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Westminster Hall

Volume 458: debated on Wednesday 21 March 2007

Westminster Hall

Wednesday 21 March 2007

[Hugh Bayley in the Chair]

Specialist Orthopaedic Hospitals and Services

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

I am pleased to have the opportunity to open this debate and to be able to do so with you in the Chair, Mr. Bayley.

I begin by underlining that we are fortunate to have in this country outstanding orthopaedic hospitals and services, with expert and dedicated consultants, doctors, nurses and staff at all levels. They are rightly held in high regard by patients and the public at large.

What is more, thanks to the additional resources that our Government have put in, there has been remarkable progress in orthopaedic provision during the past 10 years. Waiting lists are down, staffing levels are up, and new facilities are taking shape at many orthopaedic hospitals across the country.

In my constituency, the Nuffield orthopaedic centre is moving into a new £42 million state-of-the-art hospital, which will replace outdated facilities and buildings. The wonderful new facilities include a room-sized open MRI scanner, the first of its kind in the world, a best-in-class hydrotherapy pool, a specialist gait laboratory and expanded sports injury and medicine services. All that is alongside the hospital’s Oxford Centre for Enablement, with its specialist services and equipment for long-term conditions, disability and rehabilitation, and the Oxford university Botnar research centre, which is home to the Institute of Musculoskeletal Sciences, and the Tebbit centre.

The hospital and its staff and patients have benefited from substantially increased Government health expenditure and spending on the private finance initiative project that is providing the new building and its servicing, but the fact that the hospital has received significant charitable support from generous donors large and small is also crucial, and reflects the esteem and affection in which it is held locally and throughout the world. During the past 15 years, the Nuffield orthopaedic centre charity has contributed £15 million to the hospital for new buildings, facilities and equipment, including £6.6 million towards the PFI development and £4.5 million for the Botnar research centre.

So we have a remarkable hospital with remarkable staff and remarkable public support. Similar stories can be told about the UK’s other specialist orthopaedic hospitals; for example: the Robert Jones and Agnes Hunt Orthopaedic and District Hospital NHS Trust, which came out as one of the top trusts nationwide for standards of care and professionalism; the Royal Orthopaedic hospital in Birmingham, which is an internationally renowned centre of excellence for the diagnosis and treatment of bone and soft tissue cancers; the Royal National Orthopaedic hospital in Stanmore, another great centre of excellence, which trains 20 per cent. of the UK’s orthopaedic surgeons, and the Wrightington hospital, which serves the Minister’s area and is now merged with the Wigan and Leigh NHS trust.

Those first-rate hospitals, which are committed to providing the best orthopaedic services through the NHS, are at the leading edge of best practice in medicine. We must ensure that they are sustained and developed for the future. I know that the Minister and the Government as a whole want that, but it is such a tragedy, with so much happening that is good, and with such committed staff and public support, that a dark shadow of financial uncertainty still hangs over those centres of excellence because of the failure, over a number of years, to resolve the national tariff question and fairly pay hospitals for the specialist and complex work that they do.

We were able to touch on the issue briefly in a Westminster Hall debate two weeks ago that was initiated by the hon. Member for Wyre Forest (Dr. Taylor), in which my hon. Friend the Minister stated:

“I understand the situation in which those providers find themselves and the argument that they make about the costs of providing specialist orthopaedic work not being adequately reimbursed through the tariff. I understand that point. The process of payment-by-results will refine and improve as we progress so that there can be a further differentiation between high-value work and work that can be provided at a lower cost. I recognise the need for a sustainable solution.”—[Official Report, Westminster Hall, 7 March 2007; Vol. 457, c. 496WH.]

My hon. Friend referred to a recent meeting that he and the Secretary of State for Health had with the trusts concerned, and their commitment to work towards finding a solution. I know that he subsequently initiated a consultation on the development of payment by results, including fair payment for specialist services. I welcome that commitment and the consultation, but I want to take this opportunity to underline just how imperative it is, for both the care of patients and fairness to the hospitals concerned, that a solution is found as soon as humanly possible.

The existing top-up funding from the Department of Health, with additional funding for 2007-08 from primary care trusts and strategic health authorities, has provided some respite, but the hospitals are still left grappling with uncertainty about future finances, which is debilitating, demoralising and damaging. I would like to stress some of the key dimensions of that. The exact impacts vary from trust to trust, depending on their combination of standard, specialised and highly specialist work, but common pressures and uncertainties are at work. What is particularly galling for all who care about the hospitals is that the difficulties are not of their own making but arise from the incomplete policy framework within which they must operate.

First, all trusts are obliged to seek foundation status. However, because the specialist tariff question is unresolved, those with a high proportion of specialist work cannot demonstrate future financial stability to meet the criteria. They have been placed in a classic Catch-22 position. The Robert Jones and Agnes Hunt trust has had to delay its foundation application because of that, and the Nuffield orthopaedic centre was turned down in wave 1 of foundation applications for that reason alone.

Secondly, much-needed facilities and service improvements are being delayed. For example, at the Royal National Orthopaedic hospital, the business case for replacing its outdated Nissen hut accommodation has been turned down by the strategic health authority—again, because of financial uncertainty arising from the tariff problem.

Thirdly, relations with independent sector treatment centres risk being damaged. The specialist orthopaedic centres have gone along with the introduction of ISTCs and the extra capacity that they have brought on stream, but they now find themselves in the galling position of being paid below cost for complex treatments, which ISTCS cannot undertake, while ISTCs are guaranteed premium payments for routine work that, in some cases, is transferred from specialist hospitals.

I and, indeed, the medical staff at the Nuffield have defended the contribution that pluralism in provision can make, notably to increasing capacity and cutting waiting lists, but there must be a level playing field, and an absolute requirement for parcelling out the more routine work is fair remuneration for the complex work that only specialist centres can undertake. Neither of those conditions has been satisfied at present.

Fourthly, there is a worry that the vital training and education that the specialist centres provide will be damaged unless their financial and operational viability is properly secured. That concern is compounded by the challenge of retaining a sufficiently wide mix of work, particularly the routine and specialist work of the orthopaedic centres, in the volumes that are vital to train surgeons and specialist nursing and support staff properly. Any consultant at an orthopaedic centre will say how worried they are about that issue and its implications for the future.

Several other issues have a bearing on patient care and the economics of health provision, which are relevant to this debate. Specialist orthopaedic hospitals are at the forefront of good practice in limiting infection rates in hospital and reducing unnecessary lengths of stay, which are crucial to patient care and the wise use of resources. We need more of that expertise, not less. Infection rates for knee replacements across the UK as a whole are about 3 per cent. and there are 1,800 such cases a year. As well as the human cost to patients, each of those cases costs about £80,000 to put right, which has a financial cost to the NHS of £146 million a year. If we could get that infection rate down to the average in the specialist orthopaedic hospitals, where it is 0.2 per cent., there would be 120 infected knees a year at a financial cost of £9.6 million, which is a potential saving of £146 million a year. That would also have benefits for patients.

Similarly, the specialist hospitals have a remarkable record on lengths of stay, especially considering that the complex nature of much of their work might be expected to lead to longer than average stays. However, across 18 procedures monitored by the Specialist Orthopaedic Alliance, the percentage of procedures where the length of stay was less than the national average was 83 per cent. at the Robert Jones and Agnes Hunt trust, 78 per cent. at Wrightington, Wigan and Leigh NHS Trust, 72 per cent. at the Royal Orthopaedic Hospital NHS Foundation Trust and the Nuffield Orthopaedic Centre NHS Trust, and 67 per cent. at the Royal National Orthopaedic Hospital NHS Trust. Those hospitals are all examples of good practice and provide real benefits to patients and the NHS.

Lastly, I warn against a merger with district general hospitals as a reaction to the financial uncertainties facing specialist orthopaedics. Such mergers are not a solution to the present shortcomings and financial problems created by the absence of a realistic tariff. A merger in those circumstances would mask rather than resolve the underlying problems. In the case of the Nuffield orthopaedic centre, a merger with the John Radcliffe hospital, which has difficult enough challenges of its own to deal with, would mean either cutting back on specialist orthopaedic treatments, or, given that much of the routine work is carried out by ISTCs, cross-subsidising specialist treatment from non-orthopaedic work. Neither cutbacks nor cross- subsidy would make any sense and would not be in patients’ interests. We need to tackle, sort out and get right the underlying challenge of fair remuneration for the specialist work itself.

Infection rates are significantly higher on average in district general hospitals and service integration between specialist orthopaedic centres and district hospitals would raise real worries about the risk of orthopaedic infection rates going up, which would damage patient care and add to NHS costs. If management teams only were merged, the savings would not amount to much as studies show that orthopaedic managements perform well in comparison with acute trusts.

It is conclusive that specialist orthopaedic hospitals play a vital and distinctive role in the NHS. They represent a precious national and local resource that is rightly held in high esteem by patients and the public. Such hospitals will have a crucial role in the future. With an ageing population, people are, wonderfully, able to live longer and healthier lives and are having hip, knee and other joint replacements. Such operations will have to be revised or replaced in the future. Pressure on orthopaedic services will increase, and we will need our specialist centres more than ever. We should value such centres in deed as well as in word, and act now to sort out the tariff, treat those excellent hospitals properly, and ensure that they and their dedicated staff are secure for the NHS and its future patients.

I apologise for being unable to stay until the end of the debate, but I shall make a brief contribution. I congratulate the right hon. Member for Oxford, East (Mr. Smith) on securing the debate and on his fantastic work setting up the all-party group on specialist orthopaedic services and hospitals, of which I am a member.

The right hon. Gentleman spoke about the Nuffield orthopaedic centre in Oxford, which is a facility that serves my constituency in west Berkshire. It is of the highest standard and achieves fantastic outcomes for patients in my constituency and many others in the area, and I am speaking today in order to support it. I want to make one major point: we must resolve the issue of providing trusts with adequate recompense for the work and costs of caring for people with complex orthopaedic disorders. Under payment for results, there was a simple nationally set tariff. It is clear that for specialist orthopaedic facilities, a nationally set tariff is a blunt weapon and provides a broad-brush approach that simply does not deliver the results necessary for such organisations to survive.

We were told by some of the organisations that we are trying to help today that

“an operation to save the limb of a patient with bone cancer may cost £7,600”,

but under the nationally set tariff that

“attracts a payment of only £1,700”.

When those figures are spread out across the country, the problems we are facing become clear. Such organisations have also said that an amputation, which costs around £8,500, is inadequately reimbursed under the tariff and that

“A patient with a history of hip dislocation work and corrective surgery, needing a hip replacement in her mid-40s may cost a hospital up to £14,000 for the hip operation but attract a payment of only £5,000.”

I hope that the Minister will respond to those points.

One of the consequences of the difficulties faced is that specialist orthopaedic hospitals are unable to plan for the future. Slow progress on resolving the tariff issue is preventing some trusts from making long-term plans to improve their service. We have already heard about the problems at Stanmore, where there are 1940s Nissen huts. There is great concern at the NOC in Oxford about where it will be in four or five years’ time. We all know where it wants to be, and as the right hon. Gentleman has pointed out, the services that it provides are of great long-term benefit to the national health service, because they reduce the costs of hospital-borne infections. The NOC is doing exactly the Government’s bidding by developing the NHS in specialist terms, and unless we can resolve the problems the uncertainly surrounding its future will not be resolved.

The way forward is to resolve the tariff situation. I know that the Specialist Orthopaedic Alliance is working with the Department of Health, but the negotiations are taking a long time. I hope that the Minister can demonstrate today that he is injecting some leadership into resolving the problem.

I conclude by making two vital points. The first, which was touched on by the right hon. Member for Oxford, East, is about hospital-borne infections. We have heard that the infection rates are much lower in orthopaedic facilities. If that rate can be achieved across the NHS, the Government will have done remarkably well.

It is important to recognise that the hospitals that we are talking about today do not have accident and emergency departments, which is a crucial difference when it comes to managing infection in hospitals.

I entirely accept that. However, unless the problem can be resolved—the future of some centres seems to be in doubt—where would those patients then go for treatment? They would have to go to the district general hospital. The vast majority would probably be treated very well, but the risk of infection would increase.

My final point is that resources have a major influence on the NHS in other respects. As a teaching hospital trust, the Nuffield orthopaedic centre in Oxford provides a large number of placements and fellowships for student doctors, nurses and other health care professionals in training, who benefit from the expertise and experience of some of the most skilled clinicians in the world. It would be a tragedy if a failure to resolve the problem were to result in the loss of that fantastic resource to the NHS.

I congratulate my right hon. Friend the Member for Oxford, East (Mr. Smith) on securing this debate. He raises an important issue and I wholeheartedly support all that he said. He outlined exceptionally well the difficulties that face all such hospitals, especially their financial stability both now and in the future. I fully agree with all that he said.

I turn specifically to the problems at the Wrightington hospital in Wigan. It is somewhat different from the others in that it is the only specialist orthopaedic hospital attached to an acute hospital trust. I shall give a little background information about the hospital. It started as a TB sanatorium before becoming a specialist orthopaedic hospital in the 1950s. It was one of the pioneering orthopaedic hospitals. Indeed, the first ever hip replacement operation was carried out there by Dr. Charnley. For many years it was a stand-alone orthopaedic hospital.

In the late 1990s, the Department of Health made a move to merge the Wrightington hospital with the then Wigan and Leigh acute hospital trust. That was opposed by the clinicians and administrative staff at Wrightington, who felt that it would be better as a stand-alone hospital. The Wigan and Leigh hospital board thought that it was marginally okay to merge, and the hospitals eventually merged in 2001. I emphasise that the merger was made at the request of the Department of Health but that it was opposed by the Wrightington people, and that the Wigan and Leigh people acquiesced under pressure. That is an important point, and I shall give the reasons later.

In the past, the Department of Health expressed a number of concerns about the way in which the Wrightington hospital was being run—rightly so, because many of the hospital’s operational statistics were not good. The management and the clinicians sat down together and worked out exactly what they should do and how they should do it in order to ensure that the hospital improved.

The hospital now has additional operating theatres and wards, elective surgery is 16 per cent. better than a year ago, and non-elective surgery is 9 per cent. better. The 11-week out-patient target has been met; next year it will be reduced to nine weeks. The 20-week in-patient target will be achieved by the end of this year. Suspensions from lists—those taken off for non-medical reasons—are down by 75 per cent. A one-stop shop has been opened in the hospital to help ensure that people receive the proper treatment quickly. The wait for follow-up appointments has been dramatically reduced through the use of additional staff. The deficit at the hospital has been reduced from £3.4 million to £1.1 million.

The trust has been a three-star trust for the past three years, and it has been in overall surplus for a number of years. Therein lies the rub. Because Wrightington merged with Wigan at the request of the Department of Health, and because the trust is in surplus—it had to stay within budget at the Department’s request, and rightly so—we do not even get the sticking-plaster that the other four hospitals have. Not only do we have the problem of the national tariff not being sufficient to pay for the specialist work done at the hospital, but we do not get the top-up that has been agreed with the Department that applies to the other four hospitals. The reason is that Wrightington is attached to an acute hospital and is surplus—again, all at the request of the Department. The effect is that Ashton, Leigh and Wigan primary care trust is subsidising other PCTs that use the specialist orthopaedic hospital at Wigan—to the tune of £1.1 million.

