and for Islington, South and Finsbury. They are particularly valid. Both my hon. Friends spoke helpfully and made suggestions about how the issues can be taken forward. My hon. Friend the Member for Regent’s Park and Kensington, North is right: the problems seem to be concentrated in some areas and are not spread equally throughout London.

There are some complaints that local authorities are going too far in their repairs. However, many local authorities believe, quite properly, that refurbishment should not simply meet the decent homes standard and that other works should be undertaken to ensure that properties are sustainable in the longer term and do not lead to larger bills in future. For example, the decent homes standard does not include things such as lifts, but lifts have to be maintained and sometimes replaced to meet the needs of residents.

Local authorities are also having to continue to carry out work in a relatively short time to address problems accumulated over decades. That is ultimately more cost-effective than doing the work piecemeal. However, it imposes pressures and in the short term, service charges for such major works will be higher. Although in the longer term, maintenance costs are likely to be lower, there is currently a problem of particularly high costs.

The repair programmes are necessary for all the reasons that I have outlined. However, we know, appreciate and understand the problems faced by some leaseholders in specific areas, such as those of my hon. Friends the Members for Regent’s Park and Kensington, North and for Islington, South and Finsbury.

As my hon. Friend the Member for Regent's Park and Kensington, North said, not all purchasers knew what they were taking on when they bought their properties. Information was available, but it was not always fully understood and appreciated at the time. Leaseholders who bought their homes under the right-to-buy scheme would have been given an estimate of the service charges likely to arise during the first five years, and the landlord would not have been allowed to charge them any more than that figure plus a reasonable allowance for inflation. Such are the requirements of the Housing Act 1985.

Having said that, I have to take on board my hon. Friend’s comments; if substantial work had been unreasonably deferred during that five-year period—as she suggested happened in the Little Venice estate village—that might be challengeable at the leasehold valuation tribunal.

Since at least 1984, the Government’s booklet for tenants, “Your right to buy your home”, has contained a section outlining the responsibility of leaseholders to pay service charges. However, I do not think that the scale of charges seen, for example, on the Warwick estate was predicted at the time. Advisers should have made leaseholders who had bought ex-council flats on the open market aware of their liability to pay service charges.

We have to recognise that not all local authorities would have been able to warn all prospective purchasers about some major refurbishments. For example, they would not have known about the Government’s announcement of the decent homes programme and that that money would become available when it did.

My hon. Friend and other hon. Members have passed on to me what leaseholders have told them and suggestions on how the Government could proceed on this issue. Other leaseholders have written to my Department independently. I should like to outline some of the problems mentioned. As the hon. Member for Hazel Grove (Andrew Stunell) mentioned, leaseholders do not think it is fair that the mandatory £10,000 cap introduced by the Government in 1997 should apply to some works and not to others and want all bills capped at £10,000. One of the problems is that different charges reflect differences in direct grant funding and other funding mechanisms, but I shall take the issue back to my colleagues today.

Leaseholders have also said that unnecessary work is done and that work often costs more than seems necessary. They have complained that poor workmanship is not dealt with quickly to address any problems, that they are not consulted properly about works and that landlords do not take their views into account. They also say that local authorities do not take account of their individual circumstances.

In that context, we commissioned research into the scale and nature of the problem. We are publishing the results today. The research will inform our own review on the best way forward. My officials have consulted all the key stakeholders, including local authority landlord representatives from London and elsewhere, leaseholder representatives from London and elsewhere, the independent Leasehold Advisory Service, the Council of Mortgage Lenders, the Home Improvement Trust and the London Rebuilding Society. The latter two were set up to help home owners—particularly older people—to keep their homes in good condition.

My officials have also encouraged meetings between the London boroughs and the Council of Mortgage Lenders to discuss equity release options. It is clear from the consultations that the issues are complex and that there are no easy solutions. However, I assure hon. Members, and particularly my hon. Friend the Member for Regent’s Park and Kensington, North, that we recognise the problems and hope that the review can find a way to address some of them.

I want to say something about communication and support for leaseholders. Support and communication are available. There are well documented complaints procedures. Local authorities have told us that they monitor work undertaken, although I accept that that is not uniform throughout all local authority areas, and we want to ensure that more can be done on that issue. Help is available for leaseholders with large bills; some of it has been mentioned today. Leaseholders can get free advice on their rights from the Leasehold Advisory Service.

I am pleased that the Department is considering the issue and is having a review. Are any dates or times set out for the review? When will the Government be able to make a decision?

When reviewing something, it is unwise to say exactly how long the review will take. Today we publish the results of the survey that will inform the review. Given the scale of the problems, I assure the hon. Gentleman that there will be no unnecessary delays. Like everybody in the House, the Government want to give certainty to leaseholders on the issue that we are discussing.

A number of measures are available under directions brought in by the Government in 1997, and our research shows that local authorities are making use of them. We recognise the balance that needs to be struck among different forms of tenure, the cost burdens to local authorities and the problems faced by leaseholders. I said to the hon. Gentleman that there would be no unnecessary delays; I would have thought that the review will take a matter of months. I thank my hon. Friend for raising the issue and assure her that suggestions made by her and other hon. Friends are being taken forward. The Government are listening—

Bridgend Probation Service(Voluntary Sector)

I am pleased to see you in the Chair, Mr. Jones, particularly as I shall be discussing a Welsh issue.

We are here today to seek justice for the national charity Community Service Volunteers and a local charity, Sandville self-help centre, both of which work in my constituency. We are here because Bridgend probation service neglected its responsibility to support, assist and engage with the third sector, which works with vulnerable people, and because it failed to check facts before taking unilateral action that damaged the good name of both charities.

When we introduce and debate new legislation in Westminster, we are mindful of the protection that we seek to provide for vulnerable people, but at the same time we are mindful of the need to ensure that the creativity, energy and spontaneity of the voluntary sector is encouraged, not lost or destroyed. Sadly, Bridgend probation service and the social services department have not been equally mindful of those responsibilities.

Sandville self-help centre is a place where people in distress, people who are terminally ill and people who face a life of pain can go to find companionship, compassion, acceptance and that rarest of all things—love. Sandville is well known and held in high regard throughout south Wales. Its services attract people from across Wales and England.

Therefore, it was with some surprise in October last year that Gordon Jones, the head of services for older people in my local authority, informed me of concerns relating to the centre. He advised me that the probation service was concerned that prisoners were working at Sandville as part of a pre-release scheme operated by CSV, and the council was concerned that the centre did not do Criminal Records Bureau checks on volunteers or have policies and procedures for the protection of vulnerable adults and children. Mr. Jones advised me that the probation service and social services intended to hold a multi-agency meeting to share their concerns.

Knowing the unique nature of Sandville and its inherent goodness, I urged that its representatives and CSV were contacted to check what risk assessments were in place as part of the pre-release scheme, and that they be invited to attend the meeting. If that advice had been followed, perhaps the following catalogue of errors and the resulting disaster would have been averted.

Instead, the probation service and social services went ahead with their multi-agency meeting on11 November last year. Following the meeting, a letter was sent to Sandville’s service users advising them that, in the opinion of the multi-agency meeting, it was not safe for people to attend Sandville. I wrote to Tony Garthwaite, the director of social services, who confirmed that the probation service had not contacted CSV prior to the meeting but had stated that Sandville was not an appropriate placement for prisoners under licence. Mr. Garthwaite advised that the probation service intended to write to CSV regarding concerns about the category of prisoner placed at Sandville. Notes of the multi-agency meeting show that the probation representative raised concerns about a high-risk tagged prisoner who had been placed at Sandville for two weeks. No such prisoner had ever been placed at Sandville; in fact, no tagged prisoners had ever been at Sandville.

In January 2006, as a result of letters and telephone conversations between myself and Mr. David Moor, the acting regional director of CSV, it was confirmed that the probation service still had not made contact. Mr. Moor advised me that CSV has offered serving prisoners the opportunity to volunteer in the community since 1971, and that the scheme has been funded by the Prison Service since 1984 and managed by the National Offender Management Service since April 2006. CSV was therefore operating a well-established, highly regarded and successful scheme.

Mr. Moor advised me that formal risk assessments are carried out, supervision is undertaken and support is provided for placements at Sandville. He informed me that there was no requirement to inform the local probation office when placements were made. That had been made clear to the Bridgend probation service at a meeting it had with CSV at Sandville in August 2005.

I cannot understand why a Member of Parliament can find the time to write letters, make telephone calls and check facts yet the statutory probation service cannot. It sent an officer to the multi-agency meeting who had no knowledge of Sandville or CSV. Bridgend probation service has a long-standing working relationship with Sandville—community punishment offenders worked at the centre—but it was an officer with no knowledge who went to the meeting, not one with knowledge about the long-standing relationship.

At no time prior to the 11 November meeting did the probation service raise any concerns with Sandville about policies, procedures or police checks. It didnot write to CSV to follow up its concerns but in February 2006 suddenly ended community punishment placements at Sandville. The probation officer sent to Sandville to deliver the news was unable to explain to the charity why the decision had been made.

Angela Cossins, the director of operations at the Bridgend probation service office, claimed to have sent Sandville a letter explaining the decision at the end of March—a month after the gentleman from the probation service had gone to Sandville to explain why the scheme was ending. The letter was not received by Sandville until I wrote to the probation service and asked why it had not been received.

Ms Cossins did not advise Sandville or CSV that in August she had written to all chief officers and regional managers of probation in England and Wales, expressly mentioning CSV and stating that Sandville was not a safe placement for pre-release offenders. In August, I again wrote to David Moor of CSV to ascertain whether contact had yet been made by the Bridgend probation service. As it had not, he sought a meeting with Tony Richards, the assistant chief officer of the South Wales probation service.

Mr. Moor tells me that Mr. Richards admitted that he knew nothing of CSV, the pre-release scheme or its 98 per cent. success rate. Mr. Richards was so lacking in understanding of the CSV scheme that he asked Mr. Moor to provide details of prisoners placed locally by CSV and had to be advised that agreement to do this would need to be sought from NOMS.

Two voluntary organisations are involved: Sandville, which provides exemplary support for people while they are at their most vulnerable, and CSV, which transforms the lives of ex-offenders. Sandville was slow in implementing CRB checks and in writing formal polices and procedures—all of which I hasten to add are now in place—but the criminal records checks revealed that not one volunteer had so much as a parking offence to their character.

I must at this point commend Bro Morgannwg health trust. It was the only statutory agency that acted professionally and that proactively engaged with Sandville and provided the training, support and guidance that it needed.

On the other hand, we have a probation department that did not check its facts before holding a closed meeting, did nothing to help to develop policies and procedures, and waited four months to take action to cease placing community punishment offenders at Sandville and 10 months before writing a letter damaging the reputation of CSV and Sandville—a letter that was sent without checking facts or advising those named of its being sent.

Mr. Moor met probation services on 28 September and, despite his explaining the nature of the work of CSV and the valuable contribution made by Sandville, by the time I met Mr. Moor on 20 October no steps had been taken to withdraw the false allegations made in the letter. That is why we are here today. Mr. Moor has told me that Sandville offered seasoned offenders a difficult experience. Working at Sandville challenged their beliefs and their attitudes to other people and to society and helped them to develop pro-social attitudes, which Mr. Moor describes as the precursor to preventing reoffending.

The probation service has a primary responsibility to protect the public, and I appreciate that. But it also has a responsibility to check its facts, to understand the work of other agencies that work with offenders and to engage constructively with the third sector. I am advised that before writing the letter in August, the probation service believed that a young man who was released on licence from prison had returned to Sandville and was working there. That was not in fact true. The young man sought to return and had gone through the channels with his probation officer in England to seek permission to transfer the conditions of his licence to Bridgend, but was refused. In a letter to me, Ms Cossins described the probation service’s actions to date as regrettable.

The probation service has had a year in which to rectify its failures and to apologise to CSV and to Sandville. It has had two months in which to writeto chief probation officers in England and Wales and to admit it was wrong, as it gained a clear picture of the work of CSV and Sandville in its meeting with Mr. Moor. Sandville has all the criminal records checks, policies and procedures, yet pre-release and community punishment placements have not resumed. This debate should not have been needed, and I regret to inform my hon. Friend the Minister of the failure of Bridgend probation service.

In conclusion, I would like to read briefly from two letters from ex-offenders, writing about their time at Sandville and the work of CSV:

“The only genuine plus-point I have taken from my term of imprisonment is the Sandville Self Help Centre, their staff, their patients and the wonderful people who operate and run the Centre. Without Sandville I would have been released with enormous anti-establishment issues and an attitude of pure scorn on the prison system and an attempt at ‘rehabilitation’. In fact others incarcerated with similar views but without the experience of Sandville may well consider a criminal future as the wreckage of any previous life may appear to be too far departed to repair.

The Centre, Gwynneth and all her staff, from the first moment you walk though the door, welcome you and immediately begin to heal any self worth or esteem vulnerabilities you have. The value of being actually given true responsibility, trust, a sense of usefulness and accountability is priceless and one that nowhere in the prison…service or the ‘Offending Courses’ programme can either emulate or come anywhere near to replicating. You are carried away by the Centre’s ethos of helping those of a frail, elderly and (themselves) vulnerable disposition—and you do help, and you are proud that you do. This of course would not be a newsworthy headline. A non-Government funded, solely voluntary based independent Self Help Centre that can tame the ‘violent criminal’ or any kind of criminal for that matter! I have no doubt that Sandville has been pivotal in successful rehabilitation on many, many occasions in the past—it certainly has been in my case.”

The writer goes on to say that his probation officer has told him that out of the eight pre-release prisoners assigned to him in March 2006,

“only I and one other individual still remain under his charge—the rest have been returned to custody.”

The other letter is from a young man who has spent a number of years living in prisons. He says:

“I came to CSV from Cardiff Prison where I was serving a7 year sentence for fraud…I had nothing to look forward to. I was divorced and had no home or family or friends to go to on my release, which at that stage was still some 16 months away, and I had made up my mind that on release I would take my own life rather than be put in a hostel. I was the first person”—

who went to Sandville under the scheme—

“and so it was a learning curve for us both.

I learned that there was more to life than the pursuit of money and working here for two months was for me a godsend. At the end when you and Peggy suggested that on my release I could come and stay at Sandville and work as a volunteer I could see a light at the end of my tunnel. That fact alone enabled me to obtain early release on parole and for 3 months I worked as a volunteer for you enjoying every minute of it because although you knew of my past you treated me as a ‘normal’ person.

I have been clean now for over 2 years, the longest time since I first entered upon my criminal career over 30 years ago, and the majority is down to Sandville…If I was to slip up again I would feel that I had let you all down and I could never do that.

You do tremendous work for so many people but you have both changed and saved my life.”

Statutory services carry a great weight of responsibility. I appreciate the need to protect and to follow rules and regulations, but I also appreciate that statutory services have a responsibility to protect and to support organisations such as Sandville and CSV, which are critical to the work that the Government believe is vital—reducing reoffending and offering people a new life. Sandville and CSV should have been supported, encouraged and enabled. They should not have been abused.

I start by congratulating my hon. Friend the Member for Bridgend (Mrs. Moon) on securing the debate, and on the way in which she put the case for Sandville.

Before I move on to my speech, I want to say that the moving letters that my hon. Friend read out andthe sentiments that they included showed us all the importance of the debate this morning, even given the fact that there are few of us in the Chamber. When ex-offenders who have been put in places such as Sandville—no doubt this could be replicated across the country with other such centres—talk about the fact that they would have been anti-establishment and would have poured scorn on efforts that were made to rehabilitate them and to help stop them re-offending, when they talk about the way that those centres have helped them to develop self-worth and self-esteem, and about seeing light at the end of the tunnel, it shows the importance of the establishments that are represented by Sandville. It shows the need for us to get that right so that more people can address their offending and hopefully, on leaving, be rehabilitated and become full and worthwhile members of the community.

I liked the way that my hon. Friend used the word “love” about the way in which the centre operated. It is an underused and often misused word, but any establishment with such love and care is often the type of establishment—whether it is a school, a hospital or a centre such as Sandville—that delivers something worthwhile for the people who are there.

As I said, I congratulate my hon. Friend on securing this debate. It highlights not only the specific issue of the Sandville self-help centre but more general questions on the role of the third sector in the National Offender Management Service, the reduction of re-offending and the protection of the public.

The Government are committed to engaging with the third sector in order to improve public services. For NOMS, the opportunities for the third sector were outlined in a public value partnerships document, published in August. That committed NOMS to a greater working partnership with the third sector, and it specifically committed the probation service to sub-contracting 10 per cent. of front-line services to the third and private sectors by the end of 2007-08.

Such sub-contracting, and the roll-out of end-to-end offender management, will ensure that re-offending is further reduced and that public protection is increased. For example, only offenders who presented a low risk of harm or who show a low likelihood of reconviction will be allowed to work with children or vulnerable adults; and even though low risk offenders may be allocated to work in such settings, they should never be involved in the direct personal care of children or vulnerable adults and should not be left in sole charge of them. As my hon. Friend said, public protection is obviously a very important aspect of that work.

My hon. Friend described the valuable work undertaken by the Sandville self-help centre. I join her in paying tribute to its work, and the leadership of Sister Gwyneth Poacher. Sandville’s principle concern is to support the chronically and terminally ill and their families. In doing so, it has played an important part in rehabilitating offenders. As my hon. Friend is aware, offenders have been placed there as volunteers under the pre-release scheme and undertake unpaid work.

At first sight, it is not clear why that arrangement should not continue. It was clearly beneficial for offenders, the centre and the wider community. Although there were no doubts about the benefits that the centre brought about, questions were raised about public protection. That led to the events that concern my hon. Friend.

On 11 November 2005, South Wales probation service attended a multi-agency information-sharing meeting organised by Bridgend county borough council in order to raise awareness among the caring community about a number of serious concerns to do with current practices at Sandville self-help centre. The concerns raised were the lack of screening of volunteers and of Criminal Records Bureau checks, and the fact that the centre did not meet the regulations for providing personal care.

May I make it clear that Sandville does not at any time provide personal care? The care standards inspectorate for Wales has visited Sandville, and it is more than happy that it does not provide personal care and that it should not be registered as so doing.

I thank my hon. Friend for that clarification. Indeed, such clarification was my hon. Friend’s purpose in seeking the debate.

At that meeting, it was said that the centre has no written policy safeguarding and protecting of vulnerable adults or children, and that young offenders and prisoners were placed at the centre as volunteers prior to their release without the knowledge of the local probation service. Bridgend county borough council made clear at the meeting, through its social services department, that it had offered to help Sandville review and revise its risk assessment and risk management procedures through an action plan.

Given the probation service’s primary responsibility to protect the public, South Wales probation service suspended the use of Sandville as an unpaid work placement until appropriate risk management procedures were in place. The decision to suspend Sandville as a placement was made purely on the ground of the risk of harm and no other. It is regrettable that, after the multi-agency meeting on11 November, South Wales probation service did not immediately contact Community Service Volunteers, which has responsibility for arranging pre-release scheme placements for the prison service. I am informed that this lack of communication was due in part to CSV’s relationship being with the Prison Service rather than the probation service—a clear example of why prisons and probation need to be brought together under NOMS.

On 18 August 2006, South Wales probation service issued a notice through the Home Office to all probation areas, advising them not to use Sandville as a placement for offenders supervised on licence. That followed an instance of another probation area informing South Wales probation service that an offender released on licence had moved into its area and was working at the Sandville self-help centre.

In fact, the young man released on licence had not moved into the South Wales area; he sought to move, as I made clear. It is one of the ongoing inaccuracies at Bridgend probation service that a letter requesting that someone can move back into the area should be taken as evidence that that person has moved.

Again, my hon. Friend clearly illustrates why the debate is necessary. I shall return to the point when speaking about how we should move forward.

The communication from the South Wales probation service said that it was working to resolve the issues and that other areas would be notified when Sandville was available as a placement. Although the probation service suspended Sandville as an unpaid work placement, it did not have the power to suspend it as a pre-release scheme placement. That was the responsibility of the Prison Service, through its contract with Community Service Volunteers. However, as my hon. Friend knows, Community Service Volunteers has now suspended its use of Sandville under the pre-release scheme until the question of the risk of harm is resolved.

In the three minutes that remain, I want to see whether we can find a way through the problem. I want to offer my hon. Friend a way ahead and offer some help. I understand that the South Wales probation service and Community Service Volunteers are keen to see Sandville reinstated as a placement for offenders on unpaid work and the pre-release scheme. However, that depends on the risk of harm being managed appropriately for the placement of offenders. I am informed that South Wales probation service and Bridgend county borough council are happy to support Sandville institute in any outstanding processes and checks. I look forward to all parties working together—and I include my hon. Friend in this—to ensure that placements can resume as soon as possible. I ask her to help me by keeping me updated on the progress, or the lack of progress, in resolving the matter. To me, it seems to be mainly a matter of communication, with people sitting down together to resolve the problem, so I would be grateful if my hon. Friend were to keep me informed.

The case in question demonstrates the need for closer working under NOMS between prisons, the probation service and the third sector, which will reduce reoffending and protect the public. Such closer working will require a culture change by the probation service and prisons. We have to recognise that some third sector organisations that want to play a part in NOMS will have to make changes in order to ensure that the Government’s overriding commitment to public protection is met.

Not only do I hope that the problem that we have discussed this morning will be resolved as soon as possible for the benefit of all: I expect it. It will not be for our benefit; it will be for the benefit of all who use Sandville self-help centre. The letters that my hon. Friend quoted show that the centre can make a big a clear difference to people’s lives.

It is also important to say how valuable prisoners and offenders have been in supporting Sandville. They have undertaken many of the gardening tasks and the physical restoration work that the community so desperately needed. I pay tribute and express my gratitude to those offenders who have helped to ensure that the centre provides a good quality service.

My hon. Friend anticipates my final comment, but she made it much more eloquently. I thank her for raising such an important issue, and I hope that our debate will contribute to a resolution of the issue for the benefit of all concerned.

Sitting suspended until half-past Two o'clock.

Faith Schools

I am pleased to introduce the debate this afternoon, which is nothing if not topical, and I am pleased to see that so many hon. Members have attended.

I want to cover two separate issues. One is the question of admissions policies of faith schools—not the existence of faith schools or whether there should be new faith schools. As there is a lot to cover, I hope that hon. Members will restrict their contributions to the questions that I am raising, which is, of course, up to them and you, Mr. Jones. Those questions are controversial enough without debating whether there should be faith schools or new faith schools. The second issue is the employment practices of such schools, which is again increasingly topical.

I took the opportunity to brief the three Front Benchers on the content of what I will say in broad terms, so I hope that nothing that I say comes as a surprise to them. I raised some of the questions about faith schools admissions in a ten-minute Bill a couple of years ago, which contained the proposition that I will make today.

There is no question that this is a difficult issue because people have strongly held beliefs and there are the vested interests—I do not mean that in a judgmental or critical way—of religious bodies who are involved in running schools. Their ethos is reflected in schools and in the questions around choice of school or the ability of schools to choose pupils. Nevertheless, we must also consider the impact of admission policies on segregation and on the question whether it is right to discriminate on religious grounds when it is not considered appropriate to discriminate on racial grounds.

I take it as a given for the purposes of this debate that there are schools with a faith ethos—there are in fact thousands of voluntary-aided schools and voluntary-controlled schools. I also take it as a given, although it is not my preference, that there will be new faith schools, particularly for minority faiths who do not currently have schools. My personal preference would be that state schools were state schools and that religion and the state were separated, but for the purposes of this debate I will take it as read that there will be faith schools and new faith schools.

There are concerns about social and community cohesion caused by the admissions policies of those schools. I will not argue that that is in any way deliberate or widespread, but it is, in a number of cases, a logical consequence of the segregation caused by having selective admissions based on religion.

I start from the belief that it is wrong for children to be discriminated against in admissions to state schools on the basis of their race, sexual orientation or religion—that is in itself wrong. It is worse in respect of religion because often, although not all the time, it usually involves what is, in effect, indirect segregation, discrimination and selection on racial grounds. So, even though the selection is against religion, because of the association of religions with certain racial groups in this country, not exclusively but commonly, there is that consequence. On principle, given that education is a state function, the argument has to be made against the default of there being selection, discrimination or increased segregation on religious grounds.

The second problem over and above the principle of discrimination is that of segregation. I accept, of course, that the major cause of segregation, particularly in our cities, is people living in different places according to their race and, often as a consequence, their religious faith. We already have segregation in housing, and that is why in some areas there are only Asian children in a school. Indeed, that may sometimes be a Church of England school in a certain area where housing is mainly occupied by people from the Asian community who are often Muslim, possibly Hindu or from one of many other religions. There are some areas where housing is occupied by white people who will tend not to be Hindu or Muslim but are likely to be members of the Christian faith—Catholic or Protestant or of no faith at all—and they will go to a school in their area. That is unfortunate. We need to do something about that and nothing I say detracts from that.

It is also the case that some schools of mixed race and religion are faith schools. There is no doubt about that. However, as soon as a faith test is applied for an over-subscribed school, which enables 100 per cent. of the children selected for that school from the area to be of one faith, it cannot mathematically do anything other than tend to increase existing segregation. I am not saying that segregation is due in the main to discrimination in admissions, and I am not arguing that all schools that select or indeed all faith schools—many of which do not select because they are not over-subscribed or do not have a selective policy—are responsible for segregation. However, in a number of cases those schools will increase the segregation that exists as a natural consequence of applying a religious or faith test, which in the main aligns along racial grounds, to those who apply. That is a logical consequence.

I hope that that will be accepted. Hon. Members will argue that it is a price we have to pay and that ameliorative steps should be taken by schools to ensure that young people in schools that are 100 per cent. of one faith and often of one race are exposed to young people of other faiths and religions. I do not doubt the Government’s sincerity in seeking that, particularly given some of the amendments calling for a duty to act in favour of social cohesion which were tabled just this week to the Bill that is in the House of Lords. I understand that, but I argue that it would not be as necessary if there were not additional segregation and discrimination based on the religion or claimed religion of the children or parents applying for a school, particularly if it is over-subscribed.

I think the hon. Gentleman accepts what I am about to say, but I would like confirmation. Given that faith and ethnicity do not go together, what he describes as segregation in some instances could be a force for integration in others. For example, there is evidence that Roman Catholic schools have a higher proportion of people from a minority ethnic group, making up between 5 and 40 per cent., than state or non-Roman Catholic schools. Therefore, the faith school may be a force for racial integration. Does the hon. Gentleman accept that that can be the case?

No, I think that the right hon. Gentleman’s comparator is flawed. Many Catholic schools are in urban areas, and rightly so. I have no problem with that. The comparator for those schools is not all other schools, but non-faith schools also in urban areas that do not apply a religious selection test when they are over-subscribed. It is logical that if a school takes from its local catchment area A, segregated though it may be on a 70/30 per cent. split, then a faith school in area B, which is also split 70/30, would not take on pupils according to that split if people from area A were allowed, purely on the basis of their faith, to overtake minority children from area B in gaining admission to that school. In such areas, although there will still perhaps be a mix on racial or religious grounds, it would not be as great as it would be if there were no selection or selective pressure.

There is mathematically no alternative way of looking at the situation for those faith schools that select on the basis of religion, are over-subscribed, and can therefore select from a wider area and have bused across the district, town or city at the expense of the local taxpayer people of their religion to have in their school. That is why, in some northern cities, some faith schools are 100 per cent. white, even in a city where one would not expect that and even despite housing segregation, and some schools that are 100 per cent. or nearly 100 per cent. Asian are actually Church of England schools; they just take people from their local area.