We are not profligate in Wigan. As I said, we have a three-star PCT, a three-star acute hospital trust and a four-star council—and we have the best lift company in the country. It is not the Wigan way to be anything other than very proper in the way that we manage our affairs. I know that the Minister is well aware of that. We know how many beans make five. We know that if we have £1, we can spend 19s 11d, and if we have 19 bob, we can spend 18s 11d. The problem at the moment is that someone else is spending our bob for us. We would like to spend 19s 11d, but we can spend only 18s 11d. That is not right. It is not fair. It is the result of the Department of Health’s pushing Wrightington into the Wigan and Leigh acute trust.

I remind the Minister that the Wigan PCT is £11 million underfunded in accordance with the Department’s formula for health needs in the Wigan and Leigh area. In addition, because we manage to keep our affairs in order, we were top-sliced last year to the tune of £3 million. As well as the £11 million, another £3 million was taken off us to subsidise spendthrift PCTs elsewhere in the country. Again, we are suffering because we carry out our duties properly.

What are the options for the Wrightington hospital? What can the Wrightington, Wigan and Leigh hospital trust do? It could again become Wigan and Leigh; in other words, we could get rid of the Wrightington site, which is very valuable. It is in exceptionally nice countryside, very close to the M6 and not far from Manchester, Preston or Leigh. Best of all, it is close to Wigan. The site could be sold for a lot of money; that would solve the problem of Wigan and Leigh trust’s £1 million deficit. The money could be spent on patient care. It would also be a huge capital receipt, which could be used to develop the Wigan site and the Leigh hospital site that the acute trust has.

Clearly there would be a bad downside. For instance, the hospital’s brand name would be lost. The work of Dr. Charnley has been continued by many others since, and I have no doubt that the Wrightington hospital has an incredibly good name in the medical profession.

My hon. Friend is making a powerful argument. In all hospitals, but perhaps especially in the orthopaedic centres of excellence, there is a real dedication on the part of the staff. There is also deep and strong affection and support for them from the public. Brand names are not the only consideration; there is a much wider constellation of commitment to excellence. Were that to disappear there would be very damaging consequences for patient care and for staff. Does my hon. Friend agree?

My right hon. Friend is absolutely right, and his comments are true of all five trusts. The particular difficulty for Wrightington is that it is part of a general hospital trust, so if it were to disappear, the general hospital trust would not attract the people who come to the specialist hospital trust at present. If it was a stand-alone hospital, however, it would be in the same situation as the other four hospitals in being able to attract those who want to specialise and be at the cutting edge of orthopaedic services. “Cutting edge” might be a particularly appropriate phrase to have used, given the subject of the debate.

It is important to be able to attract such people. Most general hospital trusts do not have that opportunity; they do not have a specialism. Wrightington’s status as part of the Wigan and Leigh hospital trust means that the brand name attracts people to the trust, and it obtains not just people who want to work in the orthopaedic field but other doctors and consultants who want to work elsewhere in the hospital. However, my right hon. Friend is right in the general sense.

Another effect is the effect on patients—not just those in Wigan. We should remember that each of the four hospitals serves a huge area. Wrightington hospital serves not only the north-west, but the whole north of England—it is the natural place for people to go for such specialist operations from York and the north-east, as well as from the north-west. It is hugely important for lots of people throughout the north of England. We could let down not just patients in Wigan, who use it for more general work, but people in the rest of the country, and there could be a tremendous effect—a point that was well made by my right hon. Friend the Member for Oxford, East and the hon. Member for Newbury (Mr. Benyon).

If Wrightington went its own way, and was not sold off, it would get the money from the Department of Health, because it would suddenly become a specialist, stand-alone orthopaedic hospital. The sticking-plaster whereby additional money is received because of that status—the other four orthopaedic hospital trusts receive it already—would suddenly come to Wigan. So why do we not get it now? Why do we have to jump through the hoop of dividing up the hospital in order to get the extra money? Why can it not be recognised that the Wrightington hospital is an orthopaedic, specialist trust hospital that has the same problems and financial difficulties as the other four hospitals, and that the money should therefore be awarded now?

The Department of Health has a moral obligation in the matter. It was the Department that pushed the Wrightington hospital into the Wigan and Leigh trust to make it the Wrightington, Wigan and Leigh hospital trust. It was also the Department that—quite rightly—made sure that the trust was in surplus and did not spend money that it did not have. It is basically immoral for the Department then to turn around and say that, because the hospital is part of an acute hospital trust and because that trust is in surplus, it will not award money that is given to the other four hospitals. I hope that the Minister will seriously reflect on that point. Despite all the other issues that exist, that one would be fairly easy to resolve.

A solution would make a huge impact on the Wigan trust, which will be applying for foundation status in 2008. We applied for it before, and one of the major reasons why the application was turned down was the impact of the orthopaedic specialist tariff on the finances—not just the status of the finances at the time but the uncertainty of future finances. None of that has changed, so all the other things that have been done will have no impact if there is no resolution in that respect. We will be turned down for foundation status for reasons that are beyond the ability of the trust to resolve.

I give 100 per cent. support to everything that my right hon. Friend the Member for Oxford, East said about the national tariff. There is a special case for Wigan, however, and I hope that I have set out that case. I hope that the Minister will respond positively.

I congratulate the right hon. Member for Oxford, East (Mr. Smith) on securing the debate. I know that it is good form to offer such congratulations, but I offer them very sincerely on this occasion, because he brought all his Treasury experience to bear in giving us a competent lesson on the hard facts of health economics, and he presented a rational and persuasive case on an important issue. Essentially we are concerned with the survival of specialist services in the NHS under the new financial regime, which is based on payment by results and on the need for every cost centre to be in balance or to secure foundation trust status. The issues have already been flagged up to some extent in connection with children’s hospitals such as Alder Hey. At times there has been a vociferous outcry in connection with that hospital—the tariff has been adjusted under pressure. It is perhaps harder to find champions for the orthopaedic sector, which is a less glamorous area of medicine, so I congratulate the right hon. Gentleman on having forced himself forward as that champion—it is an important role.

Orthopaedic complaints are a massive cause of absence from work. One thinks of the numbers of people who are off work today with back pain, and of the poor quality of life that is endured by people who suffer with such complaints. There are mobility issues as well. Thousands if not millions of people in the country have chronic conditions. Orthopaedics are also important from the point of view of preventive medicine. Just think what might be achieved if a treatment were secured that prevented the early onset of complaints such as osteoporosis.

Orthopaedics are bread and butter medicine, and increasing longevity will mean that there will be no shortage of work for people in the field. The Government have recognised that. Historically they have identified the long waiting lists that have existed, and the big demands that have been made on GP time and hospital time, and on ancillary services such as occupational therapy, physiotherapy and so on. In all, I think that 10 million people are currently affected by orthopaedic complaints in the UK.

There has been a long-standing need for specialist and training institutions in the field. That is a need that is recognised by everyone in relation to complex cases—accident victims, sports injuries and so on. The Government are to be congratulated on having recognised that and on having done some positive things about it. I do not want to overdo my congratulations to the Government, but they have genuinely increased diagnostic and treatment capacity for standard cases. The expert patient initiative has enabled certain chronic conditions to be managed outside of clinics—or at any rate outside of hospitals. If I were really pushed I could also congratulate the Government on a degree of capital investment and on having put in place a new service framework.

That is all good, but in doing it all the Government have created a new problem, as the right hon. Member for Oxford, East suggested: they have financially destabilised the specialist services. That is because the standard cases are often now undertaken by independent sector treatment centres, which in the past allegedly subsidised the complex cases undertaken by certain specialist hospitals; although, in fact, some of those cases are still done by the specialist hospitals and the NHS.

As the health economists and the right hon. Member for Oxford, East no doubt appreciate, the NHS carries the dual burden of competing against ISTCs and at the same time providing after-care for the patients of ISTCs and back-up for those patients when things go wrong. That is not a perfect financial model; in fact, one could say that it is a ruinous one. If one adds to that the move into the community of some services for chronic conditions, one could say that the future of the specialist services and specialist hospitals is in some doubt. Greater efficiency in those institutions can alleviate that only to a degree. As the right hon. Gentleman said, those institutions are graded as pretty efficient at the moment, if not as efficient as they possibly could be.

The key fact is that we need specialist services, and the NHS gives a guarantee not simply to the standard patient but to the non-standard patient who requires such services. We also need the developments and advances in medicine that can only be obtained through specialist hospitals.

I do not object in principle to the separation in treatment terms of highly skilled intervention, of the kind with which the specialist hospitals deal, from lesser skilled, standard interventions that are performed by ISTCs. I shall draw an analogy, although it is not a very helpful one in many respects. If my car just needs its exhaust replacing, I am perfectly happy to take it to Kwik-Fit, but if there is a major problem with the fuel management system, I will go to a specialist outfit. However, that model works only if the highly skilled institutions are appropriately rewarded. The allegation is that they are not, and I share that view. The model works only if the existence of ISTCs and the regime under which they operate do not imperil the specialist provision, and I think that that is possibly happening.

None of this would worry us under previous financial management arrangements, whereby everyone was under the same NHS umbrella and a surplus in one place would simply become a subsidy in another. However, there clearly is at any rate a prima facie case that specialist provision can be worn down, if not eliminated altogether, unless three things happen, and in my view none of those things is happening at the moment.

First, the costs of running treatment centres need to be fairly borne by them and not offloaded on to the NHS in some covert way. Secondly, payment by results needs to be sophisticated so that it is capable of fairly reflecting the costs of specialist treatments. I am in some doubt as to whether that can be done, but if it can be, it should be, and it currently is not being done. Thirdly, sufficient controls need to be in the hands of local NHS managers to ensure that no matter how complex or straightforward the condition, the NHS guarantees to patients can be delivered on in a seamless, organised fashion.

Those are three fair conditions, and I think that in supporting them I would join the right hon. Member for Oxford, East; I think that we are both suggesting that none of those conditions is currently being met.

I congratulate the right hon. Member for Oxford, East (Mr. Smith) on initiating the debate and on setting up the all-party group, which is a very positive move. I also congratulate the Specialist Orthopaedic Alliance, as it has informed much of the debate that we have been having today.

In talking about specialist orthopaedic services, we should reflect on the fact that many of the things that we have been debating that relate to the tariff and independent sector treatment centres relate also to many other tertiary services. One of the jewels in the crown of our NHS is the ability to have tertiary services—specialist centres—that focus on conditions that are not routine. If I may say so, the hon. Member for Southport (Dr. Pugh) was a little pejorative in his description of the work load of ISTCs, but there is certainly a world of difference between some of the routine work done by them and the work done by highly specialist centres of the sort that we have been describing today.

We have mentioned the five specialist orthopaedic hospitals in this country. I have a particular affection for the one at Oswestry, because it is where my wife trained to be a physiotherapist. It is important to recognise that, within our specialist centres, a great deal of extra work is done over and above simply treating patients. That extra work has to do with training and research. Much of what is good about specialist centres is that in treating patients with complex disease, there is also the ability both to train people, not just doctors, although doctors seem to get all the attention, but others as well, in a highly specialised environment, and to conduct research that is world renowned. One of the characteristics of our health care system is the fact that we have centres of international repute—indeed, far more than one would naturally expect in a country of this size.

That is worth celebrating in a week that is not exactly full of celebration of the stewardship of the NHS, given that the report published yesterday by the Select Committee on Public Accounts, “Financial Management in the NHS”, is very much in people’s minds. No doubt the Minister has been scrutinising it. I hope very much that he will have learned some of the lessons in the report concerning management of finances in our health service and getting effective results and clinical outputs from the admittedly large sums of money that the Government have applied to the NHS over the past few years.

Earlier this week, the Prime Minister launched in Hackney the first of his policy reviews of public services. We understand that he wants more competition and contestability and more information for patients. It is perhaps salutary to contrast that with the perverse and somewhat opaque tariff and the lack of openness about ISTCs, which is based largely on the grounds of commercial confidentiality.

We have learned from the Minister, fresh from his “Days out in the NHS”, that he wants to inform the public via statements about the cost of NHS services. On the face of it, that is quite a reasonable idea. We shall have to see what the costs of such an initiative would be, but I suggest to him ever so gently that if we are to inform patients in that way, it needs to be done on the basis of accurate information. As things stand, there is no real way in which patients will be informed of the true cost of their treatment in specialist centres, because the tariff on which presumably such a statement would be made would be based on a false premise, which is that people can be and are treated in specialist centres in the same way that they are treated in ISTCs or, indeed, in our district general hospitals. We have heard today that the cost of treatment in our specialist centres greatly exceeds the cost of treatment in ISTCs.

The tariff is, as my hon. Friend the Member for Newbury (Mr. Benyon) said, a somewhat blunt instrument. In the context of describing orthopaedic surgery, the phrase “blunt instrument” can suggest all sorts of things. I am sure that none of the five specialist centres that we have been discussing would ever use a blunt instrument, but the phrase provides a good analogy for describing the use of the tariff in the current situation.

In theory, the tariff is fine. Indeed, if we are to support the notion that funds should follow patients, we must have a tariff. The trouble is that it is very much a guesstimate. It was arrived at by canvassing the views of directors of finance in NHS trusts as to what they felt was the cost of particular health care resource groups. Of course, different finance directors will come up with different figures. The tariff was arrived at by averaging them out. Unfortunately, the cost drivers in different trusts will be different, so there will be losers and winners under such a system. Overall, one would hope that for a hospital it would pretty well even itself out. Although particular parts of the country have particular pressures, one would hope that overall such a guesstimate would enable a hospital to maintain some sort of balance. However, that is not necessarily the case for a hospital that deals exclusively with the sector that we are discussing today.

The Royal National Orthopaedic hospital in Stanmore, Middlesex, for example, receives £1,428 for excising a sarcoma; it thinks that the true cost of that is £8,674. That is a big difference. That is all right provided that service work—routine work—can be used to leaven out the difference. I remember doing orthopaedics and being, quite honestly, rather bored with much of the routine work that orthopaedic surgeons do. Their work is not necessarily glamorous, as the hon. Member for Southport pointed out, and nowhere is that more the case than in the routine work. Arthroscopies consume a huge amount of time. It is such routine work that ISTCs have scooped up and are doing, based on the tariff, and I suspect that they are doing quite well out of it, but that has removed the means by which specialist orthopaedic services are able to cross-subsidise the more expensive work that I have described.

At the heart of the problem lie two issues. One is the tariff and the other is the advent of independent sector treatment centres. As has been said, most people would not have a problem with ISTCs provided that they operated on a level playing field with other parts of the NHS. The evidence suggests that, at the moment, they do not. In mitigation, ISTCs have not been going for very long. I hope that the Minister will say how he has learned from the first three or four years of the operation of ISTCs and what might be done in the future to level out the uneven playing field. We suspect that at the moment there is a 10 per cent. difference in the costs applying to ISTCs and to the rest of the NHS on a case-by-case basis. That is very big difference indeed. Of course, ISTCs are paid irrespective of whether they actually do the work, and that goes back to the old days of block contracts, with their inherent inefficiencies. As we know, it is difficult to forecast patient throughput, and that causes particular problems in terms of utilising ISTCs to the maximum benefit of the NHS.

Do ISTCs offer value for money? As we have discussed today in the context of orthopaedics, they probably do not. In July 2006, the Select Committee on Health said that it was “impossible” to say whether ISTCs provided value for money, because of poor data. It is extremely difficult to benchmark the success of ISTCs against NHS providers if we do not have adequate data.

In 2003, the Department of Health imposed the first wave of ISTCs, and some primary care trusts felt at the time that they had been dumped with capacity for which they had not asked and which they could not use, but for which they still had to pay. Such a system is not conducive to ensuring good value for money.

Nothing daunted, the Government launched their second wave of ISTCs in May 2005. The Greater Manchester surgical centre has run at less than 60 per cent. capacity in its first six months, but half of PCTs are delaying operations to save money. Why can we not use the excess capacity that we have identified in some ISTCs to treat patients whose procedures are being delayed as we speak?