My thesis is that there is no logical way to argue that a selection test for over-subscribed schools does not increase segregation. That is what they say they want to do. They say that they want to have a school where, for example, Catholic parents can send their children in preference to other local children who are not Catholic.

The hon. Gentleman says “they”. No doubt in saying what “they” want we also include parents. Does he recognise the fundamental human right of a parent to choose to have their child educated in a faith school, and does he recognise that the admissions process should properly enable that right to be fulfilled?

The hon. Gentleman reminds me to declare my interest: I am an honorary associate of the National Secular Society. I should have said that at the outset. I am also a member of the Joint Committee on Human Rights. We have published a report on these issues, and I can assure the hon. Gentleman that there is no fundamental human right requiring the state to provide a faith-based education so that parents can have their children educated in that way. That point is misunderstood. Indeed, I believe that a Minister got it wrong in the House of Lords at an earlier stage in the passage of the Education and Inspections Bill.

Let us be clear: there is a human right for people to have freedom of religious belief, but upholding that human right does not require the state to provide a faith school. I would be interested to hear whether the Minister could confirm that. It does require the state to provide to parents—and, I would argue, children who are competent enough to make the decision—an opt-out from religious education where that is directional, or could be directional, and from compulsory prayer. Such opt-outs exist for the protection of religious belief, but there is no right of parents to have a school of their choosing. Otherwise, we would be in difficulty, because parents would say that they had a human right to be provided with a school for Scientology or another religion where there was not otherwise demand. That is a relief to the Government, I am sure, because even this Government would not be able to afford the growth in new schools that would be required.

The hon. Member for Enfield, Southgate (Mr. Burrowes) brings me to another point that I wanted to raise, which is the right to non-discrimination of people who are selected against. There is a group of people who do not have their own school. No school that I know of gives parents preference if they are not religious. Most religions have schools, and, with the new faith schools for Muslims, more religions will have schools, if they are available in the area, at which members of the religion could get preferential treatment in admissions. But for non-religious parents there is no secular school that says, “We’re not going to let this Christian child in; we’re going to take this child of an atheist, even though they live further away.” However, non-religious parents who cannot fulfil the church attendance test and the faith test required by some schools are being unfairly treated on admissions, and I hope that the hon. Gentleman will accept that that is a breach of their right to non-discrimination.

I believe that the Government will be in trouble on these issues, with cases brought under anti-discrimination law, unless they make the exemption so wide as to make it extremely difficult for such a case to be brought. I hope that hon. Members see the principle of what I am saying and will ask in response, “What is the solution? What is the remedy for a non-religious parent who would like there to be a school at which they are given preference?”

Is not the hon. Gentleman seeking the perfect world of choice? Is not some choice, however imperfect, better than the limited choice that he is advocating?

We could get into a long debate about what is meant by choice. Obviously, many in the education world would argue that a diversity of schools offers a diversity of options for parents, enabling them to choose which school to apply to, but if those schools are selective, it is the schools that are choosing the pupils. All that the parents can do is express a preference or seek to apply, so we must be careful when we talk about choice in education. Clearly, I speak as someone who does not believe that there should be selection on the grounds of educational attainment either.

In a moment. The other response to the point made by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), to whom I am grateful for debating the issue in what is, after all, a debating Chamber, is that things are being offered that are of benefit to certain people, but the principle of anti-discrimination law is that things should be provided equally as far as possible. Sometimes, choice for a few people, while excluding automatically choice for others, is not better than no choice at all. I think that that is made clear by the Equality Act 2006, for which, I am pleased to say, the hon. Gentleman’s party voted. Indeed, article 14 of the European convention on human rights states that people are entitled to enjoy their human rights without discrimination. Therefore, public authorities in particular must be careful not to provide choices for the few at the expense of others, or the many; they must provide choices on an equal basis.

I am listening carefully to the case that the hon. Gentleman is building for those who may have no religious faith. Has he seen the results of the Guardian/ICM poll that showed that 65 per cent. of people oppose religious schools? They do not support religious schools and are excluded from the argument that is being advanced.

Indeed. I am grateful to the hon. Gentleman. It is the case that a large number of people do not have a preference for faith schools. I do not believe that, simply because they do not have a preference, consideration cannot be given to providing options for those who do want faith schools, but that must be done on a fair basis. At the moment, it is not necessary, as I said. It has perverse consequences to do with segregation. It is in principle wrong to allow discrimination on the grounds of religion which we do not allow on the grounds of race or politics. Someone could say, “I want my child to go to a socialist school” or “I want my child to go to a white-only school.” The same arguments could be applied in that respect. Some people do feel that way, but we do not meet those preferences. Not every choice or preference of people needs to be met if that is bad for society or is at the expense of others. That is not in any way to question the intentions of those who provide faith-based education or those who wish for it. I am referring to decisions that the Government should make and I believe that the Government are making the wrong decisions in these areas.

I congratulate the hon. Gentleman on securing the debate. Does he agree that it would be difficult to justify non-faith schools discriminating against students on the basis of religion? Indeed, that would be unlawful. If that principle applies to non-faith schools, how does one reconcile that with the different principle applying in the case of faith schools?

It is difficult to justify it. It is a curious thing. It is difficult to justify any discrimination by state schools against local people on the basis of their parents’ private beliefs in favour of people who believe something else and go to a different building on a Sunday, or who claim to believe something else and feel that they ought to go to a different building on a Sunday in order to get their kid into the school of their choice.

It is often argued that faith schools are popular because they are good. However, the evidence in that regard is not clear. The hon. Member for Bognor Regis and Littlehampton and I had discussions about this issue during a long Adjournment debate prompted by the hon. Member for Nottingham, North (Mr. Allen). It may well be that because of the preference of middle-class people for faith schools they will often have better results. I am not making a judgment; that is the case, although it does not apply to Catholic schools in inner-city areas, where faith schools are a working-class preference. However, when those results are compared to those of the right comparator of schools that are non-faith, and adjusted for free school meals or other proxies of social background, one does not find a significant difference in the educational attainment.

I do not think that there is anything in the spiritual nature of a school that says that its pupils will be better at maths because they pray. As I said in a debate in the main Chamber the other day, there is some evidence, from a large, controlled trial, that prayer does not affect recovery from surgery. It is therefore hard to believe that mere prayer alone is likely to produce better results—believe me, I tried it during my medical studies.

It is harsh to tell community schools that their ethos is so deficient and their discipline so awry that they are incapable of getting results as good as those of faith schools. If hon. Members pray in aid of faith schools and think that such schools will get better results because their ethos and discipline is better, they must show evidence that schools are struggling with results or discipline because they do not have such a religious ethos. That would be hard to prove, unfair on those schools and too much of a generalisation. We should accept that schools are neutral in that respect.

Before I move on to the second part of my speech, I must point out that in the free-for-all on the issues of selection on religious grounds and introducing quotas to encourage integration, one option that was not considered was that there should be no segregation or discrimination at all on religious grounds. I am sorry that that option has not been raised in the debate.

Before the hon. Gentleman moves on, I want to mention the Roman Catholic diocese of Leeds, which includes Bradford metropolitan district and my constituency, which is in the process of reducing the number of Catholic schools because there is over-provision. If that happens, rather than there being a mix of Christians of other orientations and Muslims in those schools—Holy Family school in my constituency, for example, has a real mix—they will be more and more exclusive to Roman Catholics. Has the hon. Gentleman come across that phenomenon in other parts of the country?

I am sure that it happens in other parts of the country, and that is the point. Generally, segregation applies only in over-subscribed schools, because anyone can fill places that are not filled. I do not accuse schools of excluding people when there are unfilled places. Indeed, I believe that the Government recently made it clear that that is not permitted. The hon. Lady makes an important point, however: when schools are over-subscribed there is increased segregation and selection, and one can create that situation by deleting surplus and potentially surplus places and places that are not filled exclusively by people from the relevant faith. That might not be the intention of the diocese she mentions, but it is certainly a consequence, and politicians and the Government have to consider consequences.

On Third Reading of the Education and Inspections Bill in the House of Lords on Monday, Lord Lester referred to the Tengur judgment of the Privy Council. In that case, he acted for the Mauritius Government against the Bishop of Port Louis. There was a system for allocating places at Roman Catholic secondary schools whereby half the intake was Roman Catholic. The Privy Council, which I believe has a legal standing there equivalent to that of our Court of Appeal, unanimously decided that that amounted to discrimination in the public domain and was contrary to section 16 of the constitution of Mauritius. Lord Lester argued that a similar approach could be applied in an appropriate case under the Human Rights Act 1998. Have the Government digested the consequences of that case?

I am conscious of the time and I know that others want to speak, so I turn to the second prong of the debate, and employment practices in faith schools.

Before the hon. Gentleman moves on, I want to ask him about article 2 of the first protocol to the European convention on human rights. Does it not state:

“In the exercise of any functions which it assumes in relation to education and to teaching, the State shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions”?

That is right. That is why there is an opt-out from religious education that is not in the national curriculum, because that is very much a do-it-yourself matter in faith schools and can be quite specific for certain religions. There is also an opt-out from worship. All that means that religion cannot be forced. That is what freedom of religious expression means. It does not mean freedom to practise at the state’s expense; it means freedom from the state imposing religion on children or their parents. That is clear. I do not have references from the Joint Committee on Human Rights report, but there is unanimity among public lawyers on that in relation to the Human Rights Act. There has never been a successful claim saying, “We must have a Muslim school to abide by that particular part of the protocol.” I hope that the hon. Gentleman is reassured, but I am happy to send him a legal opinion on that, for free, after the debate.

I am keen to move on to the question of discrimination. Hon. Members will know that sections 58 and 60 of the School Standards and FrameworkAct 1998 permit voluntary-aided schools to impose a faith test on teachers. Applicants can be appointed or not and teachers can be promoted or not on the basis of their personal religious beliefs and their conduct in respect of the ethos of that religion. That has always been controversial, and my party has always opposed it. I know that my hon. Friend the Member for Leeds, North-West (Greg Mulholland), who may not have agreed wholly with the first part of my speech, is now listening intently from the Front Bench. My party opposed those measures because we do not believethat it is appropriate for state schools to apply tests of private religious belief to teachers of maths, geography or history, to head teachers or even to teachersof religious education. They are teaching, not proselytising.

I understand why the Church of England might want to apply faith tests to people who wish to become priests—perhaps it does apply them—but that is a genuine occupational requirement. It is not a genuine occupational requirement for a teacher in a state school to have particular private religious beliefs, to go to a certain building on a Sunday or to sleep with a person of the opposite gender in their private life. They have a duty to obey the law and not to bring the school into disrepute—I understand that—but private is private. Freedom of religion should mean that one’s career and prospects of promotion will not be blighted because of the ability of a state school to impose a religious test. That is why the measures are controversial.

The legislation applies not only to voluntary-aided schools, but to voluntary controlled schools, in which 100 per cent. of the funding for running costs and capital is paid by the state, and a minority of governors are faith governors. In voluntary-controlled schools,20 per cent. of teachers can be reserved teachers, which means that they are qualified to teach RE to the ethos of that school. That can have serious consequences, particularly when such a school is the only school in town for teachers who wish to teach in that area, particularly teachers who are interested in teaching RE to a curriculum rather than in a proselytising way. I agree that it might be difficult for a teacher of the wrong religion or no religion to try to convert pupils, but that is not what state schools are for. Neither are they there to keep pupils on the straight and narrow as regards their religion.

The Government propose to expand those measures to enable voluntary-aided schools to apply a faith test to all staff, including non-teaching staff, but they have not adequately consulted the unions. I have had correspondence from the general secretary of the National Union of Teachers, from the GMB and Unison, and I have spoken to the general secretary of the National Association of Head Teachers. They all expressed concern about the proposals and the lack of consultation. Did the Minister write to the unions about this? What documentation was sent to them at general secretary level? With whom at the trade unions was this discussed? It is a serious matter for them.

Hon. Members may also be interested to know the view of Trevor Phillips, who was recently appointed to the chair of the Commission for Equality and Human Rights. In his evidence to the Select Committee on Education and Skills earlier this month, he said, at question 451 of the uncorrected transcript, that

“the rule is very straightforward…You compete for a job and you are judged on your suitability for that job. The question of”—

other elements of your life—

“should never enter into it.”

His concern is that policies have got to the point where

“we recognise difference even if it is at the cost of equality.”

He also said that diversity is not damaging to society, adding:

“What is damaging to our society is the recognition of diversity without the recognition of commonality”.

There is widespread concern about how that might operate.

It has hitherto not been permitted to include head teachers in voluntary-controlled schools among the20 per cent. of those who are reserved teachers and who are subject to a faith test and to sanctions if their private conduct is outwith the school’s ethos. However, the second change that the Government propose is to include head teachers in that 20 per cent. That has serious implications for the prospects of many senior teachers, who might want to apply for headship, but who might feel that they will not pass the religion test because they do not share the religious beliefs of the school to which they wish to apply, or who, having applied, might find that a less qualified person is given the job.

Can the Government give any justification for introducing this rule, especially at a time when there is a shortage of head teachers? Can the Minister tell us of any problems with heads who have been appointed on the basis of their ability to lead a school and to teach, but who have let the school’s ethos go to wrack and ruin simply because they do not pitch up often enough at a place of worship on the prescribed day in their spare time or because they are not sufficiently religious in their private lives? If the Government cannot show that there is a problem, they should not increase the range of people to whom the discrimination should apply.

We have not had a chance to debate the provision in the House, although we may do so tomorrow when the Education and Inspections Bill returns to the Floor of the House for consideration of Lords amendments in what, given the nature of these things, will be a short debate. However, I hope that the Minister will respond to my specific questions about the consultation and about how he can justify people being subjected to a faith test when seeking appointment as a school secretary or teaching assistant or when seeking promotion.

As the Minister will know, staff members in such circumstances have a defence—should they be aware of it—in the employment discrimination regulations. Those who are aware of the regulations and who have the funding can bring a case to say that there is not a genuine occupational requirement. However, the Minister will also know that some religious organisations and schools feel that requiring secretaries or other such staff to lead prayers once a month gives them a genuine occupational reason to say that there must be a faith test, because they could not allow someone who was not of the right faith to lead prayers if that was part of the job. What faith does the Minister have that the genuine occupational requirement provisions of employment discrimination law will offer adequate protection ab initio, rather than once someone has suffered, and ensure that people are not discriminated against? It is bad enough that teaching staff might be affected, but why are non-teaching staff required to be of a particular religion before a state school can employ them? After all, the state pays 100 per cent. of the salary costs and the vast majority of the capital costs of voluntary-aided schools.

I am grateful to the House for giving me time to make my points. I look forward to hon. Members’ contributions and to the Minister’s response.

I am grateful to the hon. Member for Oxford, West and Abingdon (Dr. Harris) for raising this important issue. The debate is very timely; indeed, it has been timely for many years, and I will talk particularly about the historical basis of faith schools, although I do not want to get into a separate debate. However, it is important not to divorce ourselves from where we have come from or to see the debate in a vacuum, because faith schools have benefited this country over the years.

First, however, I should register, rather than formally declare, an interest. My constituency has a large number of faith schools, including Church of England schools, Jewish schools such as Wolfson Hillel primary school, and several Catholic schools. I therefore see the range of faith schools and the impact that they have on my constituency. There is a diverse community in my constituency; indeed, in terms of Conservative representation, there is a relatively high proportion of members from the Hindu and Muslim communities, who also benefit very much from faith schools.

I have been the governor of a Church of England school for more than 12 years and I have four children at my Church school. Indeed, as a parent governor, I am currently taking part in discussions about the admissions criteria of our school, and we have a couple of weeks left to propose any amendments. I therefore listened with great care to the hon. Gentleman to see whether he could come up with any suggestions to improve the current state of play, which properly recognises not only the preference for parents with a faith, but the sibling criteria, although that is a debate for another day.

The hon. Gentleman spoke primarily about discrimination, which he sought to make the focus of the debate. However, there is also the issue of selection. To a certain extent, one could say that any selection involves discrimination, and that is the case in a variety of schools of different complexions. One has to accept, however, that discrimination is not wrong per se; the issue is whether it is done on the right grounds and whether it is properly proportionate to the position and to the benefits that are entailed.

The faith test, which is at the heart of this debate and of the debate about admissions processes, has been criticised. Why should there be a faith test? I want to set faith schools and particularly Church schools in their historical context, because we need to recognise where faith schools are coming from. They have not suddenly decided to have an admissions process that includes a faith test, and there is not a vacuum in that respect. One has to recognise that Churches have played an important historical role in making education available not only to Church members, but to the wider populace. Before the state became involved in funding education, that is how much education was provided in areas of great need, and education was extended to the wider community. One must recognise that that is where we have come from and, indeed, where we should seek to go when looking at the admissions process.

The Archbishop of Canterbury referred to the value of Church schools in March, when he reaffirmed the Church’s long history. He stated:

“Its involvement in education was a completely natural outgrowth of its pastoral vocation to be present in every community.”

He went on to outline the Church’s involvement in faith schools in areas of great need and social deprivation. Historically, the Church has been present throughout the country, reaching out to, and helping to educate, the wider community. It has not been there primarily to select from its membership, but to be of value to the country.

We need to look at that context when considering the admissions process and to recognise that the Church is inextricably linked with education in this country. About 25 per cent. of all state primary schools are Church of England schools, and one can add a number of Catholic schools, Jewish schools and other faith schools. The Church’s involvement in such schools is practical and financial. It also involves governance, because the Church is involved as a governor. There is therefore a fixed attachment to the Church, and that should provide the opportunity and the freedom to define admissions to the school.

It is right that the admissions process should properly supplement and support a school’s faith basis. It is not just an add-on for the school; it is fundamental to its character, ethos and historical basis in the community and, indeed, the country.

Would the hon. Gentleman apply the same argument elsewhere? Would he entirely support non-faith schools that wished to apply a faith test to admissions policy?

It is a matter for that school to determine. I would be willing to allow the school the freedom to determine the selection, although it might be somewhat perverse for it to want to follow such a process through.

Do I understand the hon. Gentleman to be saying that he would support a policy whereby a non-faith school could apply a faith test in selecting students for admission? Would he regard that as reasonable?

I am grateful to the hon. Gentleman for allowing me to clarify the point. Obviously, there are rules to allow one to object to that process, but non-faith schools should properly have the freedom to develop a character and ethos, and that should be there for all to see in the admissions process. It is important that any such process properly supports and supplements the character and basis of the school.

I think that the hon. Gentleman is saying that a non-faith school—a specifically non-religious school—with an ethos that is morally right, appropriate and about good behaviour, should, if it is over-subscribed, be allowed to turn down for admission a child with religious parents, or a child who claims to be religious—although the latter are few and far between, in my experience—so that it can promote its ethos by preventing its membership from being polluted by those who are inimical to it. I think that that is what he agreed.

No. To clarify the position, it is not simply a matter of their being allowed to develop a faith test. There should be freedom to determine the character of the school, and the way in which it is developing, even in a non-faith way.

As to the employment argument, it is important to recognise that a school with a faith ethos should properly be allowed to employ teachers with a faith. Faith is not simply a matter of an occupational requirement to say prayers or deliver an assembly. Faith permeates a faith school, including different areas of the curriculum and activities. Primarily, there should be freedom to ask teachers employed in faith schools to lead prayers and to promote faith values; however, the issue is relevant not just in religious education, but in other areas, so that pupils receive a holistic education. That is very much what parents like about faith schools. They do not see them as just somewhere for children to hear prayers and have a good religious assembly. Parents recognise that the faith basis of schools permeates the education and standards in the school.

Parents and governors alike no doubt recognise and appreciate the proper freedom that is given to employ head teachers and teachers who can endorse and promote the values at the heart of the success of many schools. Perhaps a distinction can be made as to school support staff, but there should be an opportunity for those at the front line to promote the ethos of the school. It is an important factor in a school and one recognised by parents, which is why faith schools are popular. Parents know that it is not simply on one day a week when children will hear prayers and take part in assembly; teachers will be promoting the school ethos.

Is the hon. Gentleman happy, then, that if two people applied for the job of teaching maths or geography and one was better qualified than the other but being of the wrong religion or no religion was unable sincerely to lead prayers, the less well qualified teacher should, all other things being equal, be appointed, so as to be able sincerely to lead prayers? Does the hon. Gentleman consider that to be such an important aspect of state education that it is a ground for appointing less good teachers? That is the effect of current and proposed law.

The hon. Gentleman is looking for the lowest common denominator. Obviously the school would want the best qualified teacher for the job, but an important factor in considering the best qualified teacher, rather than the worst, would be the ability properly to promote and support the school’s fundamental ethos. It is important for the governing body to have the right to make inquiries about applicants’ faith. It should not be constrained by law, which should recognise that teachers whom it employs should be able to support the fundamental ethos of the school. It might well be perverse, and it would be relevant, if the applicant were a secularist or, indeed, a Satanist. It would be relevant to the employment of a teacher to promote the school’s ethos.

The debate is about admissions and employment, but it should also be about recognising the context in which faith schools have served us well for many years. They have certainly served my constituents in Enfield, Southgate well. We should not be looking for ways to restrict or undermine, through admissions or employment, the fundamental ethos of those schools. We should, on the other hand, be looking to expand them.

For me, the debate is not just about admissions policy, although that is its context. I want to consider what the Secretary of State said only a few weeks ago. I congratulate him on being tremendously courageous in meeting the challenges of multiculturalism. I am a great believer in multiculturalism and the spirit of multiculturalism. I am against segregation, and I think that in his great spirited way the Secretary of State was trying to break down barriers and avoid future segregation. For that he was slapped down by the whole religious lobby.

I find that very sad, because the Secretary of State was thinking, as we say in new Labour, for the long term—not tomorrow or the day after but perhaps 15 or 20 years’ time. We do not want groups of people in society who believe that one religion is superior to another—a generation in which some believe that the only way is jihad and others believe it is Khalistan, and in which there are also Hindu fundamentalists. By the way, I am of Hindu and Sikh descent, and I am very happy to be so, although I am a non-believer. I was raised in both of those beliefs and went to a state school. I had no problem with learning about all faiths.

I have raised the issue of faith schools previously. In 2001, I expressed my fears about the legislation with the then Secretary of State, now Baroness Morris. Five years later I still fear that we are going in the wrong direction. The present Secretary of State has been trying to put matters right, and perhaps temporarily he has gone part of the way to addressing the fears of those who have worried unnecessarily. He was talking about a change of policy for new faith schools, not existing ones.

When Baroness Morris was Secretary of State she was asked in the Education and Skills Committee by my hon. Friend the Member for Bury, North (Mr. Chaytor):

“Is it likely, for example, that a new Muslim school or a new Sikh school would admit a large number of Catholics?”

She said:

“I think it is very likely. My feeling is that that is what happens. Church of England schools do, Roman Catholic schools do, they are multi-racial. We now have quite a lot of plans to change the admissions framework.”

Can the Minister tell me how many Catholics attend Muslim schools, and how many attend Sikh schools? We are five years down the road, and the Secretary of State had faith five years ago that people would enter other schools. I should like to see the evidence that demonstrates that progress has been made. If the Minister can produce it, I shall be happy to say that we are going in the right direction.

I come from a very liberal Hindu family, and my father would not in a million years have sent me to a Muslim school—or a Sikh school for that matter; he is a devout Hindu. If we want to change society and keep the spirit of multiculturalism we shall have to create a mechanism for integration between communities. Otherwise parallel communities will be built up in schools in years to come. In that respect I praise the Secretary of State for trying something new and courageous. I am, as I said, sorry that we have had to move away from what he said. We have changed to a voluntary route. I am happy to see to what extent it works, because sooner or later we will have to move further and make legislative changes.

I sincerely believe that if we are to reduce the number of divisions that exist in society, we will need a mechanism to bring different communities together. The religious gap between the Christian communities is much smaller, although there are Roman Catholic schools and Church of England schools, than the huge gap between the Muslim, Hindu and the Sikh communities. Those who do not recognise that ignore the history of the past 1,000 years and what happened in the Indian subcontinent, particularly during the partition in 1947. They destroy that; they ignore it at their peril, because we will pay a heavy price here in years to come. We will be old people and somebody else will be running the show, but people will wonder why things are going the way they are and why there are more divisions than ever before. Things will go wrong today, not then, if we allow more faith schools but with no integration.

That is my fear, although I hope that I am wrong about it. I mentioned it over and over again to the previous Secretary of State, and I praise the present Secretary of State for being courageous. As I said, he was slapped down heavily and unfairly. I hope that the Minister will tell him that I admire his courage and the spirit in which he tried to do what he did. I shall say no more than that because I know that the debate is about admissions, but I have tried to highlight the wider aspect of admissions policy and its consequences.

It is a pleasure to see you in the Chair, Mr. Jones. I apologise for the fact that my voice is not in better working order.

I congratulate the hon. Member for Oxford, West and Abingdon (Dr. Harris) on securing the debate. I think of him, perhaps wrongly, as the Richard Dawkins of the House of Commons, in respect of the doggedness and ingenuity with which he puts his arguments. The hon. Member for Kingswood (Roger Berry) is perhaps competing for that title.

The hon. Member for Oxford, West and Abingdon has done us a service by obtaining the debate. It has proved that in practice it is hard, if not impossible, to separate the question of admissions, which he raised at the start of his remarks, from the question of faith schools generally. That was proved by the remarks of the hon. Member for Middlesbrough, South and East Cleveland (Dr. Kumar).

In the brief time available, I want to reflect on the25 per cent. proposal, to which the Government appear to be marching up the hill; apparently, there has now been a march down from the top of the hill. In all the debate about the proposal, two undercurrents or motives were supporting it. One has been expounded at its most eloquent by the hon. Member for Oxford,West and Abingdon—the straightforward secularist argument. The second, which cropped up a few moments ago, was a straightforward feeling that action was necessary to crack down on the Islamists.

Muslim schools were an important factor in the debate. I have an interest in that I represent 9,000 Muslim constituents—they constitute 10.7 per cent. of my constituents, which is the largest percentage in respect of any Conservative Member of Parliament. Although some non-Muslim voters did not quite put it this way during the debate on the 25 per cent., I feel that they were wondering why their schools should be penalised in order that the Government might crack down on the Islamists.

My Muslim constituents would have been asking a different question, as, indeed, they told me: why should we be victimised in this way by the Government because we want to have our own faith schools on the same terms as the other religions? A very important question is whether fears of Muslim schools are justified. I want to take a step back, and to speak briefly about Islamism in order to answer it. I should give a health warning: I am not an expert on Islam. The lack of experts on Islam is a problem in the Commons.

I see one. I am also not an expert on Islamism, which I would define as being the perversion and distortion of a great and noble religion. Islamism has three features that concern me.

I fear that we may slightly move off the topic, so before we do, may I ask the hon. Gentleman a simple question? Does he agree that Muslim schools should be treated in exactly the same way as Catholic and Church of England schools? If so, and if schools of faith should be able to apply a faith test for admissions, why on earth should non-faith schools be denied that choice?

The hon. Gentleman’s first question leads me to exactly where I want to go. I am going there and to admissions directly, but I shall do so via this route of Islamism.