We must compare quality and outcomes if we are to achieve an adequate comparison of the work done by ISTCs and NHS providers. According to the Healthcare Commission, national data on the quality of ISTCs are

“incomplete and of extremely poor quality”

Ministers should be worried if their purview of what is going on in ISTCs is so insufficient that the Healthcare Commission should have to make such remarks.

The British Medical Association rightly demands a

“robust, peer-reviewed clinical audit that is transparent and not hindered by the issue of commercial confidentiality.”

How is that being achieved? The Royal College of Surgeons is unhappy with the evidence of outcomes from ISTCs and specifically cites orthopaedics.

We have talked about research and training in connection with ISTCs and specialist centres, but another externality must be patient choice. I am afraid, however, that such choice is still being overlooked, even though all politicians like to talk about promoting it. We have had the rather bizarre situation of the Department of Health issuing edicts to PCTs telling them that they must use the private sector more, and ISTCs are, of course, encompassed within that. We have heard reports that PCTs have felt obliged to use ISTCs, when patients might choose to use other centres.

On 22 February, the Health Secretary said of orthopaedics that she did

“not want to see any activity that places the well-being of an organisation above the well-being of patients”,

and that is particularly pertinent in the context of patient choice and how patients might choose a specialist centre rather than an ISTC.

Simon Stevens, who will be well known to the Minister as an adviser to the Prime Minister, said that

“the time has come to consider vesting NHS tariff construction in an arm’s length…technical agency…Given the weight that is to be placed on the tariff mechanism, we need more precision, predictability and permanence in its operation. That’s the bottom line”.

Does the Minister feel that the time has come to vest the setting of the NHS tariff with an independent economic regulator, given its importance and its relevance to today’s debate?

We need to sort out the tariff to safeguard our internationally renowned tertiary centres, and that is the business of the Department of Health’s Casemix service. Healthcare resource groups are needed to support the tariff system that underpins payment by results. The current version of HRGs, which has been running since October 2003, is subject to a major review, and we expect HRG4 to be in operation by April. Where are we on that? Will HRG4 be introduced as planned next month? Will tariffs approximate to the reference cost index and thus provide relief for many specialist centres?

In particular, will we have more tariffs? Will the HRGs be narrower so that we can remove some of the bluntness to which my hon. Friend the Member for Newbury referred? We use the tariff system to apportion costs to particular procedures, and sharpening that blunt instrument by narrowing HRGs would give us a solution to many of the issues that the right hon. Member for Oxford, East rightly raised. That is the wish of the Specialist Orthopaedic Alliance, and I very much hope that the Minister is listening carefully to it.

Let me say at the beginning that there is not a great deal that divides us on this issue. I pay tribute to my right hon. Friend the Member for Oxford, East (Mr. Smith) on the way in which he introduced his remarks and, more generally, on the excellent way in which he has campaigned on this issue. As I told him in the debate a couple of weeks ago, which he has mentioned, I accept that there are genuine issues here, and we need to work with the five specialist orthopaedic hospitals to get them right so that we have a sustainable solution going forward.

Like my right hon. Friend, I have a great respect for the five specialist orthopaedic hospitals. As my hon. Friend the Member for Wigan (Mr. Turner) has said, my constituency, like his, is served by Wrightington, Wigan and Leigh NHS Trust. I also recently visited the Royal National Orthopaedic hospital in Stanmore. Without a shadow of a doubt, those are first-rate international hospitals with excellent reputations. In all that I do as a Minister, and in all that the Government do to refine and improve the payment-by-results process, we must always have at the forefront of our minds the principle that payment by results must support and nurture that excellence and allow it to continue, which is very much my motivation in taking these matters forward.

I agree with my right hon. Friend that there has indeed been significant progress in orthopaedics in recent years, not least on waiting times, and I shall come to that later in the context of independent sector treatment centres, to which several hon. Members have referred. My right hon. Friend has mentioned the new facilities at the Nuffield orthopaedic centre, which are indeed excellent. Many specialist Orthopaedic hospitals raise funds from voluntary contributions, and I saw the excellent facility at the Royal National Orthopaedic hospital in Stanmore, which has first-rate sports facilities and helps to rehabilitate people and make them more active.

I know, therefore, that our orthopaedic hospitals are being improved through a combination of investment. At Stanmore, however, I also saw some of the outdated buildings and facilities that my right hon. Friend has described. I therefore understand the need to resolve the finance issues, so that those excellent hospitals can plan for the future and bring the necessary investment to the parts of their estate that need it. My right hon. Friend has described orthopaedic hospitals as a precious national resource, and I agree.

May I say a few words about the principles behind payment by results, because it is important that we put them on the record as the context for today’s debate? The fundamental principle behind the system is that hospitals should not be paid simply for existing, but for the quality of what they do. That way, people will choose to use their services. I argue strongly that the payment-by-results system has brought transparency to NHS funding and is placing a renewed emphasis on improving and increasing productivity. As I have said, it has brought an emphasis on quality as well.

The hon. Member for Westbury (Dr. Murrison) has asked about financial management in the NHS, on which the Public Accounts Committee touched this week. I hope that he accepts my argument that payment by results and the tariff systems have brought much greater financial rigour to the NHS, which has allowed a spotlight to be shone on finances across the country revealing overspending and inefficiency. That will lead to some uncomfortable questions about the sustainability of certain parts of the NHS estate. I did not hear him question whether the payment-by-results system is wrong in principle—I think he said that it was fine. I point out gently that it is bringing renewed clarity to NHS finances and enabling parts of the system that have traditionally tolerated inefficiency or overspending to face up to that and to take the necessary steps to address it.

I am slightly concerned that there is a degree of complacency implicit in what the Minister has just said. I hope he accepts that the tariff system is by no means perfect. A great deal of this debate is concerned with one of those imperfections.

I accept that point, and I think that I began by saying as much. I am surprised that the hon. Gentleman has made no reference to the document that the Department published last week, “Options for the Future of Payment by Results”. If he had read it, he would have seen that some very honest and searching questions are being asked about the matters being discussed today. There was a detailed section on specialist hospital services that put forward some options for further refining and improving the tariff structure to address precisely the issues eloquently raised by my right hon. Friend the Member for Oxford, East, my hon. Friend the Member for Wigan and the hon. Member for Newbury (Mr. Benyon). There is no complacency on my part, and I shall address those issues specifically.

I want to put on the record some of the fundamentals of payment by results so that they are understood and that people know why the system is being refined progressively and introduced into the NHS. It would, of course, be impractical to have a price for every single procedure or diagnosis that might be recorded when a patient is cared for by the NHS, which would result in about 15,000 prices. For that reason, we set our price list and the national tariff at a more aggregate level. The main tariff currency or unit of payment are health care resource groups, of which there are about 550. They are designed to be clinically coherent and to contain items of broadly equal value. The price for each group is calculated on the weighted average of the different procedures and diagnoses. In other words, we acknowledge that a group might contain a mix of lower and higher cost procedures.

For a typical provider treating a typical mix of patients, that approach works well. It will make a surplus on some procedures, but a loss on others—to be fair to the hon. Member for Westbury, he said that a moment ago. The price is never exactly right for any one procedure, but the surpluses and deficits even out, so that over a year the provider is fairly rewarded for the mix of services within the group. However, we have always acknowledged that for specialised services the swings-and-roundabouts approach has its limitations. If we took no further action, providers doing more of the complex work would be disadvantaged. We accept that point entirely.

I shall address head on the point made by the hon. Member for Newbury and repeated by his Front-Bench colleague. I think that it is a little unfair to describe the tariff system as a blunt instrument, because there are specialised tariff top-ups for a defined list of specialised orthopaedic procedures and diagnoses. Those are aimed at health care resource groups that contain a mix of complex and more routine work. Perhaps I can provide examples of such procedures—hip and knee revisions requiring a bone graft, shortening of bones, re-amputation at a higher level, correction of congenital deformity, or shoulder or arm infections owing to internal prosthetics. The top-ups recognising the complex nature of such work are set at 70 per cent., so if, for example, a hip replacement revision required a bone graft, the tariff would increase from £7,185 to £12,215. Those top-ups are paid to not only single speciality trusts, but all trusts that carry out such work. That might reassure my hon. Friend the Member for Wigan.

Does the Minister agree that there is a serious discrepancy in a large number of treatments carried out by such centres that are not catered for by the special top-up figures that he has mentioned?

I accept that there are still gaps between the full cost of work and that the current system does not reflect the full cost of some of the more specialist work carried out by the five hospitals being discussed today. As the hon. Gentleman will know, however, transitional arrangements are in place to cover the cost and losses that those hospitals face as a result of doing that work. A general set of transitional arrangements is available to all hospitals under the payment-by-results system. Further to that, a further top-up is available to specialist orthopaedic hospitals, although that is not the concern of my hon. Friend the Member for Wigan. We recognise the point that the hon. Member for Newbury has made.

In a moment I shall come to the question asked by the hon. Member for Westbury about healthcare resource group 4, which will take the system a further step forward and improve accuracy and refinement in the targeting of payments. I hope that that will form the basis of a more lasting and durable solution for the five specialist hospitals being discussed today. We are looking at interim arrangements before moving on to a better solution for those hospitals.

The Minister has objected to the description of the tariff as a blunt instrument and has said that he wants to refine it, but one wonders how long that process of refinement will take. I am not aware of any other society with a similar system where the tariff settles down for good. What is his reaction, therefore, to the suggestion by the hon. Member for Westbury that there should be a permanent mechanism for resolving tariff difficulties, rather than simply responding to Adjournment debates from time to time?

I am coming to that point.

A durable solution is needed. Hon. Members have asked about international experience, and I shall touch on that point now. We commissioned a report from the London School of Hygiene and Tropical Medicine to compare the approaches to activity-based funding in eight countries to see what lessons we can learn. The key finding was that there is no single correct answer to which we should all aspire. All the countries in the study supplement their basic tariff payments with funding provided through other means—a kind of top-up or supplementary payment.

Although the terminology and detail differ, there is significant similarity between those approaches. Germany’s approach of allowing certain services or specialties to be excluded from tariff if they meet certain criteria is not unlike our pass-through payments, through which commissioners can make additional funding available if certain criteria are met. Those criteria include the use of new technologies or the provision of high-cost services in a limited number of centres.

Some countries pay surcharges, not unlike our own top-up payments, and others provide funding for education and research separately from tariff, as we do in England. The hon. Member for Southport (Dr. Pugh) might want to take a further look at that revealing piece of work, which shows that other countries do not have perfect systems and that many of them are grappling to find a sustainable solution to this problem. However, it provides a basis for a way forward, and some of that is reflected in the document that we issued last week.

I recognise the role that my right hon. Friend the Member for Oxford, East plays as the chair of the Specialist Orthopaedic Alliance. Like the hon. Member for Southport, I believe that he has played an extremely valuable role in bringing these issues to our attention. We have worked with the main providers of specialist services on introducing measures that ensure that their work is fairly rewarded. For the 2005-06 tariff, we worked with the Specialist Orthopaedic Alliance when considering the arrangements for orthopaedic services and agreed procedures for which an additional top-up was payable, some of which I have mentioned. As the top-up was closely targeted on few procedures, it was very high at 156 per cent. The prices of other services within the tariff were reduced pro rata so as not to over-compensate for less complex activity. We also agreed a list of tariff exclusions for treatments that take place at unpredictable intervals or have an exceptionally high cost and cannot therefore be easily priced for tariff purposes. Such treatments are paid for at locally agreed prices.

For the 2006-07 tariff, we again consulted the Specialist Orthopaedic Alliance about how best to ensure that services are fairly rewarded. It advised that we should widen the range of procedures for which top-ups are payable, which led to a reduction in the specialist orthopaedic top-up to 70 per cent. With the alliance’s help, we also reconsidered the list of exclusions and consequently increased income for providers of specialised orthopaedic services.

Those arrangements have been rolled forward for 2007-08. We have also explicitly recognised that few NHS providers in England have orthopaedics as a sole specialty, which means that they are unable to spread any of the financial risk of their orthopaedic work across a broader range of services. A few specialist providers of children’s services face the same problem. With that in mind, we arranged with the strategic health authorities for a review of the impact of payment by results on the income of specialist providers. The review recommended limiting to 4 per cent. the gap between providers’ incomes under previous local prices and their incomes under the current national tariff. As a result, two specialist orthopaedic providers, Robert Jones and Agnes Hunt Orthopaedic and District Hospital NHS Trust in Shropshire and the Royal National Orthopaedic Hospital NHS Trust, will receive more than £3 million in additional support in 2007-08, which will be funded by the commissioners of their services.

The Minister has suggested that there are only two groups of specialist hospitals to which those circumstances might apply—children’s and orthopaedic hospitals—but will he accept that there are one or two others? The Royal National hospital for rheumatic diseases in Bath is a tertiary centre and faces many of the pressures that we have discussed.

That hospital faces many of the issues that we are discussing, and the options section in the payment-by-results document is not confined to orthopaedic and children’s services, but research within the Department suggests that the problems that are being aired this morning are felt most keenly in those two sectors. That is why such attention is being paid to those services, but I do not rule out the idea that the problems are felt more broadly across the NHS. The measures that I have described have helped to cushion the immediate issues, but—this should answer the point made by the hon. Member for Southport—we need a payment currency for the longer term that better differentiates between routine and complex work. We need to calculate a tariff that more fairly rewards specialist services and ensures that there is less need for additional measures, thereby nurturing excellence.

I welcome the Minister’s commitment to sorting this out, but these problems have been evident for a long time and have not been resolved so far. I urge him not to underestimate the corrosive effect that the constant medium-term black hole that looms ahead of hospitals has on morale and on their ability to plan for the future. He should set a deadline by which the longer-term issues will be sorted out, so that hospitals can look to the future and not have to read bland SHA assessments that simply say that they are financially unviable while another part of his Department assures us that their financial viability is going to be sorted out.

My right hon. Friend makes a fair point. Of course, we cannot simply hold out hope that everything will be sorted out and take the approach that, “There’s jam tomorrow.” I understand his point exactly, and I was about to discuss healthcare resource group 4, which will address whether a permanent black hole exists. An updated version of HRG4 has been developed that offers several potential benefits. There are more groups, so there is greater granularity, to use the jargon, which allows more precise alignment of costs. We had hoped to introduce the new version in 2008-09, but that would not be consistent with our commitment to publish a tariff by December and allow the NHS a period of road testing before tariff publication. We will, therefore, introduce version 4 in 2009-10. That might disappoint my right hon. Friend, but we will continue to work with the Specialist Orthopaedic Alliance in the intervening period to get these matters right. The judgment is always about not rushing to introduce a new system that we might later regret or realise that we should have taken more time over. That was the conclusion of the Lawlor review on the implementation of payment by results: we should take time to get things right.

I come to my right hon. Friend’s point about how uncertainty affects the ability of organisations to plan, think ahead and fulfil ambitions. On my visit to the Royal National Orthopaedic hospital at Stanmore, I was truly impressed by the commitment, enthusiasm and professionalism of the people whom I met. They were clear about what they want to achieve for the hospital. I understand the connection between the lack of a durable solution and aspirations for the capital redevelopment—potential private finance initiative redevelopment—of that estate.

That takes me directly to a point raised by my hon. Friend the Member for Wigan about our local trust and foundation status. He rightly pointed out that the issue had an impact on the trust’s plans to gain foundation status the last time around. It would not, perhaps, be right to put it any more strongly than to say that it is an issue that the trust has to monitor and prove that it can resolve if it is to pass through the gateway and receive foundation status. I understand entirely the points that have been made about the need to resolve and get some permanence about these issues so that specialist and excellent organisations can continue to develop.