As I see it, there are three features of Islamism. One is the extreme distinction that it draws between what it calls the “house of Islam” and the “house of war”. I understand that it is not a feature of mainstream Muslim thought. Secondly, the Islamists argue that the loyalty of Muslims is primarily, politically, to the umma—the body of Muslims worldwide—and not to the country in which they happen to be living. Thirdly, there is the question of the application of the sharia.

I come directly to the questions of whether Muslim schools should be in the state sector and what their admissions policies should be, which were put to me a few moments ago. If we examine where most Muslim schools are located now, we find that they are mostly in the private sector. If someone were to ask me whether Islamism—this distorted form of Islam—is being taught in them, my answer would be that I do not know. I do know that if more of them were in the state sector, where many of them wish to be and where they can be regulated, inspected and subject to all the norms that the Government properly recognise, there would be far less chance of their being Islamist in character and far more chance of their being mainstream Islamic in character.

I wonder whether the hon. Gentleman is aware of something that David Bell, the former chief inspector of schools, said last January. Referring to the Muslim faith schools, he said that he was worried that

“many young people were being educated with little appreciation of their wider responsibilities and obligations to British society”.

He added that we

“must not allow our recognition of diversity to become apathy in the face of any challenge to our coherence as a nation”.

The question is: how do we best not allow that? My answer is that it would be better if more Muslim schools were in the state sector, where they can be regulated, inspected and subject to all the norms that the Department for Education and Skills applies. That is where admissions comes in. If Muslim schools were compelled to take 25 per cent. of their pupils from non-Muslim backgrounds, would they be more likely to come into the state sector or less? They would be less likely to come in, which was one of the many reasons why I was opposed to the 25 per cent. proposal that was being floated, and why I welcome the new emphasis that the Government have rightly put on inspecting for cohesion.

The hon. Member for Oxford, West and Abingdon has done us a service in raising these complex issues of faith, education and choice. The more likely it is that faith schools control their own admissions in the way that they have done since the Butler settlement, the more likely it is that Muslim schools, in particular, would be able to come into the state sector and be subject to all the norms that the DFES requires, and thereby social cohesion would be advanced. I am happy to have been able to make that point, and I am grateful to the hon. Gentleman for giving me the chance to do so.

I congratulate my hon. Friend the Member for Oxford, West and Abingdon (Dr. Harris) on securing this timely debate. I greatly respect his strong feelings and the eloquence with which he presented his views, which are shared by some MPs in all parties. Indeed, there is unquestionably a great deal of logic in his arguments. However, there are also MPs in all parties who do not share his conclusions.

I am here to give not my personal view but that of my party. I, too, will start by declaring an interest. I am a practising Catholic and married to an Anglican who is a primary school teacher currently teaching in a Catholic school. I was educated in faith schools, but my teachers notably included many who were not Catholics. I like to think that during my time at school I learned a lot—although perhaps not enough—about other faiths and adopted tolerance to the many faiths and cultures that existed and to people who have no faith and come from a secular background.

It is important to say that there are many excellent and popular faith schools throughout the country and they have been part of the education system in Britain for many years. My party recognises that the school system historically owes much—this echoes the point made by the hon. Member for Enfield, Southgate (Mr. Burrowes)—to the provision of Anglican, nonconformist and Catholic Church schools, both primary and secondary. We also accept the logic of the School Standards and Framework Act 1998 which allows other faiths access to state funding for their schools.

I want to make it clear that my party does not argue, and has not argued, for removal of state funding from faith schools. We recognise their valuable role in this country’s education system, but we are all aware that faith education is an important issue that polarises opinion. This is a timely debate because we have all seen the coverage of the wider issue of the role that faith plays in our society, and of religious dress and symbols in the workplace. We must accept that that is all part of the debate.

My hon. Friend the Member for Oxford, West and Abingdon raised two specific points and I shall take them in reverse order. First, on employment restrictions, my party remains opposed to extending the right of schools to select staff on religious grounds to head teachers and non-teaching staff. We believe that that could be discriminatory under employment law and is largely unnecessary. What is absolutely necessary is that anyone working in a school must have the ethos of the school. That applies to my wife, Raegan, who is not of the same faith as the school in which she teaches, and to everyone else, including the head teacher and the caretaker. Everyone working in a school should share its ethos, whether it is a faith or non-faith school.

We opposed the introduction of a 20 per cent. quota in the School Standards and Framework Act 1998 and proposed amendments to sections 58 and 60, as my hon. Friend explained. The new Government amendment to that Act retains, approves and extends what we believe to be problematic and discriminatory.

Secondly, the crux of the debate is admissions, which is topical in the light of the Baker amendment. My party was thoroughly opposed to the Baker amendment. Although it was a helpful way of starting the debate, it was ill considered and, as more than one hon. Member has said, clearly had implications for the problem of religious fundamentalism in schools. Any quota—25 per cent. or otherwise—is artificial and could have a perverse effect. Apart from the worry that it might prevent local children from being able to get into a school that their parents had chosen, it could have a perverse effect if there were simply not enough children from the relevant faith to fill the quota, because children would have to be bussed in from a great distance to fulfil the non-faith quota. That is not a sensible way of approaching the matter.

There is a lot of pragmatism in the school sector. Admissions is clearly a challenging and complicated issue—we all acknowledge that—throughout the system, but many faith schools do not stick rigidly to a policy of preferential treatment even for local children of their faith. I know of faith schools in my area of West Yorkshire that are actively recruiting children who are not from their faith background because they do not have sufficient children to fill the school. The matter is not simple and we must be pragmatic. I want to make it clear that neither I nor my party shares my hon. Friend’s conclusion that the right of faith schools to continue to select people from their faith community and live locally should be abolished.

Is it right for a faith school to reject a local, next-door applicant of a different faith while accepting someone who travels 10 or 15 miles because they happen to belong to the right faith? The idea that prevalence is to local students at faith schools does not always occur, as the hon. Gentleman may know.

I made it absolutely clear that the admissions issue is complicated, which is why we need diversity of provision. However, my party and I believe that we need local control to ensure that all children go to a school that fulfils their parents’ desires.

I want to turn to the need for community cohesion. I am sure that we all agree that whether children are educated in faith or non-faith schools, the education must include tolerance of other faiths and cultures. We should concentrate on that challenge rather than on types of school. We have many popular schools that local parents want to continue, as I know from my experience and that of my wife. A statement from faith leaders on 7 February this year said,

“we believe that schools with a religious designation should teach not only their own faith but also an awareness of the tenets of other faiths”.

It is vital that that happens. It is important that all schools—faith and non-faith—seek to build links with other faith and non-faith schools. If that happens—it is happening in my constituency—there will be better understanding and integration.

I commend the Government on outlawing interviewing to establish parents’ religious commitment, which was long overdue. Such interviews are unnecessary and our concern was that it left the door open to selection for other reasons. As the Minister well knows, we are worried that the new Bill will lead to selection by ability, class or background. He disagrees, but our worries remain. I think we all agree that faith schools must not be used to allow selection by the back door and we must be mindful of that.

The challenge for all of us is to support an education system that promotes tolerance, understanding and co-operation, and allows us to maintain our individual identities but contributes to the wider and multicultural and multi-faith society that we live in.

I congratulate the hon. Member for Oxford, West and Abingdon (Dr. Harris) on securing this important debate. The issue has been at the forefront of many people’s minds during the past week, and it is one on which the hon. Gentleman has a long track record.

Faith schools have been a part of Britain’s state education system since its beginnings. Some of the first free schools were established by the Christian Churches, and the Education Act 1944 protected and encouraged their development. I am only sorry that the hon. Gentleman has fallen out so badly with the origins of our state education system. Almost one third of schools are faith based.

We must appreciate that faith schools have been successful. Most parents who choose those schools for their children do so because they value the ethos and the religious education that they provide while still adhering to the national curriculum. Those issues must be a matter for parents rather than for the state. The record of faith schools is impressive. They produce results that are on average several percentage points higher than non-faith schools at primary and secondary level. Of the top 200 comprehensive schools, 42 per cent. are faith schools, even though faith schools represent only 17 per cent. of the total number of comprehensives.

The hon. Gentleman argues that when we takeinto account free school meals, for example, those schools are not as successful as the raw figures show. However, that is not true. A written answer to my hon. Friend the Member for Fareham (Mr. Hoban) on28 November 2005 from the right hon. Member for Redditch (Jacqui Smith), the then Minister for Schools, showed that the percentage of pupils receiving free school meals and achieving five or more good GCSEs was better in faith schools than in non-faith schools. One could pick any example from the tables that the Minister provided, but I shall offer the hon. Gentleman only one. In 2004, of schools with 35.1 per cent. and50 per cent. of pupils eligible for free school meals,25.9 per cent. of pupils in non-faith schools achieved five or more GCSE grades A* to C, whereas in faith schools 36 per cent. of such pupils did so. Similar figures throughout the table contradict the hon. Gentleman’s assertion.

The answer that the hon. Gentleman reads out referred not to students on free school meals and their results, but to schools with a percentage of children on free school meals and their overall results. I do not think that that answer was broken down into children who receive a free school meal and children who do not. The overall difference is marginal and it may be due to other factors. I urge him to consider that point.

I shall, for free, send the hon. Gentleman a copy of the answer, and when he considers it in detail he will see that it backs up my argument.

The debate on faith schools in recent weeks has also focused on their effect on community cohesion. Catholic schools, in particular, pride themselves on how they are socially integrated. Again, based on free school meals, pupils in Catholic schools come from broadly similar backgrounds to pupils in other schools, and the proportions of pupils with special educational needs are similar to those in other schools. Indeed, they are slightly higher in Catholic secondary schools. The proportions of pupils from minority ethnic groups are also higher in Catholic schools.

Although parents should have the right to choose a faith school, we cannot be oblivious to the danger that educating a section of society in schools that are exclusively reserved for children of a particular religion may be divisive and undermine social cohesion. We have heard views from some quarters who say that allowing Muslim schools to become established may foster segregation and racial mistrust. I do not accept that argument, and neither does my hon. Friend the Member for Wycombe (Mr. Goodman), who has provided us with an incisive summary of the issues.

We cannot have a system in which some faiths are permitted to receive state funding and others are forbidden. Islam is one of the world’s great religions and it is central to the lives of more than 1.5 million British citizens. As demand grows from faithful parents for the state to recognise, support and foster Muslim schools, so the Government are right to let them become part of the state sector and play the same role as Church of England schools, Catholic schools and Jewish schools. Muslim parents, Sikhs—there are two Sikh schools—and Hindus should have the same rights as Christian parents to send their children to schools that select their intake on the basis of faith.

I am unsure about whether segregation can be said to depend exclusively on faith. In many areas, schools are segregated because communities are segregated, as the hon. Member for Oxford, West and Abingdon concedes. There are wealthy areas where schools are socially homogeneous. Indeed, in wealthier areas, schools that select by faith often attract more socially diverse pupils than they would were they to select solely by catchment area.

I will not, because I have only a few minutes left. I am sorry.

What matters is that faith schools recognise their social responsibility to promote community cohesion. For that reason, my right hon. Friend the Member for Witney (Mr. Cameron), the Leader of the Opposition, in his speech to the Conservative party conference last month, praised the Church of England’s decision to offer at least 25 per cent. of places to children with no requirement that they come from families of practising Christians. That decision was about a group in society taking the action that it felt best and acting in a socially responsible manner. The Church of England made its decision because it thought it was the right thing to do. It would be fundamentally wrong and damaging to community relations to legislate to force faith schools to accept pupils of a different faith or of no faith at all, as the hon. Member for Oxford, West and Abingdon proposes.

That is why we disagreed with the amendment to the Education and Inspections Bill, tabled by Lord Baker, which would have required any new faith school to offer at least 25 per cent. of its places to pupils

“who do not follow the religion or the religious denomination of the school”.

The Muslim community views such sentiments as an attack on Muslim schools, at a time when a small number of privately funded Muslim schools have expressed a desire to become part of the state sector. The proposal to include Muslim schools in the state sector, subject to the same national curriculum and inspection regime as other state schools, is welcome, and I hope that more will join them.

That process of integration will do a great deal to further the objective of community inclusion. I hope that Muslim schools will in time adopt the approach taken by the Church of England; however, it should not be foisted on them. We should recognise the feelings in the Muslim community about that, just as we should respect the position taken by Catholic and Jewish schools.

The same approach should apply to the employment of staff. In many faith schools, there is a clear feeling that each person within it is part of a community that is based on common values. The religious aspect of a faith school does not stop outside religious education lessons and collective worship; it lies at the very heart of every activity in which the school engages. That is why voluntary-aided faith schools are permitted to appoint teaching staff on the basis of faith. It ensures that every teacher at the school supports the school’s ethos and values.

The Government propose to extend that derogation to non-teaching staff—when there is a genuine occupational requirement—for the same reasons. Our approach to employment is the same as our approach to admissions. We welcome schools that embrace teachers and staff from outside the faith, just as we welcome the Church of England’s decision on its admissions policies. However, it is absolutely a matter for schools. It is not a matter for prescription or legislation.

I congratulate the hon. Member for Oxford, West and Abingdon(Dr. Harris) on securing the debate, which has been constructive and well informed. We have taken our lead from him, because he spoke most constructively, and I thank him for that. The discussion is timely, given the debates that have taken place in another place, and their reflection in the media. The hon. Gentleman is a strong advocate of secular public services, but like me he is committed to ensuring fair access for all.

Faith schools have long been important to our education system and they have a history of providing good quality education for children of their own faiths and, in most cases, those of other faiths or none. They are popular with parents; the majority of faith schools are over-subscribed, and not just by members of their own faith. At the root of that popularity is their success, on which there has been debate between the hon. Member for Oxford, West and Abingdon and the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). I contend from the evidence that I have seen that faith schools add more value than non-faith schools at both primary and secondary level. That holds true across most faith groups, and Muslim and Sikh schools perform particularly well in value-added terms at secondary level, although the size of the sample is such that most statisticians would probably discount it.

Times change, however, and like other schools faith schools must change with them. Along with setting high standards for their pupils, all schools, not just faith schools, must play a part in delivering a cohesive, strong society. As my ministerial colleague and noble Friend Lord Adonis said in the other place earlier this week on Third Reading of the Education and Inspections Bill, we have in recent weeks consulted people including key representatives of faith communities. Informed by those consultations, we have now decided that the best and most effective way forward is to place a duty on the governing bodies of all maintained schools to promote community cohesion. That duty will extend beyond existing and new faith schools to all schools, regardless of their admissions policies. A related duty on Ofsted to report on the contribution to community cohesion made by the school will ensure that all schools are held to account. Many good schools already make such a contribution because they recognise the important role that they have to play and its value to the education of their children. Reading the record of the debate in the other place, I was struck by the contribution made by Baroness Williams of Crosby, who spoke of the potential of schools of faith and no faith to work together to promote community cohesion and give religious education collectively. That is an interesting idea that I should like to discuss further.

Last week my right hon. Friend the Secretary of State for Education and Skills announced a historic agreement reached with the Catholic Church. As now, new Catholic schools will be planned to meet Catholic need, and it is right that they should be, but there will also be scope for them to take on a new dimension. Where there is local demand, up to 25 per cent. more places will be added, with local agreement, to cater for non-Catholic families who would like their children to benefit from Catholic education. That follows the Church of England’s decision to offer 25 per cent. of places at new Church of England schools to those of other faiths or no faith. The consultations that we have had with the Sikh community suggest that it strongly welcomes those from other faiths coming to their schools, as do those of Muslim faith.

I again refer hon. Members to the record of the House of Lords debate on Monday, when Baroness Walmsley reported on a ring-round that she had done in which she found that there were few applications from non-Muslim children to Muslim schools or from non-Sikhs to the Guru Nanak school in Hillingdon. I hope that that answers the question asked by my hon. Friend the Member for Middlesbrough, South and East Cleveland (Dr. Kumar). Earlier the debate went off down a road that was a bit of a distraction from trying to tackle community cohesion. The duty to be imposed on schools goes to the heart of the problem, rather than being too distracted by admissions policies.

I shall give way very briefly, but the hon. Gentleman must bear in mind that that will reduce my capacity to respond to his other questions.

As indeed has the comment that the Minister has just made. Does he accept that the proposal of a new academy school in Leicester to have a uniform requirement for all children, regardless of their religion, to wear the hijab, the Muslim headscarf, is likely to deter people from applying to it and might fall outwith its duty to promote social cohesion? Do the Government have any thoughts on such an example of a potential problem?

We believe that dress code is a matter for schools and local authorities. If a school, including an academy, were to have such a rule, the governing body would have to bear in mind its new duty on community cohesion. We might wish to challenge the rule at some point through the funding agreement for academies. I am not aware of the case that the hon. Gentleman mentions, but I can examine it if it exists.

There are additional measures to promote social cohesion in the Education and Inspections Bill, particularly the new admissions code on which we are currently consulting. It makes it clear that faith schools should not adopt measures of faith affiliation and that a priest’s reference will be sufficient. It abolishes interviews and sets out that admissions arrangements should make clear the way in which faith affiliation or membership will be measured. It prohibits the use of supplementary application forms to gather information that has a bearing on the operation of a school’s published admissions criteria. Crucially, it also prohibits unfair oversubscription criteria including first preference first, which has been used by some faith schools to select. I hope that hon. Members agree that we are seeking to make progress. We agree with the hon. Member for Oxford, West and Abingdon that it is wrong to discriminate on racial grounds, but I argue that many faith schools are racially integrated. Catholic schools often have high levels of racial integration, and we cannot rely on a direct read-across.

I was pleased that the hon. Gentleman acknowledged that residential segregation informs educational segregation, which is a point to which we must apply ourselves. He debated whether ethos leads to better results, and we agree that ethos informs standards. That is one reason why we are proposing trust schools—so that non-faith-based organisations can use a trust to set up schools with a particular ethos and use them to raise standards. A member of the National Secular Society or the Humanist Society would be perfectly at liberty to enter a competition, formally propose a school and inform it with their ethos.

The hon. Gentleman asked me about the contribution made in the other place by Lord Lester of Herne Hill. I can confirm that in the case referred to, the courts were addressing the question whether the admissions policies of formerly independent Catholic schools complied with the specific provisions of the constitution of Mauritius, not whether they complied with the Human Rights Act 1998 and the European convention on human rights. UK law is more complex and allows for faith-based admissions policies such as those used in our maintained schools of religious character. In the UK, giving priority to children with reference to their faith is compliant with the Human Rights Act. I could say more on the matter, and if the hon. Gentleman wishes me to write to him I shalldo so.

Turning to other issues raised, I shall cut straight to the staffing of faith schools. We have tabled the amendments to which the hon. Gentleman referred, and perhaps it will help him if I outline what they are intended to do. They cover very narrow cases. Section 58 of the School Standards and Framework Act 1998 prohibits the head teacher of a foundation or voluntary-controlled school from being a reserved teacher. By their nature reserved teachers are appointed specifically to teach religious education in accordance with the tenets of a school’s specified religion. Foundation and voluntary-controlled schools with a religious character are therefore unable to appoint head teachers specifically to teach religious education. That causes problems in small rural primary schools, for example, where a head teacher may be needed to teach that subject. The amendment that we have tabled will mean that the head teacher of a foundation or voluntary-controlled school will be able to be a reserved teacher only if they were appointed specifically to teach religious education as well as to carry out the duties of a head teacher. I hope that the hon. Gentleman agrees that that is a narrow case.

Similarly, there is an amendment to section 60 of the 1998 Act on support staff. In summary, it sets out that an occupational requirement, testable at an employment tribunal as the hon. Gentleman said, will have to be proven. The provision will apply only to support staff with such a requirement to play a pastoral role.

Population Growth (Local Government Finance)

I am delighted to have been selected to introduce this debate, which will contain some complex statistical matter, although I hope not to test your patience too far, Mr. Jones.

The part of west London that I have the privilege to represent has an excellent record of harmonious community relationships. Like much of London, Hammersmith and Fulham is home to people of a wide variety of cultures and religions. Well over 60 languages are spoken by people from all continents. We have large communities from Africa, Pakistan and India, and many people from the nations of eastern Europe, most notably from Poland. Nearly 5 per cent. of residents are of white Irish origin and the area has also become a hub for younger visitors from Australia, New Zealand and South Africa, who want to spend time in London. All those communities, in all kinds of ways, contribute to the vibrancy of Hammersmith and Fulham.

The proportion of non-white ethnic groups in the borough of Hammersmith and Fulham is 22 per cent., and several wards in the borough figure in the top10 per cent. in London in terms of numbers of various ethnic groups. Although ethnic diversity is high as compared with the country as a whole, it is not particularly high as compared with other parts of Greater London or inner London. Crucially, however, the proportions are high in the Irish category and “white other” category, which includes people from eastern European, Australia, New Zealand and the United States, of which I am one. Even though I am a British subject, I was born in the United States and am therefore classified as “white other” for the purposes of census returns and so on, as is my wife, so I know a bit about the issue.

Despite excellent relationships between communities in Hammersmith and Fulham, Government policy penalises such places for taking a huge share of recent immigrants, owing to the Government’s failure to provide proper funding for their impact on basic local government services.

Does my hon. Friend agree that other areas are also particularly affected in a similar way, such as my constituency? There has been a chronic understating of population figures in my constituency, and a ping-pong debate with the Minister concerning that understatement and the inadequacy of the figures from the Office for National Statistics. We have taken a proactive approach by identifying people who have not been included in the figures who equate to at least £2 million of lack of grant. We should like to take up that case further with the Minister.

My hon. Friend is quite right. Others also have the same problem, which is by no means unique to my constituency or local authority. I have spoken with officers in Westminster city council and with London Councils, which used to be known as the Association of London Government. Slough borough council is also playing a leading role in highlighting the issues, and my hon. Friend the Member for Peterborough (Mr. Jackson) has previously made the point in this Chamber about the problems facing his council. I shall return to the problems facing the other councils shortly.

To provide a bit of background, since May 2004 the UK has seen considerable migration from some of the new EU accession countries. Unlike any of the other major economies in the EU, the UK decided not to impose any restrictions on migration. The Prime Minister himself predicted that only 13,000 such workers would travel to the UK and that the bulk of them would return after a short stay. That was a massive underestimate. Even the Government now admit that between 300,000 and 400,000 east European workers have come to the UK since May 2004. That is 25 to 30 times the official prediction.

I believe that the right decision was made to allow the free movement of people from the new accession countries in 2004, and in that I disagree with the line that my party took at the time. In the 1980s I spent a huge amount of time in the old eastern Europe. As I may have mentioned, my wife is from the former German Democratic Republic, and I also visited every other one of the captive nations of eastern Europe at that time.

Calls at the time were made from the west—indeed, from this House—for the free movement of peoples from east to west. It was difficult to imagine then, when the wall was in place, that hundreds of thousands of people would come. Nevertheless, the position that Lady Thatcher and President Reagan laid out was to welcome the peoples of eastern Europe. The phrase that Ronald Reagan used was “Tear down this wall”. I do not know what he would have made of efforts to create a new division of Europe based on where one can and cannot work.

In any case, I am not here to discuss the rights and wrongs of the policy; rather, I should like to highlight for the Minister the impact that such migration has had on my constituency. For a variety of reasons, Hammersmith and Fulham has proved a popular destination for recent migrants. Despite the unprecedented population shift that we have experienced, however, official Government funding remains based on the borough’s population in the 2001 national census, with some flawed estimates of change since then. This situation is unfair and means that the amount of money that the council receives from central Government to provide vital support services for local residents does not reflect the size and the needs of the local population.

I thank my hon. Friend for giving way and congratulate him on securing this important debate. Does he agree that there seems to be a disparity in some geographical hot spots throughout the country, both urban and rural, between the economic benefits of mass migration from the EU10 and its costs, which fall on a small number of local authorities, in terms of the delivery of public services and, importantly, the potential impact on community cohesion?

My hon. Friend is absolutely right. I am a strong believer in the contribution that the recent migrants have made to our national economy, but an important point to make on top of my hon. Friend’s point is that most of their contribution—in higher tax revenues and national insurance contributions—goes to central Government, not to local councils. Those local councils are being short-changed in every possible way because of that.

To return to the Poles, so established is their influence in Hammersmith that the mayoral emblem of my borough has the Polish eagle on it. Polish newspapers and food shops are increasingly apparent. In fact, we now get Polish language-only call cards through the door—I have one here offering a magazine called Cooltura, which appears to be a Polish language magazine in the UK. There are Polish language newspapers, alongside the South African and New Zealand newspapers that one can pick up outside a lot of tube stations. I also have here a leaflet that we received only last weekend in Fulham, which is headed “Polish professional workers” and gives a complete guide to various services—carpenters, nannies and so on—which is a great thing. In addition, POSK, the Polish social and cultural association on King street in Hammersmith, is the largest Polish cultural institution outside Poland.

We have a long record of welcoming people, so our message to migrants from the EU accession countries is clear—I speak not only for myself but for the new administration running Hammersmith and Fulham council: they are very welcome here, as they always have been. We are proud of the established eastern European community, which is an essential part of the fabric of life in our local community. We equally welcome the beneficial contribution that the new accession state nationals make to our local economy and our day-to-day lives.

However, Hammersmith and Fulham council is being short-changed. With an increase in population comes an increase in the demands on local support services. We are starting to see pressure being placed on services such as refuse collection, parks, street cleaning and housing. Hammersmith and Fulham council wants to provide the extra capacity that the recent population increase requires, but it is struggling because Government funding mechanisms do not reflect recent immigration into Hammersmith. That has also been recognised by Dr. Olgierd Lalko of POSK, who has joined the council’s funding campaign and is quoted in the Fulham and Hammersmith Chronicle as saying:

“The Polish Social and Cultural Association recognises the enormous economic and social contribution that the Poles have made to Hammersmith and Fulham and we whole-heartedly support the council's endeavours to secure fair funding for the borough.”

The pressure on support services is likely to become more acute if Hammersmith and Fulham council receives an unfair settlement in the 2007-08 spending review, as is currently expected. The formula grant process uses population data that have been projected forwards from 2003. Recently published figures that look back to 2005 suggest that the projection for the borough of Hammersmith and Fulham understated our population by 2,673 persons—that is a lot of people for an area with a population of about 180,000. A provisional calculation of the effect of that underestimate indicates a loss for 2007-08 of about £448,000 in the formula grant alone. New data will be used for the 2008-09 settlement.

Provisional figures show a considerable increase for Hammersmith and Fulham due to inward international migration. We hope that the new data will be right. The data used for the coming year need to be revised; the data currently in use and many of the methodologies urgently need revision. The ONS uses sub-national population projections, or SNPPs, that project forward the population for each year up to25 years into the future. The SNPP for each year is calculated by ageing the population on from the previous year, applying local fertility and mortality rates to calculate the projected number of births and deaths and adjusting for migration into and out ofthe area.

The population figures for financial years 2007 and 2008 use the 2003 mid-year population estimates as a starting point. Those figures are fundamentally flawed, as the mid-2003 statistics take no account of the huge increase in inward migration following the accession of the eight new EU members in 2004. Ironically, if the original population figure or the projections are wrong, the Government’s move to multi-year financial settlements, welcome to local authorities in many other respects, merely compounds the errors.

Hammersmith and Fulham council reports that the number of its Polish residents shot up by a staggering 540 per cent. between financial years 2003 and 2006. In 2005, the number of non-UK national insurance registrations in the borough rose by 48 per cent., but obviously that has not been reflected in the ONS data from 2003. Meanwhile, the 2005 mid-year ONS estimate for Slough shows that its population should have decreased. Yet the data for NI registrations there showed an increase of 9,000 persons, only 150 of whom were UK nationals.