We now understand that HRG4 will not be rolled out until 2009-10, but the supplement that the five hospitals that we have been discussing enjoy runs out in 2008, so that leaves 12 months in which there might be no supplement or prospect of amending the tariff because it relies on HRG4. What will happen in those 12 months?

I again refer the hon. Gentleman to the document that was published last week, in which paragraphs 3.33 to 3.40 address the issue directly. It states that, in the light of the delay to the introduction of HRG4,

“we are considering the following measures for 2008/09: further refinement of the relative weights of the specialised top-up payments; basing prices for certain HRGs on the costs submitted from a sample of providers who deliver the highest volumes of activity in those HRGs”.

The suggestion was made by a particular specialist provider that the prices for certain groups should be based on the average of the specialist providers rather than on that of a broader community.

The hon. Member for Westbury said that the five hospitals receive this top-up tariff. I should point out that only four do—the Wrightington hospital does not. I do not know whether the Minister will come on to that, so will he tell us whether the Wrightington will get the top-up tariff in the interim period before HRG4 is introduced?

I was just about to discuss the particular issues that my hon. Friend raises. He tempts me to blur my roles and adopt a constituency hat. There is no doubt about the Wrightington’s place in medical history, given the work that he has described, or the fact that its situation is different from those of the other hospitals that we are discussing. My right hon. Friend the Member for Oxford, East warned about the consequences of merger with a district general hospital, which, as my hon. Friend said, happened in the Wrightington’s case. It might be said that there are pros and cons to going down that route.

I understand my hon. Friend’s points entirely, but I must speak wearing my ministerial hat on this occasion. He talked about a moral obligation, and his comments will have been heard. He rightly said that the services of the Wrightington are not confined to his constituency or to mine, because it provides specialist work to commissioners in the whole of the north-west and beyond. It is fair to say that particular attention needs to be paid to the individual circumstances of the trust—[Interruption.] I hear the hon. Member for Westbury laughing, but I am not making a constituency case. I am merely describing a self-evident truth: the hospital has not benefited from some of the extra help that has been available to the other specialist hospitals. As has been said, the losses incurred have been absorbed by the general income and expenditure of the district general hospital site.

My right hon. Friend the Member for Oxford, East talked about the dangers of mergers with district general hospitals. There is a danger in this debate of ascribing all the difficulties and uncertainties faced by the specialist orthopaedic hospitals to tariff; there is an easy dumping ground, because people can say that everything is an issue of tariff.

Let us be clear that questions of productivity also need to be faced by the specialist orthopaedic hospitals; they should not be insulated from such questions, because the rest of the national health service is not. Difficult questions about productivity, optimum use of facilities and the efficiency of working practices need to be addressed. The big point that I should make to my right hon. Friend is that, although I accept the obligation to help on some of the issues that he raised, a two-way street is in operation, because there is also an obligation on the hospitals to address questions of productivity, efficiency and changing working practices, where that needs to happen.

I take the point that the Minister makes: we are dealing with a wider constellation of issues and challenges. I am not lumping everything on to the tariff, but is there not a particular perversity? Such is the discrepancy between the cost of undertaking the specialist work and the prices that the hospitals are paid for it that the more productive they are, the worse off they will be under this system.

The point is well made, and we must have particular regard to it. I was struck by the point made by my hon. Friend the Member for Wigan that, if the merger he mentioned had not happened, more support would be given. I am sure that careful note will be taken of that by those who need to do so. The answer is to work towards a durable solution and take away as many of the imperfections as we can along the route. We need to whittle away the imperfections, while in no way undermining the organisations that are involved.

The question of independent sector treatment centres—ISTCs—was raised by most of those present. The hon. Member for Southport began by describing the effect on people’s lives of the orthopaedic conditions that we are discussing. It is important to recognise that ISTCs have reduced the long waits that blighted the lives of those who were told that they had no choice, that there was not enough capacity and that they would have either to go private or wait for a very long time.

One thing that has bedevilled the orthopaedic sector is the lack of capacity around the country. It is sometimes suggested that there is an ideological commitment to saying, “This must be the way that things are done.” Nothing of the sort exists; we simply want to put in place the additional capacity to allow people who need access to treatment to improve their quality of life, to remove the blight on life that often exists, and to provide early and ready access to treatment.

In the past, the private sector traded on the back of the failings of the NHS. Waiting times are now coming down quite quickly. In this financial year, I believe that we will see a significant reduction in the waits for orthopaedic procedures as we move towards having an 18-week maximum wait. That is an important part of the role being played by the ISTCs. It is also indisputable that the presence of an ISTC has sharpened consideration of questions of productivity in certain hospitals. That is not a bad thing. It is good for patients, who get treated more quickly, and for the NHS, which is able to question and challenge what it does and improve how it operates. I shall cite an example of that.

Yeovil district hospital, in the south-west, is making huge strides towards delivering the 18-week target, which it confidently says will be hit at some point this year. All its patients will therefore be treated within 18 weeks of a general practitioner referral. It openly says that a large amount of the progress that it has made was kick-started by the arrival of the ISTC at Shepton Mallet, which was seen as an opportunity rather than a threat. Such things need to be borne in mind.

The hon. Member for Westbury raised the question of a level playing field. We are working towards that, but the NHS always spot-purchased from the independent sector and, in doing, so often paid inflated prices for the use of that capacity. I am sure that he knows more than I do about how that may have happened in the past and about how it was not necessarily the best use—

I need to correct the implication behind the Minister’s remark. A few years ago, my colleagues were laying into him for the contracts with the private sector—what he termed “spot-purchasing”—that were wasting vast sums of money on his watch, not on mine.

I was explaining to the hon. Gentleman that one of the reasons for the ISTC programme was that it brought down the cost. The NHS has always used the private sector in that way, through various waiting list initiatives that occurred under his Government, as well as this one. The programme has enabled those reference costs to be brought right down, as Laing and Buisson recently recognised in their review of the private health care sector market.

We have had a rich debate on legitimate questions for these excellent national assets: the five specialist orthopaedic hospitals. I give my right hon. Friend the Member for Oxford, East an assurance that I am committed to reaching a sustainable solution at the earliest opportunity. I understand the points that he has raised. I simply ask him to acknowledge that there is another argument in respect of productivity and the need to ensure that the services are as efficient as possible. If the trusts and the Specialist Orthopaedic Alliance work with us on these questions, I am confident that, in a short time—perhaps a matter of months or a couple of years—we shall arrive at the right solution for those important hospitals.

Temporary Accommodation

The Government’s initiative to end the use of bed-and-breakfast accommodation for homeless families is one of the achievements of which I am most proud, having served as a councillor in a borough where that was common practice, and where the living conditions that people endured were unacceptable in a modern society. Bed-and-breakfast accommodation has been replaced by reliance on temporary accommodation, which is superficially an improvement because, for the most part, self-contained accommodation is clearly better for families than living in one room in a hostel or hotel.

We have set a target for reducing the use of temporary accommodation by 50 per cent. There are wider policy issues, which I would dearly love to address, but will mention only briefly in this debate. As pressure comes to bear on local authorities to reduce reliance on temporary accommodation, I am finding a number of worrying problems, some of which flow directly from the drive to achieve the target, but others are deeper and arise from management failure to deal with the quality of accommodation.

I want to raise four issues. The first is the condition of the temporary accommodation in which some of my constituents live. There is much disrepair and extreme overcrowding, despite the assurance of the Government and local authorities—in this case, Westminster city council—that contracts with providers for temporary accommodation should at least ensure that people avoid the poor conditions that were a feature of so much bed-and-breakfast accommodation in the past.

Secondly, there is instability in the system as we move towards the target, perhaps as a consequence of some of the factors in the London housing market, particularly the recent strength of buy-to-let. As leases come to an end on temporary accommodation, families are made to move frequently and the casework that comes to me implies that they often have to move out of borough.

Thirdly, I want to spend a couple of minutes on rents and work incentives, and the fact that areas such as mine still face a real problem with work incentives for households in temporary accommodation, which the Government are not willing to address.

Fourthly, I shall spend one or two minutes on the interaction between the homelessness target and broader housing needs.

In essence, we all have—I certainly do—a powerful desire to reduce reliance on temporary accommodation and, in a bigger context, to reduce homelessness. It is a terrible experience for households to go through, and it is an expensive option. We must manage the transition to a reduced proportion of households in temporary accommodation in such a way as to ensure that it is a decent experience for them on their route to a permanent home, and that it does not worsen the situation for other households in housing need. Neither of those objectives is being achieved at present.

The main concern is the poor conditions for people in temporary accommodation, with overcrowding and disrepair. The context is cost. In Westminster at the moment, 3,064 households are in temporary accommodation, and I believe that two thirds are housed in borough. The rent payable by households through the housing benefit system last year was a flat rate of just over £440 a week, so the cost to the taxpayer is £70 million every year to keep families in temporary accommodation in one borough alone. According to my calculations, that adds up to £1.2 billion a year in London, 90 per cent. of which is funded by housing benefit. Despite that investment, conditions are routinely so appalling that it beggars belief that it constitutes value for money. I shall run through a few of the problems.

The first is overcrowding. Two weeks ago, I took members of the Select Committee on Communities and Local Government to visit family A in Westminster temporary accommodation. The family consists of two adults and three children: boys aged 18 and 17, and a girl of two. They live in a one-bedroom, ex-council flat in a tower block for which housing benefit pays £440 a week. Last autumn, the environmental services department assessed them, at my request, as constituting a category A, band 1 hazard under the housing, health and safety rating system. That family has been in one-bedroom, temporary accommodation for months. Why? Why can they not be moved at least into alternative temporary accommodation so that their needs can be met while they are waiting for permanent accommodation?

Another person in acute need and in temporary accommodation is Karen Moore. She lives in one-bedroom, temporary accommodation on the estate where she grew up and close to her mother, whom she helps to care for. Karen has three children aged six, five and three, one of whom has Asperger’s syndrome, in that one-bedroom, temporary accommodation. I have been asking the council to find alternative temporary accommodation for a year. The officers with whom I work at Westminster city council are outstanding, helpful and give every indication of doing all they can, yet they tell me that, because of the cost barriers and the fact that they are withdrawing from leases for temporary accommodation, they are unable to find an alternative. To be fair, she was offered one alternative, but it was on the other side of the borough, and she has children in local schools and is the carer for her mother. That was the only offer.

On Monday, I met a young woman who had written to me to say that her temporary accommodation had become overcrowded following her mother’s death when an aunt and her two daughters moved in to care for her. For four years, that family of four—an adult and three children aged 23, 20 and 16—have shared a one-and-a-half-bedroom, converted flat. The daughter wrote:

My mother and I moved in 2002 and sadly my mother got ill…she was diagnosed with liver cancer and passed away in 2003. Whilst my mother was ill, my aunt moved in to look after me because I was still at school. While we were still grieving, they registered us intentionally homeless...we went to a solicitor to appeal…it took a long time but in 2005 they accepted us and told us we had to choose between bed and breakfast or temporary accommodation. The flat we live in is overcrowded and damp and it has a lot of bad memories”.

They are, of course, still there.

Despite assurances to the contrary, and despite the expense, some of the worst housing conditions encountered by members of my staff are in the temporary accommodation sector. Another lady whom I met on Monday was promised alternative temporary accommodation in May 2005 because she is disabled and cannot manage stairs. No offer has been forthcoming despite the promise.

Mrs Querimi wrote to me in December 2005 saying that her

“daughter is sick from pneumonia…my flat is exceptionally cold because the windows are no good and the heaters don't work...I have been in a hotel for 3 years and a temporary flat for 3 years”.

Perhaps the worst instance I have seen concerned Mrs B, whom I visited at home a few weeks ago. The condition of her property was unbelievable. There were holes in the walls big enough to put a fist through, and leaking water was running into the electricity in the downstairs flat, which was also temporary accommodation. There was black mould on the walls and inside cupboards, cabinets were broken or missing, and walls were stripped of plaster and paper. To my astonishment, I was told that Pathmeads was first advised about the level of disrepair in February 2006, but when I visited the property 12 months later, nothing had been done. According to Westminster city council,

“a full assessment of the works required was completed and agreed with Pathmeads in Feb 2006…who will be working with the landlord of the property to have all works completed as soon as possible”.

In this case, “as soon as possible” means a full year.

Another Pathmeads tenant told me that she was without hot water for a year and that her gas meter was capped without her being told. A tenant of Notting Hill housing trust temporary accommodation complained of excessive cold and was living in one downstairs room with her children. The trust told me repeatedly that the repairs had been carried out, until finally a senior officer at my request visited Mrs. T and accepted that that was not true.

In another instance, I had to take a member of the trust’s board to visit another tenant, my neighbour, who had complained of water pouring into his flat from upstairs for well over a year without any response.

Mrs. E wrote to me to say that

“since your last letter, we have had many more problems…leaking from the flat above which no one took responsibility for…I reported this to Acton Housing Trust and they sent an officer and a surveyor who confirmed that this flat was not suitable for anyone to live in…and last night there was leaking from the flat above into my bedroom…this flat has to be properly repaired because it is not safe for anyone…the ceiling could fall in at any day”.

However, she is better off than Mr. K, whose ceiling fell in—twice. His health visitor said:

“As a practising health visitor with 16 years experience, I was absolutely shocked by the risks presented to the family by the present accommodation.”

Many of the issues and case histories that my hon. Friend raises will be familiar to many London MPs, and particularly to me, because I represent a neighbouring constituency. Has she come across the practice, as I have with my local authorities, of taking blocks of flats—particularly those awaiting development or demolition—from which there have been decants, and using them to house families in temporary accommodation? It means that no work is undertaken for three or four years sometimes, and conditions that would be unacceptable in other accommodation are now endemic.

I have indeed had experience of that practice. It is striking that some of the most vulnerable families, who have become homeless, are placed in the worst accommodation—not all, but too much is the worst accommodation—at the most staggering expense.

When the Government adopted the bed-and-breakfast target, two factors helped to drive the decision: the hell of families being cramped up in a single room; and families being forced to move so frequently, with the consequential upheaval in education, health and, in some instances, child safety. Unfortunately, far too many families in temporary accommodation experience the same instability and, from my caseload, it appears that the situation may be worsening precisely because of the instability resultant from the closing of contracts and the ending of leases.

In the past few months, I have been approached by an increasing number of families who have been confronted with yet another move, or even worse, with a move out of borough, despite in some instances, the families having either been born in Westminster or having 10 to 20 years of local connections in private rented accommodation.

One family had to spend two months in a hostel in east London earlier this year, despite representations from social services who were concerned about the extreme vulnerability of a teenage child who had just been bereaved. They pleaded with the housing department to keep the family in Westminster with all their connections. The family have now returned, but they should not have had to go through that trauma.

Mrs. H has been in the local area for 10 years, but the lease ended on her temporary accommodation on 5 March. She came to me pleading not to be moved out of borough, because she had been told that that would be the likely outcome. I am unable to ascertain the location at which she and her three children are living.

Three families in the past six months have told me that they have been commuting from east London back to their children’s school every day—in one case back to work—because their entire support systems are locally based. I am sure that my hon. Friend the Minister can imagine not only the expense of taking one, two or three children on the tube every day, but the sheer pressure on those families. However, they want to commute, because they do not have any idea how long they will spend out of borough. The one constant for families in such difficulty is the children’s school, and they will do anything to avoid moving. However, we do not consider that situation to be a sufficient factor.