Slough undertook independent research, which found that there are between 3,000 and 7,000 more people there than the ONS estimates. Meanwhile, Hammersmith and Fulham has seen its projected numbers for 2024 increase by 30,100 in just one year. That estimate looks forward just under 20 years; in just one year, it has changed by 30,000 for a borough of only 180,000.

According to last week’s Local Government Chronicle, Slough estimates that unless the Government find a quicker way to incorporate migration into population estimates, it will lose out on a minimum of £15 million before the 2011 census corrects the figures. Although we are discussing local authorities, I might add that in 2001 my parliamentary constituency already had the second biggest constituency population in Britain after that of the Isle of Wight. That reflects the fact that at the last parliamentary boundary review in the mid-1990s, London’s population was still falling; now, of course, it is increasing very rapidly.

Furthermore, current ONS figures fail to take account of short-term migrants. That is a major problem for many authorities, as such workers use local authority services. The 2008-09 local government finance settlement needs to take proper account of such migrants. ONS methodology for assessing international inward migration is also fundamentally flawed. The ONS data are at odds with other data sets, notably national insurance records, and need major review. Those flaws have been highlighted by the large inflow of workers from the A8 countries.

I have also been made aware that a comparison between inward international migration data from the international passenger survey, the IPS, and non-UK national insurance number registrations between 2002 and 2005 in Hammersmith and Fulham—and doubtless elsewhere—shows a sudden 50 per cent. increase in non-UK new NI number registrations in 2005 that is not reflected in the IPS inflow data. That argument is slightly complicated—basically, those people are not being picked up. We believe that to be an indication that inward international migration statistics were underestimated for last year and the year before.

However, I welcome the news that Hammersmith and Fulham is to be one of four local authorities chosen for case studies on how international migration is measured. Nevertheless, my council needs help now; I understand that the case studies will not be analysed before the next round of the local authority finance settlement.

I turn to some of the extra expenses incurred by Hammersmith and Fulham council as a result of its growing population. All too often, the victims of the pressure placed on support services are the recent migrants themselves. Broadway, a local homelessness project, has recruited Polish-speaking volunteers. Broadway funds an employment project to assist people who have found it hard to get work, and it is seeing an increasing number of eastern European migrants.

Many of the new migrants resort to sleeping in squats in large numbers or, if employed in the building trade, sleeping on site. An eviction from one property in Hammersmith pushed 30 people into short-term rough sleeping, behind Marks and Spencer in King street. They dispersed slowly over the next few days, but the cost that such operations have on our services is difficult to quantify. It is, however, very real. Earlier this year, Kensington and Chelsea borough council and Hammersmith and Fulham council together commissioned a joint strategic review of rough sleeper services. It revealed that 150 clients—about one third of the total number—at the Broadway project are Polish, and that 78 per cent. of them have no usable English.

In our local schools, the number of children of eastern European white ethnic origin is rising year on year—a net increase of 40 to 50 children a year, compared with overall falling roll numbers of about 150 to 200 a year. Other grants will fail to pick up on our increasing and changing population. Due to the fact that, as recent arrivals, they will not have a prior attainment record, and because their families are not entitled to claim income support in their first year of residence, children of A8 nationals will not be able to be recognised as being from deprived backgrounds. Yet English is an additional language to most, if not all such children, and that requires extra spending. That is one of the reasons why our performance at key stage 1 is poor, although primary schools do wonders in lifting performance at key stage 2 to match the national average. Meanwhile, although they are not great in number, looked-after children from the A8 countries are costing the council some £300,000 per annum.

There are impacts on other services too. Before I detail them, I restate that I personally believe that the nationals arriving in Hammersmith and Fulham from the A8 accession countries are a net benefit to our local area. They have probably greatly increased the tax and national insurance intake from my borough. However, my key consideration is that all of that money is going to the Treasury, and none to the local council. The council’s council tax base has not gone up as a result of the new population. It is not as if hundreds of homes are being built to accommodate it.

Meanwhile, the “no recourse to public funds” budget for homelessness at the council is already overspent, not even halfway into the new financial year. That is a good indicator of the number of A8 accession families becoming destitute. Already, three households from A8 countries per week are approaching the council for assistance with housing.

A recent one-day count of street drinkers in my borough found 107 people, of whom 38—36 per cent.—were definitely from the A8 nations. It was not possible to ascertain the nationality of all those counted, and the A8 contingent is likely to have been underestimated; more likely, it makes up close to half the street drinkers.

Of course, the cost of delivering many council services will be roughly proportional to population numbers plus the impact of visitors. Such services would certainly include street cleansing, and might be deemed to include refuse collection as well. The population underestimates for Hammersmith and Fulham and other boroughs simply do not reflect the cost of providing those services.

To conclude, all I am asking for is fairness in a system of central Government funding based on population figures. I hope that the Minister will recognise the impact that migration is having on the funding of local services in a small number of localities such as Hammersmith. I do not need to quote to him the words of the Prime Minister to the Liaison Committee on 4 July this year when he specifically recognised the enormous pressures that are put on local authorities by accession state nationals.

Will the Minister respond directly on the pressures that are being placed on support services in Hammersmith and Fulham and in other councils? Crucially, will he accept that the council is right to request extra resources? The Prime Minister himself has accepted that some councils have added pressures as a result of the level of recent migration and that they should ask for more money. If the Minister cannot commit today to providing extra money, will he at least meet me and councillors and officers from the London borough of Hammersmith and Fulham? I am confident that we can work together on the problem.

We are not asking for the world, just fairness and the resources to manage the recent migration from the EU accession states. I specifically ask the Minister to consider introducing gateway authority funding for councils that are facing such problems, including Slough and Peterborough, and my council, Hillingdon and others in London.

In The Times business section today, the Governor of the Bank of England claims that the 2001 census is now next to useless because of uncertainty about migrant numbers. He says that that is making it difficult to steer the economy. If the 2001 census is not good enough for the whole economy, it certainly should not be good enough for local authority funding either.

Congratulations are due to the hon. Member for Hammersmith and Fulham (Mr. Hands) on securing this debate, and to the hon. Members for Peterborough (Mr. Jackson) and for Enfield, Southgate (Mr. Burrowes) on their interventions. The debate gives me the opportunity to put on the record the effect of population growth between censuses on the formula grant settlement. In the time available, I will try to outline our policy in as much detail as I can.

Perhaps I should begin by providing some background to the way that we use population in the calculation of an authority’s formula grant settlement. The amount of formula grant paid to a local authority is largely based on its socio-economic and demographic characteristics, which are used in the relative needs formulae, and the number of band D equivalent properties within its area. We then ensure that every authority receives at least a minimum increase, which is known as “the floor”, on a like-for-like basis—that is, after adjusting for changes in funding and function. In order to pay for that, we scale back the grant above the floor for other authorities.

Population forms the main element in the relative needs formulae. Following our consultation with local authorities on the way to operate multi-year settlements, it was generally agreed that we use population projections to make settlements more forward-looking. The Office for National Statistics calculates and publishes the population statistics—both the estimates and the projections—that are used by the Department for Communities and Local Government in the formula grant settlement. We then use the population projections, which are split into different age groups if appropriate, as the client group for most of our relative needs formulae. The formulae are generally of the form, client group multiplied by a basic amount plus top-ups for deprivation and wage cost pressures, and other top-ups if appropriate. We use various socio-economic and demographic characteristics of the authority to calculate the top-ups, and it is within the calculation of those indications that we use the mid-year estimates.

When we published the final settlement for 2006-07, for the first time we also published provisional formula grant allocations for all English local authorities for the second year, 2007-08. It is my strong policy to alter that provisional allocation only in exceptional circumstances. We have also announced two-year allocations for all specific grants to councils other than those that are performance-related or expenditure-based. That means that councils have much greater certainty for the next two years about some 95 per cent. of the funding that they are receiving and will receive from the Government.

The overwhelming objective of the financial policy is to provide stability and predictability. Our goal is, first, to ensure that the three-year settlement is a three-year settlement from 2008 onwards, and not a two-year settlement with a guesstimate on the end, and secondly, to work towards a situation where the three-year rolling settlements for local government finance are in line with the Treasury’s three-year spending review period. At present they are out of sync. It is important to provide stability to local government. That will result in more planning on the income and expenditure side and a greater degree of certainty. I strongly believe that what are undermining council tax, in part, are the significant increases in council tax, and that they are made more likely by a lack of stability and the inability of local authorities to plan. That is the context of the policy.

The London borough of Hammersmith and Fulham is concerned that perceived flaws in the formulae used in the local government finance settlement are threatening its ability to meet needs in the borough. It mentioned in particular, as the hon. Member for Hammersmith and Fulham eloquently did today, the influx of Polish migrants. The council wrote to me about that recently.

In making local government finance settlements, we have used the best available data and data that treat all authorities on a consistent basis, which of course I have to do. I took that approach earlier in the year when making the calculations for the final 2006-07 settlement and the provisional 2007-08 settlement. For population projections, the best data that were available were the 2003-based sub-national population projections; for population estimates, the best data that were available were for mid-2004. I recognise that the mid-2005 estimates, which were published by the ONS on24 August 2006, will show differences from the data that we have used. However, use of population projections was part of the introduction to multi-year settlements, which were generally welcomed by local authorities. In the main, it is felt that the benefits of predictability and stability that multi-year settlements bring outweigh the benefits of updating the data on a more frequent basis.

Indeed, in its response to the consultation on three-year settlements, Hammersmith and Fulham borough council supported the use of forward-looking data in the settlement. The hon. Gentleman asked about a comparison between the non-UK national insurance number registrations and the inward migration data from the international passenger survey, which are used in the mid-year population estimates. He should be aware that comparisons between those data sets should be viewed with caution, as there are differences in the data collected. For example, the national insurance numbers cannot distinguish the length of stay of the applicant, so they will include people who may stay in the UK for only a short period. The population estimates and projections use the United Nations recommended definition of an international long-term migrant to measure international migration—that is, someone who enters, or leaves, the UK for a period of at least a year. Short-term migrants—those who spend three to 12 months in a country for certain purposes—are not included. Similarly, visitors staying less than three months are excluded.

I know that the hon. Gentleman is aware of the ONS project to improve migration and population statistics, or IMPS. The ONS has information on its website.

I realise that time is short, but I want to take the Minister back to a point that he made earlier. He said that funding settlements can be altered only in exceptional circumstances. I appreciate what he is saying about the stability provided by projecting forward, which was certainly welcome for local authority finance in many areas, but surely 300,000 to 400,000 people unexpectedly arriving in this country, predominantly in a few local authorities, qualify as exceptional circumstances.

The hon. Gentleman said in his speech that his authority was not unique—that the problem applied also to Enfield and no doubt to other authorities. Perhaps I may respond to the hon. Gentleman by sending him more information on this important subject.

Briefly, there are two points to consider. First, the revenue support grant is a cake that is distributed between all the authorities. Where there are winners, there are losers, and one has to be fair and consistent. Secondly, as I explained, in making the changes to the formula grant that I announced in the House last December, I took into account the need for future projections rather than relying wholly on historical trends. Perhaps I may write to the hon. Gentleman with more detail so that we can discuss the matter elsewhere.


I am delighted to have secured this debate to discuss the £18 VAT relief threshold on which online retailers avoid paying VAT on sales of CDs and DVDs. I intend to be reasonably brief, because I am aware that other colleagues may wish to make a contribution and because I want to give the Paymaster General a reasonable amount of time to respond to some of the issues that we hope to raise, in order not to dilute the importance of the issue and because she and her officials are well-versed on the matter.

Perhaps it would be helpful if I explained a bit about the loophole that allows retailers, particularly large supermarkets, to export goods to places such as Jersey and Guernsey and then to import them back into the UK. I have spoken to many independent retailers in my constituency over the past few months who are keen to see that loophole closed if possible. They include Mike Dillon of Apollo Music in Paisley, who recently commented that he could buy stock more cheaply from a supermarket than from the wholesaler. Surely that is wrong. He said:

“I am really concerned about this new venture from the major retailers and genuinely believe that at the current rate the business that I established back in 1972 has at best five years left. We must be able to compete on a level playing field. There is a genuine threat to many small businesses within the UK due to many larger retailers exploiting the tax system to sell cheaper goods from the Channel Islands without charging VAT.”

As long as the contents of each package dispatched has a value of below £18, then no VAT is due. For example, if a customer goes online and orders seven or eight items they are all dispatched separately and retailers avoid paying tax.

I thank my hon. Friend for securing the debate. Has he managed to read the latest National Audit Office report on VAT on e-commerce, and would he like to comment broadly on its recommendations?

I thank my hon. Friend for bringing the NAO report to the attention of the Chamber. I have not had the opportunity to digest all the recommendations, but on the face of it it seems complex and detailed and I am sure that the Minister will have the opportunity to respond to its recommendations.

The Government are aware of the increase in the volume of imported goods with a value not exceeding £18 and of the fact that a number of UK retailers have restructured in order legally to achieve VAT-free sales to UK customers. I understand that the situation is being kept under review, taking full consideration of UK consumers, businesses and taxpayers. I ask the Minister: where are we with the review and are we compliant with EU legislation? Perhaps we could follow the example of the Danish Government, who sought permission from the European Union for a special dispensation to close the loophole altogether. Although I accept that that is a long-drawn-out process, it might be worthy of further consideration.

More than 30 million packages were sent from Jersey in 2005 with a considerable loss of revenue to the Treasury. Often the reduced tax liability outweighs the increased postage costs, meaning that the Jersey-based retailer can undercut competing retailers based in the UK mainland. It is easy to export UK goods to the Channel Islands, because they are so close to the UK. In recent years Jersey Post, through its sister company Jersey Post Logistics, has set itself up as an internet fulfilment operation taking full advantage of the low value consignment relief, otherwise known as the LVCR, service so that goods can be sent from the UK to Jersey and back by mail order within 48 hours.