One lady, who came to see me a couple of weeks ago, is recovering well from a history of substance abuse, and she is caring for her young child in an attempt to get her life together. She was born in Westminster, and her nine-year-old is already in her third primary school. The lease on her temporary accommodation expires this week on what is her 12th address. The council told me that she was

“placed on a data base in August 2006 in soon as a suitable property becomes available she will be notified...every effort will be made to find something in her preferred area but this does depend on the availability of suitable properties.”

We can see the situation coming, but we are unable to find families decent and suitable accommodation in-borough that keeps them and their networks together, and their children in school. The council said:

“Her overall position for permanent accommodation is 1,249.”

Mrs. B is in temporary accommodation in Barnet, a long way from the Westminster street that she grew up in, and she travels back there every day to care for her sick mother and to take her child to nursery. Like other parents, she talked about her child’s exhaustion and distress at having to commute.

Ms G wrote:

“The reason that I am writing this mail is because I am really concerned and sad that my mother, my brother, sister and I have being waiting and living in temporary accommodation for about 10 years now in different parts of London…like Maida Vale to Enfield…to Walthamstow and from there to Edgware Rd.

I now see that this changes has affected my education and my social life completely. I had to leave many friends and close friends behind in those places. I should have been in University by now but instead am struggling to complete all my GCSEs. I am really worried because my brother who is ten had to already change like 3 schools because of this problem. I realise how this sort of problem puts children off studying…my mother does not want to work because she is worried that she might lose her home.”

My hon. Friend the Minister will be aware of an experiment that is under way in Newham called “Working Futures”, which seeks to treat the rent of temporary accommodation as a local authority or a registered social landlord rent, allowing the family to enter work knowing that the only rent that they will have to pay is the equivalent of a local authority rent, and not the £300 or £400 that is payable for temporary accommodation.

I have met the Secretary of State for Communities and Local Government and the Secretary of State for Work and Pensions to discuss the matter, but unfortunately, there is an unwillingness to extend the experiment through block-grant funding to other boroughs. Some 90 per cent. of households in temporary accommodation are out of work, compared with 60 per cent. of households in social housing, so it is completely unreasonable not to develop a model that allows households in temporary accommodation to work.

I shall read from a letter written by another constituent whom I also took the Committee to see a couple of weeks ago. She said:

“I have lived in my present accommodation since 2003. The level of rent then was £240 weekly”—

double the local authority rent for the flat next door—

“so after a few months I resolved to enquire to my housing association about the reasons behind the high rent for a one-bedroom flat in a 20-storey council block. I was told I should not worry about it, since I was not the one paying, but the local authority. The reply mystified me and it still does. My concerns were that once I returned to work I would not be able to afford the high rent without relying on housing benefit.

In 2005 my housing association entered into a new agreement with the City of Westminster, resulting in my lease being reassigned to the City, who became my landlord. The new contract I signed revealed a greater rent of £416…Should I be furious? Who cares? Let us accuse market liberalisation. I have a few innocent questions: which decent job would pay me enough to solely handle these payments? Where is the protection for the made-poor individuals? Where has gone the responsibility of the government to protect the deprived?

In 2006 I eventually returned to work and the reality of the situation is that I have slipped miraculously (I mean, not by my own carelessness) into arrears while being assessed for Housing Benefit eligibility. The impact of this is a suspension from bidding for a permanent home and the risk to see my tenancy agreement terminated. I have already been threatened once with eviction and keep getting reminders for my arrears.”

We agree that we want to reduce the reliance on temporary accommodation, not least because of the ridiculous expense, but we must ensure that, in the process, we do not trap families in instability and further moves. Some 30,000 households will remain in temporary accommodation even when the target is reached, and the conditions in which many of them live are completely unacceptable. We should also properly fund the temporary-to-permanent scheme—I know that there will be an announcement about it soon—and extend the “Working Futures” grant model to allow families to work. We must bear down much more rigorously on the quality of the accommodation that local authorities and registered social landlords provide.

We must prevent families from being moved from pillar to post, and we must prevent families with strong local connections in boroughs such as mine from being offered moves to east London, which they find extremely difficult and often traumatic. Finally, we must recognise that the savings being made from the reduction in the cap on housing benefit for those in temporary accommodation and the reduction in the use of temporary accommodation will accrue to the Department for Work and Pensions. As I have said, the savings amount to £70 million in London alone, but where is that money going? Is it going on ensuring that the terrible pressures on families in housing need in temporary and permanent accommodation will be relieved? I do not think that that is the case at the moment, so I am looking for help from my hon. Friend the Minister.

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

I congratulate my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) on the way in which she has presented her case. She is well known as someone who takes an enormous interest in her constituents’ housing issues. Her constituents are extraordinarily well served by the way in which she puts her case and the evidence that she presents. I do not think that anyone could fail to be moved by the cases that she has cited. Think of poor Mr. K in his home as the ceiling is falling down or Mrs. G having to move her family and her children going to several different schools. That is unacceptable, so I hope that I can give my hon. Friend some information that will help both her and my hon. Friend the Member for Ealing, Acton and Shepherd's Bush (Mr. Slaughter) in their work.

There is sometimes a tendency for the Government to say, “The council’s got the money” and for the council then to say, “Well, the Government’s got to give us more money”. The issue descends into a blame game, but I do not think that the constituents of my hon. Friend the Member for Regent's Park and Kensington, North care who is at fault or what the problem is. They just want the problem sorted out. Westminster city council receives the highest housing benefit subsidy in London, at £417 a week. Given that level of subsidy and the quality of the accommodation in which people are living, it is clear that we need to see whether that money is being spent as effectively as possible in the interests of my hon. Friend’s constituents.

I should like to put the issue in context and consider the work that has been done on tackling homelessness, for which my hon. Friend praised the Government at the start of her speech. Having a strong commitment to tackling homelessness, setting ourselves the challenging target of reducing the number of rough sleepers and being prepared to put the money in where it is required has led to a massively sustained reduction since 2001. I remember walking through the streets of London before I became an MP and regularly seeing people curled up in doorways or on mattresses, with blankets wrapped round them. In 1998, more than 1,800 were sleeping rough on our streets, but now the figure is down to 502. That is 502 too many, but part of that reduction has been about getting people into accommodation, including temporary accommodation. A lot has been achieved, but a lot more has to be done.

We need to set ourselves targets that challenge the Government. We still aim to achieve the target that we have set ourselves of halving the number of households living in temporary accommodation by 2010 so as to tackle the overcrowding that my hon. Friend raised, and youth homelessness. She mentioned homelessness in general, but youth homelessness is a specific problem.

To put the issue in context, 87 per cent. of people in temporary accommodation are now living in self-contained homes, with their own front door and cooking and washing facilities, as are 93 per cent. of families with children. However, I am particularly concerned about the examples that my hon. Friend gave, such as family A and Karen Moore, where carers are trying to stay close to their families. It is difficult because, as my hon. Friend said, the one constant for children at school can be their friends at school, their teachers and the relationships that they make. Every effort should be made to ensure that families are housed as close as possible to their support systems, other members of their family and their schools.

I am concerned that Westminster city council houses so many families outside the borough. I am not convinced that that is necessarily down to the lack of available accommodation. It may be that Westminster finds it cheaper to house families outside the area. However, the subsidy that Westminster receives is adequate for it to be able to house families in the borough. A lot more effort has to be made to take into account all the other factors, not just housing. Housing cannot be considered in a vacuum; it must be considered in the context of jobs, family and friends. Every effort should be made to ensure that families can be housed as close to their schools and work as possible. That is why Westminster receives a higher subsidy than any other council in London—to assist it in doing that. The council has a responsibility to find suitable accommodation. The Government take the view that, in the vast majority of cases, the subsidy that is provided assists the council in doing that.

My hon. Friend will correct me if I am wrong, but many of the examples that she gave seemed to concern housing associations. She said that when the health visitor visited, they said that they had never seen anything so bad. When my hon. Friend pressed council officers, who were trying their best in difficult circumstances, to visit, they were shocked at the conditions that they found. Who is checking those properties before people move into them? If councils are putting people in temporary accommodation and paying money to a registered social landlord, a housing association or a private landlord, the onus is on them to check the quality of that accommodation.

I totally agree with my hon. Friend, but part of the argument is that landlords sometimes refuse to carry out the work. I have seen evidence of that. In one of the cases in which I was involved—I cannot remember which letter it was—the family was suffering from stunningly bad disrepair, which had taken a year to address, but the landlord was unwilling to carry out the repairs and was going to take the property back. That family will have to move. We are over a barrel, to be honest, with the pressures of the private rented sector and the unwillingness of some landlords to comply.

Some of those issues can be dealt with in the initial contracts that the council comes to with the landlords, but that is an issue that has to be examined in greater detail. Looking at ways of providing more settled accommodation for people is the key, so if we can provide accommodation for families where they can have a home and plan for the future, the money that the landlords are taking—my hon. Friend gave the figure of £1.2 billion that she had worked out for London as a whole—will be well spent.

We have set ourselves other challenging targets in reducing the number of people who are homeless or in temporary accommodation. Another thing that we are trying to do is produce a good practice paper for local authorities on making greater use of the private rented sector, which will be published shortly. There is also a fund of £19 million to fund the London pilot on overcrowding, which will convert 550 social housing units to free up larger properties for families. My hon. Friend also mentioned the “Working Futures” pilot. In the context of somebody who is homeless, there is no doubt that temporary accommodation, and finding work and incentives to work play into the same equation and cannot be treated separately.

The pilot is due to finish in December. There is a long time scale and I appreciate my hon. Friend’s concern, but we need to ensure that we get robust evidence. I shall certainly take back the comments that she has made, because we need robust evidence, and there is a lot of evidence available at the moment. If we can move the issue forward as quickly as possible, the information that we have—evidence-based information—will inform decisions. We need to ensure that we do not delay any of those projects unnecessarily, but get the information as quickly as possible. I shall take my hon. Friend’s comments back to the Minister for Housing and Planning, to see whether there is anything that she can do in that regard. We not only want an informed opinion about the outcomes of the pilots that can enable action to be taken, but want to see whether anything can be done in the meantime to use the information that we have.

My hon. Friend raised a number of issues, but I do not have time to go into all of them. However, dealing with homelessness and the problems of temporary accommodation are high priorities for the Government. Every person has the right to a decent home. That is a fundamental human right. The information that my hon. Friend has given us shows that some people do not have the accommodation that any of us would want to live in. If we do not want to live there, we should not expect other people to do so either. I shall take her comments back. I hope that the action being taken that I have outlined is helpful. We would be happy to work with any local authority to improve the condition of citizens.

Sitting suspended until half-past Two o’clock.

Local Government (Shropshire)

Good afternoon, Mr. Bayley; it is a great pleasure to see you in the Chair. I am grateful for this opportunity to raise the issue of local government structure in Shropshire. I am particularly grateful for the chance to highlight to the Under-Secretary of State for Communities and Local Government, the hon. Member for Basildon (Angela E. Smith), issues that I am sure she will take into account before she and her colleagues make the critical decision on which areas will soon be allowed to proceed down the path towards a unitary authority structure.

Last month, the Minister for Local Government was generous in making time available to meet Shropshire Members and explain the procedure that he and his colleagues were using in reviewing the proposals put forward in the “One Council for Shropshire” submission. Recently, I also had the privilege of serving for several weeks in Committee on the Local Government and Public Involvement in Health Bill, when I raised a number of points about how Shropshire might be affected.

This Minister and the Minister for Local Government handled that debate with their customary skill and candour, and I am sure that neither expected that that would be the last that they would hear from Shropshire Members on the issue. When the Minister winds up, I look forward to a similarly candid and straightforward response to the issues raised by my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) and me.

I sought this debate to give the Minister some last chances: a last chance to step back from making a wrong decision—possibly as early as next week—that would fly in the face of Government objectives to allow local decision making, and a last chance to hear from local elected Members about why the case for a unitary authority in Shropshire is flawed. I also have a last chance to put on record why closer co-operation between councils in Shropshire can deliver the benefits sought by the Government through the Local Government and Public Involvement in Health Bill.

I anticipate that next week, before the recess, we shall hear an announcement of which areas the Minister seeks to take down the path towards unitary government—those that she will allow to move forward and those that she will allow to continue to enhance the two-tier system of county and district councils, whether as formal pathfinders or through best practice, which we already have in Shropshire.

Shropshire is not a county in local government crisis—not yet, at any rate—as it is already one of the best-run counties in England. Only last month, the Audit Commission gave its highest performance rating to Shropshire county council for the second year running. Shropshire county council is one of only nine local authorities in the country to achieve a consistent four-star status. The district councils are also not poor performers—far from it. There are two district councils in my constituency, and I shall focus most of my remarks on them and then allow my hon. Friend the Member for Shrewsbury and Atcham to talk about his constituency.

Bridgnorth district council, most of which is in my constituency, has the 12th lowest council tax in the country and was commended only last week by the Audit Commission for its improved use of resources in moving up to level 3 status. The council has been independently and rigorously inspected as recently as November and December last year and has been praised for working well in partnership, increasing access to its services and continuing to provide good value for money—all aspects that the Government are looking for councils to achieve through restructuring.

South Shropshire district council, on which I still serve as a district councillor, has for some time won awards from the Liberal Democrats for being one of their few flagship councils. More objectively, it has also achieved level 3 status from the Audit Commission on use of resources. My hon. Friend the Member for Shrewsbury and Atcham will be singing the praises of Shrewsbury and Atcham borough council, which has achieved high results and does so regularly.

I should like to pose a number of questions to the Minister and challenge her to clarify the Government’s thinking and explain how the various issues will be or have been factored into the decision-making process prior to next week’s announcement. I should like to start by taking the Minister back to the object of the exercise. Much of the impetus for changing the structure of local government stems from Government plans for elected regional assemblies, which were so decisively rejected by the good folk of the north-east in November 2004.

The Deputy Prime Minister’s then deputy, the right hon. Member for South Shields (David Miliband), took up the cudgels after that dispiriting experience and sought to provoke the formation of a wave of unitary councils all over the country. As he wrote in the Local Government Chronicle in November 2005, he was

“actively considering the case for reorganisation in the 34 ‘two tier’ English counties”.

I suspect that his motivation had less to do with his claim that two-tier systems were “confusing, inefficient and costly” than with the fact that the majority of councillors in such areas are Conservative rather than Labour.

A clear party political motivation lurks under these proposals. It is no accident that in Shropshire, for example, of the 225 councillors in the six councils of the present two-tier structure, 100 are Conservative, 23 are Labour, 46 are Liberal Democrat and the balance are independent with one or two Greens.

On the basis of the proposed 96-strong unitary authority, which would be achieved by doubling up existing county council wards, the Labour proportion would increase from 10 to 17 per cent. and lead to the loss of 50 Conservative and 24 Liberal Democrat council seats. At present, there are only two Labour councillors in my whole constituency, so abolishing the districts would give a clear party political advantage to the Government. However, as the Department responsible for local government restructuring has itself been restructured in the past year following the effective neutering of the Office of the Deputy Prime Minister and the establishment of the Department for Communities and Local Government, there has also been a revolving door of Ministers with that responsibility, and with that there has been a change in emphasis and in the purpose and scope of any restructure.

Last July, the new Secretary of State for Communities and Local Government told the Local Government Association conference—I shall quote her extensively, if you, Mr. Bayley, will forgive me—that she was

“far more interested in outcomes for citizens than lines on maps. So we will have a short window of opportunity for that small number of councils who are keen for change and who meet our criteria to seek unitary status. But I have no desire whatsoever to create a great distraction of activity on the restructuring issue. In the clear majority of county areas two tiers will remain and in all of these areas we will need better joint working.”

I could not agree more. Local residents want their councils to focus on service delivery and to keep down the cost of council tax rather than being distracted by an expensive and unnecessary restructuring. The saga in Shropshire has been distracting our councillors and council officers for more than a year already, and it has cost considerable officer time and expense. In Shropshire, the councils themselves are evenly divided on the issue—three, including the county council, are in favour, and three are opposed. There is no broad consensus of support, as I shall demonstrate shortly.

Shropshire has one of the best track records in the country of joint working between councils, as I mentioned a couple of times in Committee. That could be extended, and much more could be done to enhance two-tier working without the loss of democratic accountability which would result from unitary status in an area as large and diverse as Shropshire.

However, I detect the clunking fist of the Chancellor in the change of emphasis from the Secretary of State. As we learned from Lord Turnbull this week, the Chancellor determines priorities without any serious discussion with ministerial colleagues. We have been told that the Chancellor’s attitude is, “They will get what I decide.” That was indirectly acknowledged by the Minister for Local Government in the meeting with Shropshire MPs that I referred to earlier. He told us that the rationale for permitting only about eight areas—from the 16 for which applications had been submitted—to go forward to unitary status was due to the budgetary requirements of the Treasury. The cost of restructuring in year 1 needs to be restrained within limits set by the Treasury, so that it does not add unduly to the ballooning public sector debt and breach the Chancellor’s golden rule. The best way to minimise the cost to the Treasury would be to abandon the whole enterprise, certainly so far as Shropshire is concerned.

Let me turn to the specifics regarding Shropshire. I would like to start with a brief geography lesson. The county of Shropshire is the 13th largest authority by geographic area in England, covering some 1,235 square miles. It extends almost 50 miles from north to south and some 30 miles from west to east. My constituency, one of four in the area covered by the county council, is the eighth largest geographic constituency in England. Despite its large area, it is also one of the most lightly populated, with only 288,000 adults, many of whom live in remote rural communities, especially along the border with Wales. With a limited public transport network, access to services is a major issue, and for many people, round trip travel to the county town of Shrewsbury is a two-hour enterprise. That is relevant because of the challenge posed to local accountability and the delivery of services by a unitary model.

Much academic research and Audit Commission evidence shows that big is not always better. The experience of residents—certainly the experiences that can be found in my surgeries and postbag—suggest widespread suspicion of centralised decision making. That will not be overcome by the proposal for 27 local area committees, since their role would essentially be advisory if a unitary model were to proceed.

The Minister has made it clear that proposals will have to meet the five criteria set out in the invitation to bid. I want to consider them briefly as they relate to the “One Council for Shropshire” proposal. The first criterion is affordability. The proposal for Shropshire was based on a top-down financial model, the West Sussex model, which is much discussed and criticised in academic circles as not being sufficiently flexible to take into account the vagaries of specific circumstances. Little cross-checking has been presented to show whether the estimated savings set out in the business case can be achieved. Two detailed third-party analyses have been undertaken, one by Professor Chisholm, a noted academic who focuses on local government structures, and another by Capita, a favourite adviser of the Government. Both have raised concerns that the savings have been overstated and that the transitional costs of achieving them have been understated. Have the Minister’s officials studied those reports, which I know have been made available to her Department, and does she recognise those deficiencies?

For example, on the issue of members’ allowances, no assumption has been made about any increase in allowances for unitary councillors, despite their greater responsibilities, on the basis that that would prejudge any decision, which is clearly not a sensible way in which to build assumptions into a future financial model. Similarly, on the senior staff structure, no increase has been proposed for salary levels commensurate with the greater responsibilities of running a unitary authority. Much has been made in the county of the savings to be extracted from reducing the number of senior staff—for example, having only one chief executive rather than six and similar levels of support staff in each district. However, no analysis has been done of the potential redundancy cost based on the individuals concerned. It has all been based on the West Sussex model, much of which will not apply in Shropshire.

Much has also been made by the proponents of a unitary structure in the county of the experience of the East Riding of Yorkshire, an area that has some similarities to Shropshire in geographic spread and sparsity of population, as well as in the number of district councils that were abolished when the area went unitary. My understanding is that, although there was one chief executive following the introduction of the unitary model, the other chief executives were, at least initially, merely given reduced titles. They were called either assistant or deputy chief executive and continued in post on the same salary level. At first, there was no saving, whereas the model proposed in Shropshire assumes that such savings begin immediately.

It is instructive to consider some of the comparative costs of achieving the savings that have been put forward by other areas that are contemplating such a change. Bedfordshire, a county about which we heard a great deal in Committee on the Local Government and Public Involvement in Health Bill—I will not go on about Bedfordshire today—has four districts and a population roughly double that of Shropshire at 560,000. I understand from its application that the anticipated costs will be about £10 million to £15 million. Cumbria, another area that has put in for unitary status, has six districts, a population of 495,000 and estimated costs of £15 million for the change. Northumberland has six districts and a population closer to Shropshire’s at 307,000 and anticipates costs of £16.9 million. Shropshire has five districts with a population of 288,000 and—because of the inadequacies of the financial model, in my view—the anticipated transitional costs are a mere £3 million. Those costs have been questioned in the reports that I mentioned.

The next aspect of affordability is the question of council tax rises being limited to the lowest increase prevailing. Again, some fairly heroic assumptions have been made about the savings that will be achieved to allow for those modest council tax increases, with a maximum of 3.5 per cent. for the Bridgnorth area, because it has such a low council tax at present. I say “heroic” because it is anticipated, particularly by those who have studied the subject externally, that a great deal of the savings that are claimed for unitary status will be eroded by action that the councils have already taken. As I mentioned at the beginning, a great deal of joint working has already been done in Shropshire and some, in my view, has been double counted.

The second criterion, which is the focus of my concern and my challenge to the Minister, is support for the proposals. The invitation to bid referred to the requirement for a broad cross-section of support from partners and stakeholders. It went on to expand that requirement to include citizens. I raised that point directly with the Minister for Local Government in Committee, and he confirmed that his interpretation of the criterion was that it included residents and the people who would be most directly affected—that is, the public.

The Government have decided that it is up to local councils to determine how they measure the broad cross-section of support required to fulfil the criteria. Shropshire is unique among all the areas that have made a bid for unitary status, I believe, as it held ballots of public opinion prior to submitting the bid. As the Minister will remember, the results were delivered on the Floor of the House before the deadline for the submission of bids. I shall rehearse them again in a moment. Can the Minister confirm that she will give the results of the ballots proper consideration? Will she help us by explaining what that will mean?

Following comments by the Minister for Local Government, I have concerns about the way in which the Minister and her civil servants will interpret the ballot results. I am worried that, because the ballots were not undertaken by all the proponents of unitary status but by a council—South Shropshire district council—that was one of the three in favour of the unitary model, and by two that were opposed to the model, the results will somehow be set aside. I fear that the Government will say that they were looking for support from those who made proposals and are less concerned about the views of those who opposed proposals. They have set up a two-stage process, and a 12-week public consultation to take place after the decision has been made about which areas will go forward in the process. I am, therefore, anxious that they will use that fact in some way to negate the effect of the ballots that have taken place.

Would my hon. Friend agree that if the Government were to allow the unitary bid by Shropshire county council to go forward at this stage, it would be in direct contradiction of the rules that they have stipulated? As he will know, the residents of Shrewsbury overwhelmingly rejected unitary authority proposals. Nearly 70 per cent. of those who voted in the recent referendum rejected the proposals.

I am grateful to my hon. Friend for reminding the Minister of the percentage of residents who took the view that unitary was not for Shrewsbury. I am trying to tease out from the Minister whether the Government actually mean what they say.

Surely my hon. Friend is being grossly unkind to the Government, given the nature of the vote, the overwhelming number of people who turned up and the clearly stated message in the ballot. Surely to turn it down would be truly Stalinist.

As usual, my hon. Friend puts his finger on the point. Such a response would be in direct contrast to the Government’s statements in the invitation to bid, and during progress of the Bill through Committee. I hope that the Minister will find it in her power to put my fears at rest on the issue. Unless she would like to intervene on me now, we may have to wait until the end of the debate.

My hon. Friend the Member for Shrewsbury and Atcham referred to the overwhelming vote in Shrewsbury. I remind the Minister that it was even more overwhelming in Bridgnorth, where many of the leading proponents of the argument for unitary are councillors on the district council. The vote in that district was extraordinary. Of those who voted, 85.6 per cent. voted for an enhanced two-tier structure and against a unitary structure. That must be one of the highest percentages that the country has ever seen in a ballot on local government restructuring. Even in South Shropshire, where the council is one of those that submitted in favour of the bid, there was a 56.7 per cent. vote against from the people.

Those results were not on insignificant turnouts. There has been the most extraordinary attempt by some of the proponents to argue that, because the turnout was less than 50 per cent., the results were in some way not an appropriate mandate, or a proper expression of views. That is particularly surprising since one individual, the leader of South Shropshire district council, has rarely been elected herself. She was unopposed—at least at the last two elections that I am aware of—but seems to regard mandates to be given only if more than 50 per cent. of the people vote. Perhaps she should not be sitting on the council. There was a 42 per cent. turnout for South Shropshire and 47 per cent. for Bridgnorth.

In their submission, the proponents of unitary relied, in their evidence for the cross-section of support, very heavily on a focus group undertaken by an opinion poll firm that conducted extensive interviews—I will grant that—but with only 44 people. I have undertaken my own opinion poll through an online panel that I set up in January, and my first panel was on this subject.

My hon. Friend mentioned that interviews were held with only 44 people from the whole of Shropshire, but, for the record, the views of those 44 people were mixed. Even though it was a tiny sample, there were still many people who were against unitary.

Indeed. I am grateful to my hon. Friend for making that crystal clear.

My survey supported the overall ballot—perhaps not surprisingly, as I was dealing with a much larger number of real people, some of whom made interesting observations. One of the criticisms of the ballot—again, levelled by those who were in favour of unitary—was that the issues involved in deciding whether to move from a two-tier to a unitary structure were too complex to be put to a simple ballot of opinion. That criticism was levelled repeatedly throughout the ballot process, despite the fact that information was provided by each of the councils conducting the ballot.

In the case of South Shropshire, there was a special edition of South Shropshire Matters, which is a well put together, professional piece of literature. In a 16-page leaflet, space was provided on two and a half pages for the opponents of unitary to state their case, and the remaining pages of the document were for those in favour. Despite that, the result in South Shropshire was as I have said.

My survey asked:

“Do you think the issues are too complicated, as suggested by the Proponents of Unitary, to allow ordinary people to have a view?”

Eighty-seven per cent. of people replied that they did not think that that was a legitimate argument. Indeed, there was another overwhelming vote opposed to unitary. I shall give the figure as soon as I find it—among a number of questions. To the question,

“Do you believe that a Unitary Authority will deliver better services for less cost?”

71 per cent. said that they did not believe that.

The other main plank of the argument for a broad cross-section of support comes from a consultation exercise that the county council organised around the district, much of it taking place after the date for submission of the bid. The argument has been presented as take it or leave it, as in the comment from the Secretary of State that

“the status quo is not an option”,

which appears in the invitation to bid and has appeared in several statements from Ministers on the subject in intervening months. That was taken as gospel, but, in my view, there was a clear misunderstanding as to what it meant. I would be grateful if the Minister would explain the statement for the benefit of people outside this place who are listening to this debate.

I expect that the misunderstanding revolves around the fact that the Government have recognised that they cannot afford to compel the whole country to move to unitary, and are therefore considering an alternative structure and have allowed for pathfinder enhanced two-tier areas. They are anticipating that those areas that do not go unitary or become part of a pathfinder area will seek to encourage closer working together to extract maximum efficiencies from a two-tier structure. I would be grateful if the Minister would confirm that that is the Government’s interpretation of

“the status quo is not an option”.

Like those councils that are opposed to unitary, I regard that objective as being entirely appropriate, and it is one that Shropshire is well on the way to delivering. As I mentioned in the Committee, Shropshire is one of the leading advocates of joint working in local government. The Shropshire waste partnership has been established with all but one of the areas co-operating together on collection and disposal of refuse. In my area, Bridgnorth and South Shropshire last year merged their revenue services departments. South Shropshire had one of the most efficient council tax gathering departments in the country. Bridgnorth has taken advantage of that, and considerable savings are accruing to both councils from combining the management of that function. A great deal more can be done across the county through closer co-operation and joint working, and it would help enormously in resolving the uncertainty if the Minister would confirm that that is indeed a perfectly legitimate way forward.

The arguments presented in the meetings that I referred to were one-sided because no time or space were given, even in the submission itself, to the alternatives available to the council. Unitary was presented as the only option, and, as a result, those people who decided to support unitary took the view in most cases that it was the only option, and that they were being asked to vote in a Stalinist manner, to quote my hon. Friend the Member for Brentwood and Ongar, when only one candidate was put forward.

I recall visiting the BBC website where a poll had been attempted that it was not possible to complete. Would my hon. Friend remind hon. Members what happened to that poll?

That is a good example of the conduct of the proponents of a unitary council in seeking to make their case as one-sided as possible. The local radio station, BBC Radio Shropshire, conducted an online poll that invited people to say whether they were in favour of or against the unitary proposal. The director of communications of the county council issued an instruction to employees of the county council by e-mail to encourage them to participate in the poll; fair enough. However, he also gave them the clues—or cookie to use the technical expression—to circumvent the device within the poll that prevented people from voting more than once.

Indeed, that was precisely what he was suggesting. Consequently, he was suspended from his post and I have been pressing the chief executive of the county council to let me know what disciplinary action will be taken against him.

One of the officials from the Minister’s Department, Mr. David Prout, who is the director of communities and local government, came to speak in Shropshire about the White Paper, “Strong and Prosperous Communities”. During that session he was asked a question, which I will quote from Councillor Tina Woodward’s letter to the Minister:

“As councils in Shropshire have had a ballot and the results were a unanimous ‘no’ to unitary, why was it now that the Government were deciding to consult the public?”

In his answer, Mr. Prout stated that

“he was aware ballots had taken place, however it would be for elected members to decide as they were elected to do so”.

In a public meeting in Shropshire, he gave the impression that the decision would be taken by councillors, not by the public. However, that directly conflicts with what we discussed earlier regarding public consultation forming an important part of establishing support for the proposal. Coming from a Government official, such a statement helped those present at the meeting to be confirmed in the belief that unitary was the only option. As time is pressing, I will move on to some of the other points that I wish to make.

The case against unitary and in favour of an enhanced two-tier system has not been put as clearly to the Minster as I would have liked. That is because the Minister has sought representations from those groups that wish to proceed with the unitary option, rather than from those who are opposed to it. I have referred to the two third-party reports from Capita and Professor Chisholm and representations have also been made by those councils that are opposed to the idea. Can the Minister confirm whether the views of the three councils in Shropshire that are opposed to unitary have been taken into account? What respective weight will she give to the fact that we have three councils for and three councils against the proposal?

It is clear from the explanatory documents that went out with the invitation for bid that an individual council or a group of councils cannot prevent an area from becoming unitary if, in other respects, the criteria set out by the Government are satisfied. In light of the overwhelming public view and the view of the three councils, it would be most helpful if the Minister would clarify what criteria she will use to judge whether or not local representatives, through their council decisions, will be allowed a voice.