It has become easier to sell by mail order with the growth of the internet. The practice of selling CDs and DVDs through the Channel Islands has become ever more common, particularly since Jersey and Guernsey are part of the UK postal system and benefit further from lower postage rates. The Government mentioned the matter in the 2006 Budget, when they stated that they were aware of the abuse of the LVCR by companies that had set up in the Channel Islands and that they would, if necessary, introduce legislation to stop the avoidance of VAT if companies continued with such behaviour. The Budget also stated that£85 million a year was being lost in unpaid VAT as a result of the trade.

I congratulate my hon. Friend on securing this important debate. I want to quote from a letter than I received from a local retailer, Fopp music and books in Dundee. It stated:

“The letter is not about ‘bleating’ about being undercut on prices. It is about asking why UK businesses such as our own are being asked to compete with organisations on such an uneven playing field due to the fundamentally inconsistent manner in which VAT is being applied.”

Does my hon. Friend agree, as I do, with that interpretation of the problem?

I thank my hon. Friend for that intervention. I think that he reflects the mood and the concerns of retailers the length and breadth of the country, who are concerned that they are losing business in unfair competition. They are asking us, as legislators, to deal with it. That is only right and proper.

As I have said, it is estimated that we are losing£85 million per year.

I have also been contacted by Fopp, which has its warehouse in Brislington in my constituency, not a million miles from the constituency of my right hon. Friend the Paymaster General. Is my hon. Friend aware that according to Fopp the lost VAT revenue will be closer to £200 million?

I will respond to my hon. Friend the Member for Bristol, East (Kerry McCarthy) first. As I said, £85 million a year is being lost in VAT revenue and my hon. Friend is right that that figure is estimated to rise to £200 million. I am sure that the Treasury could find ways of spending an estimated £200 million.

My hon. Friend has initiated an important debate. If we are looking at a loss of£200 million, that will have an impact on jobs, too. Does he have any suggestion of the number of jobs that could be affected?

As I said earlier, the local business person I am dealing with, Mike Dillon, estimates that his business could close in the next five years. That means four or five jobs lost in his business alone, so if we multiply that by the thousands of small retailers then thousands of employees could lose their job as a result of the tax loophole, which I hope we can do something about.

In conclusion, will the Minister address the issues that have been raised so that we can create a level playing field for local retailers, many of whom are in danger of going out of business? That would have a devastating effect on many of our communities and high streets, and I and many of my colleagues who have taken an interest in the issue look forward to what we hope will be a positive and constructive response from the Minister.

I call the hon. Member for Glasgow, North-West (John Robertson), with the agreement of the hon. Member for Paisley and Renfrewshire, North and the Paymaster General. I ask him to try to be brief.

I certainly shall, Mr. Jones. I have only a few points to make.

First, I congratulate my hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan) on securing the debate. As chairman of the all-party group on music, I am concerned about some retailers selling and importing goods to mainland UK VAT-free and about how that affects the music industry.

As my hon. Friend said in his excellent contribution, it is not a level playing field. Artists, songwriters and composers—the ones who make the money from the stuff being bought and sold—are the most affected by this VAT loophole, and small businesses suffer because of unfair competition. As well as the financial losses mentioned today, the loophole will have a knock-on effect on up and coming artists. It is a well-known fact that small independent record stores promote and advertise new talent and new artists. If those stores continue to suffer the problem, they will no longer have the finances to continue in existence, and new talents will go undiscovered. For example, Anthony and the Johnsons, a New York city band whose main singer is British and which won the Mercury music prize for best album in 2005, would have gone undiscovered had it not been for a specialist retailer.

In the constituency of my hon. Friend the Member for Glasgow, Central (Mr. Sarwar), an independent record store used to employ four people. After a drop in sales of around 20 per cent., and because of the difficulties of competing with offshore retailers, the store cut its staffing to the owner and his wife. Eventually, when the lease was due for renewal, the store was forced to close. Even more disappointing was the fact that the owner often found himself providing advice and recommendations on particular artists and music only to find his customers leaving the shop and purchasing the music online or from supermarkets at a much reduced price.

Gone are the days of waiting in anticipation of the release of a CD on a Monday morning or the excitement of receiving a new album at Christmas time—the period where record stores used to see an increase in trade. Instead, we can order at a click of a button, and for a cut price. The big supermarkets and music retail chains that buy CDs offshore have no particular interest in the music industry; they are concerned only about good value for money. There is nothing more sacred than the independent record store owners’ passion for music. That and the future of the industry is under threat if the problem is not dealt with soon. Only by removing the VAT loophole will specialist retailers again be able to trade effectively, providing expert advice along with reasonably priced CDs and helping new local music stay alive.

I hope that the Paymaster General will take on the points that my hon. Friend the Member for Paisley and Renfrewshire, North and I have raised. If she does not, and if the loophole is not closed, not only will small retailers who give advice to the public go out of business, but we will also lose some excellent music of the sort that we have come to know and love over the years.

I congratulate my hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan) on raising the issue. I start by saying that it is not a loophole, and I shall explain why.

When the rules were established in 1983, there were 15 member states, 12 of which operated that exemption; it was very much about competition, competitive advantage and the question of burdens on business. I say clearly to my hon. Friend the Member for Bristol, East (Kerry McCarthy) that that was what underpinned the exemption. We can all pick figures out of the air, saying how much it may cost the Government, but that is not fruitful. And I do not recognise the figure of £200 million at all.

I have been generous in allowing more than one speaker in the debate, and important points remain to be answered. If I can answer the major points and there is time left, I will be more than happy to give way.

The debate is specifically about CDs and DVDs. However, the £18 VAT relief threshold built into the legislation applies to all goods imported into the United Kingdom from outside the European Union—and Jersey and Guernsey are outside the EU—except for alcohol and tobacco products. Relief from the payment of import VAT is enacted under European Community VAT legislation, and it requires member states to exempt from import VAT all such goods with a value of less than €10, although member states can increase the exemption to €22, or £18, if they so wish. However, the legislation allows member states to exclude mail-order goods from the exemption. Like the majority of member states, the UK has always applied the maximum relief allowable introduced by the directive in 1983.

As my hon. Friend the Member for Paisley and Renfrewshire, North acknowledged in his excellent contribution, the Government are aware of the increase in the volume of goods sold, particularly of CDs and DVDs from the Channel Islands. I have asked the Treasury and Her Majesty’s Revenue and Customs to keep the matter under close review, and they have received a considerable amount of correspondence and information on this issue, including representations from the forum for private business and its members. Those submissions assert that there is a causal link between the importing of CDs from Jersey and Guernsey and the economic viability of their companies. I shall return to the complexity of that argument a little later.

Hon. Members will be aware that the Government have continued to discuss the matter with the states of Jersey and Guernsey. Our initial response was to ask them what action they would take to stem the flow of imports. Jersey announced earlier this year that UK companies operating in the CD and DVD market through third party suppliers based in Jersey would need licences to run their businesses, and that those without a licence would be required to obtain one. Such companies would be granted time-limited licences, and our understanding is that such licences will not be renewed after 28 February 2007. The state of Guernsey is unable to apply a similar rule, but it will no longer encourage new UK companies to set up and operate through third parties. Frankly, both proposals are disappointing.

I assure hon. Members that we continue to liaise with Jersey and Guernsey, asking them to find effective solutions. We have made it clear—and I confirm it now—that if we judge that they are not effective, the Government will take action to reform operation of the relief. I shall now touch on what that action might be, especially as my hon. Friend raised the subject of the Danish derogation.

Should the Government decide to reform the relief, a number of options will be available. We could reduce the threshold to £7, or we could seek a derogation from the European Commission to disapply the relief to imports from the Channel Islands; or we could disapply the relief specifically to CDs and DVDs from the Channel Islands. Various combinations of those and other options will be available. In deciding which options to use, the Government will need to consider not only the impact of small UK retailers but the knock-on effects on other stakeholders and larger suppliers.

The Government will have to consider the effect that changes may have on the costs to business. For example, the Royal Mail and similar express carriers would be responsible for the carrying and delivery of such packages and would incur additional costs in collecting charges from those receiving the packages. Of course, consumers and businesses would face an increase in the cost of goods purchased, not only in respect of increased VAT but from charges that those carriers would incur when clearing packages through Customs. Indeed, the Government, who are responsible for collecting it, would then have to increase charges as a response.

The Government take the view that we need to balance all of those interests, and my hon. Friend is quite right on that point. We need to look at all aspects of the tax system and balance the costs of compliance and enforcement rules against the need to protect revenue and minimise distortions in the market. Clearly, in considering the economic link between importing CDs and retailers, the Government need to take account of the other pressures on retailing in this sector. For instance, the change in the market for audio-visual products, which is undergoing rapid structural change as consumers switch to downloading music and, increasingly, video and film over the internet. We have recently seen notable successes of young talent who have made their name exclusively via that medium.

Clearly, all those considerations need to be taken into account, but my hon. Friend has made a very powerful case and I want to assure him that the Government weighed up the options that were available in the Budget 2006 considerations and decided that the case for change had not been conclusively made. I assure him and other hon. Members today that the Government are keeping the issue under active review.

I am sympathetic—

I will when I have finished this sentence, but I feel that I should allow my hon. Friend the Member for Lewisham, West (Jim Dowd) to intervene first, and then I should have time to give way a second time.

I am sympathetic to the position of small UK music retailers, and it must be recognised that the competitive pressures on them are not solely or perhaps even mainly related to the VAT relief enjoyed by offshore online retailers. Nevertheless, the competitive issues will need to be considered and if a case is made, the Government will need, in the coming months, to consider very carefully the opportunities they have and how they want to respond.

When I initially asked my right hon. Friend to take my intervention, it was when she said that she did not recognise the figure of £200 million. It comes from the then Economic Secretary’s evidence to the Treasury Committee in February 2005. He said that the relief was leading to a loss of about £80 million per year, but the figure was set to grow over the next few years to a couple of hundred million. The figure of £200 million was actually authenticated by a Treasury Minister.

I am chair of the all-party small shops group. Earlier this year, we produced a report on developments in which we made particular reference to what the Minister says is not a loophole—everyone understands that. I thank the Minister for her answer to my question in July this year saying that the Government are keeping the matter under review. I do not understand why Denmark got a derogation on the grounds of the way publications were being printed in the EU and then recycled and sold back into the EU for less than EU citizens could buy them for. We could go to the minimum limit—the €10—and apply for derogation at the same time. Why can we not do both?

On the first point, the figure that was quoted by the then Economic Secretary related not only to DVDs and CDs but to the wider challenge of selling through the internet and the best way to deal with that. Clearly, it is the wider consideration that the Government will also be looking at because we would need to consider the impact on competition here, the increased burdens on administration and the necessary steps to take. I gave one example, which was to return to the EU for a derogation. All of those are under active consideration.

On the point about the loophole, in this case this provision has been legislated for. It is not a loophole: a loophole is where legislation is used in a way that it was not legislated for. The issue has been specifically legislated for here and has been since 1983.

My hon. Friend the Member for Paisley and Renfrewshire, North is right to say that we can return to the matter if we choose to, and I have outlined all the options. Before deciding whether any of those options are appropriate, we need to consider the current situation more broadly and what is the most effective way to deal with it. That is where the Government are at present. My right hon. Friend the Chancellor of the Exchequer will be in a position to notify the House of his decisions in the normal series of events in the calendar.

I apologise to my hon. Friend the Member for Paisley and Renfrewshire, North for turning up after he had started the debate, and I congratulate him on securing it. I want to turn to the wider issues, which I understand my right hon. Friend may not be able to respond to directly. I do so as chairman of the all-party small business group, who tabled the early-day motion on this matter, of which I am sure she is aware. She will also be aware of the wider concerns provoked by the report earlier this year of the all-party small shops group and the concern in the retail industry about a level playing field for small businesses on the high street. The activity being undertaken further undermines that level playing field. Whether it is a matter of saving £85 million or £200 million, the Government—perhaps not the Treasury but the Government generally—have to be aware of the wider concern, shared by the vast majority of the population, that we need to sustain small businesses in our communities, not only for the music industry but more generally.

I do not disagree with many of the sentiments that my hon. Friend has expressed, but I do not make decisions as a Treasury Minister on the basis of only a section of the economy. As important as that section of the economy is, I need to make decisions,as I have been implored to do in the contributionshere this afternoon, in the round, on the basis of competitive issues. A number of things are relevant. Small businesses are vocal on a large number of issues, and rightly so. A particular one at the moment is what they see as burdens on small businesses, as a result of changing administrative practices when something else is being prevented.

My initial response to this issue was to prevent it in the first place, which involved requiring, by persuasion, Jersey and Guernsey to consider how they could take steps to deal with it, and they have produced proposals that may or may not be effective. At present, I am seeking more, which would give the outcome that my hon. Friend the Member for Paisley and Renfrewshire, North wants—the products could not come to the UK from the people who are going offshore at the moment, without requiring any greater or further administration. That is my preferred route. I have said to my hon. Friend this afternoon is that if that is not deliverable, other routes will be pursued and naturally I will keep him informed on that, given that he has been successful in securing this debate and has put a very powerful argument. I have made it clear that we could be talking about a change in the threshold, a specific derogation on certain goods, a general derogation or any combination thereof.

I hope that I have made it clear that if I was going to say no, I would have said it right at the beginning. I am saying that the debate is complex and there are important competition issues that need to be considered.

I am sorry; we are at the end of the debate. I will take this issue forward. I know that all hon. Members present take a keen interest in it and I will be happy to keep them informed, when I am able to, of the Government’s decisions on the matter.

Question put and agreed to.

Adjourned accordingly at one minute to Five o’clock.