Local concern about the issue is largely focused on democratic accountability and representation. In this country, we already have the lowest number per thousand of the population of elected representatives of any country in Europe. As I said earlier, the unitary proposal would substantially reduce the number of elected representatives in Shropshire. The attempt to provide some form of local participation through the introduction of 27 local area committees was said in the Capita report to be fundamentally flawed, because the area committees would have very limited resources and, effectively, no powers other than to advise. The feeling among the communities of Shropshire, particularly in the area that I represent, which is characterised by a large number of small villages, is that they will lose representation. When I hold surgeries anywhere in my constituency and discuss this matter, I ask people whether they want decisions to be taken by a remote—I try not to use emotive words—by a council based in Shrewsbury, the county town, or by the district council, and people universally say that they would prefer decisions to be taken at a more local level.

In Committee, the Government placed great emphasis on the fact that the objective of the Local Government and Public Involvement in Health Bill is to decentralise decision making—to take decisions closer to the people. In Shropshire, if we remove the district councils, decisions will be taken by a council that is heavily dominated by people who live in the county town of Shrewsbury. That might be an attraction for my hon. Friend the Member for Shrewsbury and Atcham.

Although I am well aware that he does not want unitary. The proposal will deny democratic decision making; it will centralise decision making; it is unpopular. The village voice, which at present is catered for by the district councils, will disappear. District councillors currently represent about 1,000 people. In many parts of my constituency that means a collection of two, three or four villages. If we move to a unitary structure, the councils will represent populations of 5,000, which, by definition, will be centred on the towns rather than the villages. Those villages feel that they will lose out. The local area committees proposed by “One Council for Shropshire” will not provide an adequate voice for villagers to enable them to feel that they are involved in decision making.

In conclusion, if the Minister ignores the ballot of public opinion that has taken place and given such a clear and decisive result, she does so at her peril. She should remember what happened in the north-east. Does she want to go down in history as the Minister who followed up the Deputy Prime Minister’s gaff in going for a regional referendum with a local referendum in Shropshire? That is what the local elections will become. In a meeting that we had last month, the Minister’s colleague, the Minister for Local Government, made it clear that the public consultation period is designed to straddle the local elections in May. If the Minister allows Shropshire to go forward into unitary and ignores the previous ballot, I confidently predict that the decision will go against unitary, because anti-unitary candidates will be elected, will reverse the decisions taken in at least some of those councils that are currently in favour of unitary—the county does not have elections so that would be in the district councils—and the current proponents will in some cases become anti-unitary. As a result the proposals will come back to the Minister to be rejected. I suspect that the agony of that process could be avoided.

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

From what the hon. Gentleman has said, people listening to the debate could be forgiven for thinking that the proposal is some evil deed of the Government trying to force unitary. In fact, the proposal has come from a Conservative-controlled county council. When he says that there will be anti-unitary candidates standing against pro-unitary candidates, does he mean that people within the same party—his party—will be standing against each other to put a unitary or non-unitary point of view during the local elections?

I am not saying that at all. What I am saying is that there will be a number of people standing on a predominantly non-unitary ticket. We have a large number of independents within South Shropshire and Bridgnorth and I anticipate that many of those will be overtly campaigning on an anti-unitary ticket. In addition, there may well be political parties—in my area, I anticipate, the Conservatives—that will campaign on an anti-unitary ticket. That is, indeed, my party’s policy, and that is what I anticipate will happen. If the Minister chooses to ignore that outcome, too, that will bring into sharp relief the Government’s real attitude towards local democracy and accountability.

I congratulate my hon. Friend the Member for Ludlow (Mr. Dunne) on securing the debate, not simply because it is standard procedure to do so, but because this is an extremely important subject. He and I have been approaching the Speaker’s Office for a considerable number of weeks, and I am extremely pleased that my hon. Friend has secured this debate.

The invitation to bid document has frustrated me greatly; indeed, I am starting to get my first grey hairs as a result of it and the whole unitary debate. Shropshire taxpayers have spent a huge amount of time, energy and money considering the document, although it may not even come to fruition. The document is a fig leaf to cover the Government’s lack of funding and attention for the shires. They have deliberately neglected Conservative areas and shire counties, and as a result of their direct underfunding for Shrewsbury and Shropshire, they have come out with the invitation to bid document, which puts the emphasis on getting us to make cost savings, rather than on scrutinising their lack of funding for shire counties. That is an absolute disgrace and one of the worst travesties in our area under this Government—after their lack of funding for the Royal Shrewsbury hospital, of course, which is their No. 1 crime.

The increase in the local government contribution to Shrewsbury and Atcham borough council this fiscal year is 1 per cent. When one thinks that inflation is 2.7 per cent., one realises that the Government are actually cutting funding to Shrewsbury and Atcham. On top of that, they are giving neighbouring Telford and Wrekin council an extra £80 for every household. We therefore have two constituencies side by side, but one gets £80 more than the other for every household.

The Government’s response, however, is always the same, “Our policies are skewed to ensure that areas of deprivation get more funding. We socialists want to give areas of deprivation more funding.” I must tell the Minister, however, that there are significant areas of deprivation in Shrewsbury. When the hon. Member for West Ham (Lyn Brown) kindly came to Sundorn to see a new library being opened, she told me, “I didn’t realise you had areas like this in Shrewsbury.” The standard reply from socialists who come to Shrewsbury is to say, “We’re amazed. We didn’t know you had council estates.” The standard prejudice among socialists is that Shrewsbury is a prosperous county town of beautiful flowers that does not need help. That is an absolute disgrace.

Can I just finish the sentence? It may help the hon. Gentleman if I suggest what I think he is accusing my hon. Friend of, because he seems to be accusing her of saying that Shrewsbury is a nice place.

The Minister is wasting our time by saying that. We all know that Shrewsbury is a beautiful place, but I am trying to intimate to her that we have areas of significant deprivation, which the Government do not fully comprehend.

Despite the 1 per cent. increase and the lack of funding, Shrewsbury and Atcham is still rated an excellent council. It has recently built a state-of-the-art theatre and has a sports village in Sundorn, which is a regional facility. It has recently built a new livestock market, which is the most modern in the country. It has been rated an excellent council. It has funded and constructed a new guildhall. It has £50 million in the bank and its economic management is financially sound, despite below-inflation grants from central Government. It has been awarded beacon status for election practices and Investors in People status for its organisation and relationships with staff. It is the winner of the Britain in Bloom competition and is now going forward as Britain’s entrant in the European Entente Florale competition. It has also instigated a request for Shrewsbury to be included in the extension of the west midlands high-tech corridor. Finally, it is an instigator and financier of the northern regeneration corridor study, which is a major regeneration initiative in the northern area of Shrewsbury.

I invite the Minister to come and look at the way in which Shrewsbury and Atcham borough council operates. It has an excellent chief executive and a formidable council leader, Peter Nutting. It is a truly excellent council, and it would be a great disservice to the people of Shrewsbury if it were dismantled, destroyed and thrown out in favour of an untried and untested unitary authority.

I came into politics because of a genuine interest in democracy—I have a passion for democracy—and I am deeply concerned that Shropshire county council is pursuing the unitary bid despite the fact that my constituents have so clearly rejected it. What right does the county council have so publicly to pursue the bid, when my constituents are so overwhelmingly opposed to it? And what right does Oswestry borough council have to promote it? This is a forced marriage—an arranged marriage—and Shrewsbury is an unwilling partner. We should not be dragged into a unitary organisation against our wishes, and I shall go to Shropshire county council’s next full meeting formally to ask for this outrageous bid to be withdrawn.

Some Shropshire county councillors—this is an important point for the Minister—have told me that they deeply regret voting for the unitary authority and that the issue was not fully explained to them at the time of the vote.

I thank the hon. Gentleman, because that gives me the opportunity to state that I was against the war in Iraq at the time—

Order. We are not discussing the Iraq war in a debate about local government in Shropshire. All hon. Members should stick to the subject.

I am grateful for that ruling, Mr. Bayley.

Shropshire county councillors told me that they were not fully aware of the facts and mentioned other concerns. That is an important matter, because some people were under the impression that Shropshire county council would lose money in some way if it did not vote for a unitary authority. It is a serious issue for a county councillor to be told, “If you don’t vote for the unitary authority, Shropshire will lose out on funding, and local taxpayers will have to pay more.” I shall be putting that point to the county council’s monitoring officer, because I am extremely concerned that some county councillors were under that impression.

I was so concerned about the issue that I went to see the Minister for Local Government. He and his senior civil servants told me unequivocally that if Shropshire rejected the unitary authority, there could not and would not be any funding cuts under the local government settlement. Indeed, it is impossible for the Government to cut that funding because the mechanism is in statute. Some of my county councillors were not aware of that, and now that I have given them assurances on the issue, they very much regret voting for the unitary authority. When I go to Shropshire county council to ask it to withdraw its bid, I shall also ask it to consider another vote to see what councillors will do now that they know all the facts.

My hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) has suggested that there is something Stalinist about the Government. I am very concerned that when the vote took place at the county council, everyone present voted for a unitary authority. I am concerned when there is total unanimity on a vote, because there should always be a certain amount of dissension. I am worried about how that vote was carried out, what information was given and why councillors all voted in that way.

What worries me more than that is the behaviour of Labour and Liberal Democrat councillors. Every single one of them without exception voted for the unitary authority. They want to abolish the strong Tory-controlled Shrewsbury and Atcham borough council and are behaving with a political perspective. Every Liberal Democrat and Labour councillor in my council voted to prevent my constituents from even having a referendum, apart from Councillor Farmer from Bagley, who is a very honourable Liberal Democrat gentleman and our former mayor. On the one hand, the Government, in their invitation to bid, are saying, “Well, in order for this to go ahead, there must be a certain amount of public acceptance”, but on the other hand, every Labour councillor voted to prevent constituents from having a say. That is an absolute scandal.

Why are the socialists and Liberals so keen on that? The answer, of course, is quite clear: after the next election, I expect that we will have a Conservative Government, but if we do not there is a small chance—God forbid!—of another Lib-Lab pact. If that happens, the price that the socialists will have to pay the Liberals will be proportional representation in local government. If that is introduced, and we have a unitary authority, the socialists and Liberals will control Shropshire in perpetuity, because that is the nature of proportional representation. It is an absolute scandal that socialist and Liberal councillors are acting so politically.

Shropshire county council should be focusing on improving educational facilities and, in particular, on providing better care for children with autism, about which I feel passionately and about which my constituents talk to me. It should be focusing on our care homes and other issues that affect constituents on a daily basis. It frightens me to death the amount of time, energy and money that has been spent on the invitation to bid document, rather than on the bread-and-butter issues that affect my constituents on a daily basis.

I need to inform the Minister that Shropshire county council’s bid fails on two key criteria according to its own invitation to bid document—my hon. Friend the Member for Ludlow alluded to some of this. The first criterion is public support. We need to prove some semblance of public approval. As my hon. Friends have said, the county council’s way of showing that was to interview just 44 people. How ludicrous! It is an absolute disgrace! In comparison, Shrewsbury and Atcham borough council held a public referendum, the wording of which was audited by the Electoral Reform Society, which also counted the votes. Everything was done scrupulously and independently.

More than 27,000 of the great men and women of Shrewsbury took part in that referendum on a relatively difficult question, in which not everyone is necessarily interested. Think about it—more than 27,000 of my constituents actually made the effort to look into the matter and cast their ballot. And nearly 70 per cent. of them voted against the unitary authority. That is despite the fact that Shropshire county council promised to cap council tax to 3.5 per cent. for the next two or three years—the biggest carrot that has ever been dangled in front of my constituents. Nevertheless, still my constituents, knowing that, decided to reject the unitary authority proposals.

I have said that I am concerned deeply about the behaviour of Labour and Liberal councillors, and I shall continue to pursue that. I have been jumping up and down during Prime Minister’s questions for the last few weeks trying to be called—unsuccessfully. When I am called, I shall ask the Prime Minister directly whether, if they put that criterion in an invitation to bid document, he will respect the wishes of the people of Shrewsbury, and ensure that his Government behave honourably.

The second criterion is the business case. Shropshire county council’s business case does not hold water. I have been quoted in my local newspaper saying that it is like a Swiss cheese—it is so full of holes, it simply does not hold water. My hon. Friend the Member for Ludlow mentioned the Capita report and Professor Chisholm of Cambridge university. I had an extensive telephone conversation with Professor Chisholm the other day. He is a leading expert on local government and has assured me, having read Shropshire county council’s report, that it simply does not stack up. The Government said that the business case must stack up before moving to the next stage.

The Government cannot pursue that because the proposal will be liable to judicial review. I assure the Minister that if she allows it to move to the next stage, Shrewsbury and Atcham borough council and I shall ensure that it goes to judicial review. We will do everything in our power to ensure that the Government are highly embarrassed. It would be “a very courageous move”—as Sir Humphrey Appleby once said—on her part to allow that to move forward. She will have egg on her face when the judicial review takes everything into account. How can we trust the Government, if they set guidelines in the invitation to bid document and then ignore them?

I am running out of time, so I shall be quick. I am also deeply concerned about Shropshire county council’s chief executive, who has tried to lobby the public directly through public meetings and challenging me and others on television. I have been told that if the council is in favour of unitary authority, the chief executive has every right to lobby on that issue in public meetings and on television, but I disagree, because she is not elected or accountable to constituents in the way that we are. I would like the Minister seriously to consider what guidelines the Government will give to chief executives on the role that they can play in appearing on television and in public meetings in pursuing a certain policy. Chief executives must be totally impartial and independent, because if there is a change of administration, they will have to pursue a totally different course of action. That is why it is so important that they do not appear on television or at public meetings trying to convince citizens to vote in a certain way. I would be very grateful for such assurances.

Finally—I have more to say but we are running out of time—I am so concerned that I have been to see the Audit Commission and submitted various statements from me and my constituents, and it is investigating our complaints. I have even been to see Lord Sandy Bruce-Lockhart, the chairman of the Local Government Association, with whom I am pursuing various lines of action. Regrettably, I have been informed that the Government—I hope that the Minister can contradict me—intend to allow all the shire bids to jump the first hurdle. What a shame that we must hear that through rumour. It is something that should be decided by Parliament. We should find out here, not through rumours. How can the Government do it when they have not considered the two-tier system?

We cannot allow the unitary proposal to go forward. At the same time, we should be considering the enhanced two-tier system. I urge the Minister to consider what Shrewsbury and Atcham borough council has proposed—a brilliant two-tier scheme that will save the Government a great deal of money. The Minister should examine that enhanced two-tier scheme of working; it will save the Government more money than the unitary bid proposals. I implore her: please respect the wishes of the people of Shrewsbury and do not force that ghastly unitary authority on us.

I congratulate the hon. Member for Ludlow (Mr. Dunne) on securing this debate. He and the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski) had a great opportunity to put their side of the case in the arguments for and against unitary authorities in Shropshire.

Shropshire is a fine county. I recently had the opportunity of spending the night there, although it was in somewhat unfortunate circumstances. I was with members of the Select Committee for Environment, Food and Rural Affairs and we were stranded there by adverse weather on our way back from a visit to the Centre for Alternative Technology in Powys. None the less, we had a most pleasant evening in Shrewsbury; it is a fine town.

The hon. Member for Ludlow began by outlining the successes of local government in Shropshire. He drew attention to South Shropshire district council and said that Liberal Democrats around the country often congratulate our colleagues there—they are led by Councillor Heather Kidd—particularly on their innovative solutions to tackling the problem of housing affordability for local residents. They have had great success in providing new opportunities for affordable housing—to buy, to part-buy and to rent.

The hon. Gentleman also pointed out the successes and the good assessments made of the county council, which is Conservative led. It is crucial to remind the House that one is a Liberal Democrat-led council and the other is Conservative led, and that both have come out in favour of a bid. It is not that I advocate a unitary authority for Shropshire; I merely say that there are those in Shropshire who make such a case. It is important for us to bear that in mind.

The hon. Gentleman seemed to make a strange attack on the leader of South Shropshire district council, saying that she had no mandate to speak for people there as the Conservative party had failed to field a candidate against her at the last election. It remains to be seen whether the Conservative candidate at the next local election will be in favour of unitary authority, as is the Conservative-controlled county, or whether he will be against it, as the hon. Gentleman implied that many other Conservatives are. We will have to wait to see what happens.

The hon. Gentleman raised some understandable concerns about centralisation. In many of the debates about potential unitaries, particularly about those county bids that have gone forward throughout the country, that will understandably cause some anxiety. It is up to those who have made a bid to say how they intend meeting those concerns and whether they will provide some measure of devolution within the proposed new structure to ensure both local decision making and that the concerns of local people are borne in mind.

The hon. Member for Shrewsbury and Atcham spoke about funding councils in rural areas. He was right to say that many rural areas face a raw deal under recent Government policies. My area of Cornwall could make a similar claim. He issued a plea for the good actions of his council, Shrewsbury, to be taken into account. He also spoke of his support for European initiatives such as the Entente Florale. I know that he is interested in European issues generally.

I am sad to say that the hon. Gentleman also made some odd remarks about some sort of plot by Labour and Liberal Democrat councillors. That argument was somewhat bizarre. As we heard earlier, the Conservative-led council put forward the proposal for a unitary authority, although members of other parties supported it. It is most important to bear that in mind.

From my party’s perspective, any consideration of local government structure must be a matter for local people, through their elected representatives—and through the consultation that will doubtless have to take place under the Government’s proposals. If any proposal from Shropshire meets that first hurdle, it can move on to further consideration.

When considering how unitaries from the last round of local government reform have progressed, it is fair to say that there have been some arguments about size—whether some unitaries were the right size to deliver the services requested. Retrospectively, we could say that some of those unitaries were smaller than they might have been. That presents particular—though not necessarily insurmountable—challenges, and it certainly puts extra pressure on those councils to deliver.

The important thing is that there must be good local political leadership and engagement with people. I stress that it is all about the vision that people have for their communities and not necessarily about the structure. Whether the structures work or fail depends on the leadership provided by the locally elected members.

The unitary issue in Shropshire is a cross-party one. It is important to make that point consistently. It is unfortunate that the word “Stalinist” has been bandied around about various political parties and political figures. It has not escaped my attention that the leader of the Conservative party wrote to councillors around the country urging them to reject unitary bids, and setting that rejection as party policy. That seems a slightly odd action for a party that claims to have been persuaded to localism.

There is a clear distinction between the Conservative party and the Labour and Liberal Democrat parties. In our party, different and contrasting views have been expressed by councillors, but that is not the case for Labour and the Liberal Democrats. To a man, and to a woman, they have all been in favour of a unitary authority. Whereas there has been genuine healthy debate in our party, local debate has been Stalinist among the Labour and Liberal Democrat parties.

I am grateful to the hon. Gentleman for that intervention, but it was somewhat undermined by his earlier comment about a particular Liberal Democrat who took a different view.

The hon. Gentleman says that the leader of the Conservative party has written to all councillors; that is not true. He made those comments in a speech to the Local Government Association conference in July last year. No letters have been written.

I am grateful to the hon. Gentleman for correcting me, although I understand that fairly strong pressure has been exerted by the Conservative local government team, of which he is a member, to imply that unitaries are very much not the policy of his party and therefore that councillors should not make a bid. However, some in Shropshire clearly have done so.

We will soon have the results of the bidding process and discover which bids are to move beyond that first hurdle. We then need genuine consultation and engagement, in Shropshire and elsewhere, to ensure that there is support for such a bid—that, having made an economic case, it has local support.

I must also criticise the Government over the Local Government and Public Involvement in Health Bill, which is now making its way through the House. It is not just about structure; it is also about leadership.

I take the hon. Gentleman back to his comments about public support. Does he accept that a ballot has already taken place in Shropshire?

I know that ballots have taken place in some parts of the county, but I am not in a position to comment further as I do not know whether the questions were the same in each ballot or the extent of the turnout in each area. Clearly, there has been some expression of opinion in both directions.

Let me revert to the point that I was making. The question is not just one of county structure, it is also about how leadership is demonstrated within that structure. It is unfortunate that the Government consistently propose centralisation of power in local authorities, because it might present problems for authorities that progress toward a unitary structure if such moves are perceived as centralising.

I congratulate the hon. Member for Ludlow once more on securing the debate. It is clear that a discussion is taking place in Shropshire about whether the proposals constitute a move in the right direction. I hope that hon. Members and members of local authorities across the county will ensure that all views are fairly represented in moving towards a decision after the Government’s announcement on the Shropshire bid.

It is a pleasure to appear before you, Mr. Bayley. The debate has been enjoyable, not least for the opportunity to listen to my hon. Friends the Members for Ludlow (Mr. Dunne) and for Shrewsbury and Atcham (Daniel Kawczynski). Their battles on behalf of their constituents have drawn admiration from all parts of the House, as have their persistence and the quality of their arguments, and today has been no exception.

Like the hon. Member for West Ham (Lyn Brown), I have visited Shropshire. However, when I was walking there with my hon. Friend the Member for The Wrekin (Mark Pritchard) on a sunny December day when buzzards were rising on the thermals, I would never have believed the amount of turbulence that was being caused by the restructuring of local government. It is a pleasure to see my hon. Friend in his customary place. However, what a pity that restructuring has become such a terrible distraction—that was the point that I think my right hon. Friend the Leader of the Opposition was making to the local government conference. We have been bedevilled in local government by moves backwards and forwards between reviews, including on structure and finance. Today has seen the publication of the report by Sir Michael Lyons, which I was reading a few moments before I arrived in the Chamber. We have again been left with a timid response on what he thinks the Treasury will want him to do.

The whole question of the functioning of local government has lain in aspic for the best part of 100 years. My view is that reform of local government should be about its function, and that structure and finance should flow naturally from that. I deeply regret that the Government have rejected what I believe to be a growing consensus in local government that change should take place on the basis of reform of function. That consensus could have been extended, and an opportunity has been missed. The Secretary of State for Communities and Local Government was right when she said that local government should be issue-led. The outcome is the most important matter for citizens to consider.

Along with other authorities, Shropshire took part in the survey whose results were recently published by the Local Government Association. Concern was expressed about council care services. Four hundred councils took part in the survey, and 40 per cent. said that their financial situation was worse than in the previous year, while 51 per cent. believed that the financial situation with regard to care services would stay the same or get worse in the next financial year.

Lord Bruce-Lockhart said that

“there are grave financial pressures on both councils and the NHS that are starting to impact on the quality of service”

for people in care. It would make far more sense to deal with those matters than to spend an enormous amount of time worrying about unitary authorities.

I spent the best part of 11 years of my life with the fourth largest unitary authority in the country—the latter part as leader. My experience is with unitary authorities, and I had a wonderful time. However, I recognised when I moved to a more rural area than Bradford that the partnership between county and district could be a dynamic one.

I had an opportunity to go to West Sussex and ask about the model that is used there. It has been the subject of some discussion. I was interested to hear that the folks of West Sussex are surprised that other people are taking up that model, because it was produced largely on the basis of a guesstimate. My right hon. Friend from Ludlow—I beg his pardon, my hon. Friend the Member for Ludlow, although no doubt he will be right honourable in due course—referred to the work of Michael Chisholm, the Cambridge university emeritus professor, who has outlined the cost of restructuring. Professor Chisholm reckons that the cost is something in the region of £121 per head, and that

“there is every prospect that on-going costs would in fact be increased. Such a bill would be equivalent to £345 per council tax-paying household.”

That strikes me as a very large sum of money indeed.

I went to listen to the Deputy Prime Minister at the time when he still had a Department and was appearing before the Select Committee on the Office of the Deputy Prime Minister. In giving evidence as to whether people would be consulted, he said:

“What we are not saying…is that we will abolish you. We are saying that we will give you an opportunity if you want to make a decision to become a unitary authority and we will leave the choice with you.”

That is what my colleagues have been proposing. The Deputy Prime Minister continued,

“we are looking at the local government structure and organisation and saying to people who live in the unitaries and the counties if you want to have a unitary then you can have a ballot, discuss it with the people, but if you want it, fine. What is wrong with that?”

The hon. Member for Mole Valley (Sir Paul Beresford) was on the Select Committee panel. He asked the Deputy Prime Minister:

“If they do not want a unitary and they wish to stay the same…?”

The Deputy Prime Minister replied:

“They will vote presumably for that. If you look at the regional ballot that we had in the North East, people had the vote as to whether they should be unitary.”

I am worried that the whole thing has been pulled back from people despite clear Government statements on it. There has been tremendous turmoil, not just in Conservative authorities but in Liberal Democrat and Labour authorities. I am greatly indebted to Ann Black of the Labour party national executive committee, who has a blog on NEC meetings. She reports that, at the national policy forum on 3 February:

“John Prescott opened the meeting by warning against division and calling for vigorous but constructive debate.”

The press were asked to leave at one point, after which, she reports:

“Tony Blair fielded a wide range of questions with his usual fluency.”

According to the blog, when the Prime Minister addressed the issue with that usual fluency, he said that he was aware of differences between county and district councils on local government reorganisation, but urged people to concentrate on issues that voters cared about.

I am not entirely sure that voters at the Dog and Duck care enormously about the issue. However, the voters in Shrewsbury were consulted, and they followed the advice that was given by the Deputy Prime Minister, by the Prime Minister and by the Minister for Local Government. They cannot have their views so easily dismissed—that would be a travesty. It would make a mockery of democracy.

It is not impressive that a council has consulted 44 people and has based a policy on that consultation. When I visited Ironbridge, I saw a fish and chip shop with a queue that had more than 44 people in it. Ballots with turnouts of 46.5 per cent, 37 per cent., 41 per cent. and 40 per cent., however—they are impressive. No one can dismiss them. I understand that tomorrow the announcement will be made. I may be wrong about that, but it would be an insult to ignore the views of a substantial proportion of the people of Shropshire.

Let me explain one of the things bedevilling us. I would be grateful if the Minister responded to this; I shall put it to her as delicately as I can. There is a suggestion that the chief executive of Shrewsbury, Carolyn Downes, has some kind of special access to the Secretary of State for Communities and Local Government and that a back-door deal is being sought to circumvent the will of the people of Shropshire. I would like the Minister to give a clear assurance that everything that will be done with regard to unitaries in Shropshire will be above board, that there will be no back-door deals and that no person has a greater say than the people of Shropshire, who have been asked a question in a ballot and have given a very clear mandate.

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

I thought that the comment by the hon. Member for Brentwood and Ongar (Mr. Pickles) that no one should have a greater say than anyone else was quite appropriate. It is interesting that in a debate that has ranged so widely and in which so many questions have been asked, I should get the least say when it comes to trying to answer those questions. However, I shall do my best and I apologise now to hon. Members who spoke at length if I cannot deal with the points that they raised; I would very much like to do so.

First, I congratulate the hon. Member for Ludlow (Mr. Dunne) on initiating the debate. This is clearly an issue about which he and the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski) feel very strongly indeed. I do not think that I have responded to any other Adjournment debate—indeed, any debate in the House of Commons—in which I have had so many challenges. I have been told that I will ignore the comments at my peril and live to rue the day. I appreciate the very strong feelings that people have on the issue.

I hope that the hon. Member for Ludlow will understand that I am somewhat constrained in what I can say today. I will do my best to answer questions that have been raised, but if I was to respond to some of the questions that have been put to me, I would be commenting on the merits or otherwise of a particular proposal, and clearly I cannot do that until Ministers have had the opportunity to consider all the information that is put to them.

The hon. Member for Shrewsbury and Atcham made a comment about rumours. May I assure him that a decision will be made and there will be a written statement to the House of Commons in the appropriate way? That is how the decision will be announced.

For clarification, I take exception to the disgraceful comments from the hon. Member for Brentwood and Ongar about back-door deals. I can give an assurance to the hon. Gentlemen who have raised these issues already that all the information provided to Ministers will be considered in the course of the examination of the issues. I was asked specifically about the reports, including Professor Chisholm’s report. I can give an assurance that that matter will be looked at by civil servants and they will report to Ministers. We will have regard to all the information when making decisions. I hope that reassures hon. Gentlemen.

On that specific point, will it be possible for Parliament to examine the way in which the bid has been assessed? Will we be able to see all the e-mails and assessments by civil servants on this issue?

No, of course not, and the hon. Gentleman is wasting time by suggesting such a thing. There is certain information and advice to Ministers that under the Freedom of Information Act 2000 it is not open to everyone to see, but I hope that the hon. Gentleman will accept the assurances that I have given him—or perhaps he is suggesting that my assurances have not been given in good faith. Information will be fully examined and fully considered, and all the information will be taken into account before decisions are taken. I hope that that explanation is sufficient for the hon. Gentleman to understand the process. If I have time in the few minutes available to me, I will go through the criteria against which the proposals will be examined.

There seems to be some confusion about why this matter was brought before councils in the first place. Perhaps it will help hon. Gentlemen if I say that there is no political conspiracy. I was not aware of the degree to which hon. Gentlemen thought that it was a party political issue; indeed, I had not seen it as such at all. Representations were made to Governments over many years, showing that there was considerable concern about different structures in different areas and asking whether there would be an opportunity for some councils to make proposals for a unitary authority. The invitation was issued with that in mind, not because of anything to do with funding. Incidentally, the figures given by the hon. Member for Shrewsbury and Atcham on funding are completely inaccurate. In respect of the funding for his council, I think that the increase was 2.9 per cent. on a like-for-like basis. This is not about funding.

Will the hon. Gentleman let me address the points that he has raised in debate? I do not want to leave questions unanswered in the debate and I am doing my best to address all the points that he and his hon. Friends have put to me.

This issue had nothing to do with regional government; it had nothing at all to do with funding. It was about putting the citizen at the heart of service delivery and asking in each area what is the best way to achieve service delivery. If councils in an area want to make a bid for a unitary authority in the interests of a better service to constituents, it is open to them to do that, but I take the point that we cannot have ongoing confusion and change in local government. There was a window of opportunity. People can find the two-tier system quite confusing and inefficient in many ways, and the opportunity has to be there.

The hon. Member for Ludlow asked about the status quo not being an option. Our goal is more efficient services for the public. The White Paper referred to the

“risks of confusion, duplication and inefficiency between tiers”.

The councils themselves will find the best ways of addressing that confusion, duplication and inefficiency. Shropshire county council and others in that area have come forward with a proposal for a unitary authority, but authorities may want to, as the pathfinders will, enhance two-tier working. Both of those are options that are open to local authorities, but in this case the bone of contention for the hon. Gentleman is that Shropshire county council has not wanted to put forward a two-tier model.

I was slightly amused—I know that the hon. Member for Shrewsbury and Atcham will forgive me—when he reported that the county councillors, who I assume had a fairly lengthy debate on the issue, did not know what they were voting for until he told them, but all members of the public who voted had examined the issue in detail. I assume that if there is confusion, it has gone across the board and it is not just councillors who may have been confused.

We in government have to look at the information that is presented to us, and all the information will be taken into account. Each of the 26 proposals has been carefully considered over the past eight weeks against the clear criteria set out in the invitation. Once a decision has been taken on which proposals can go forward, a full decision letter will be sent to the authorities, setting out the reasons for the decision, whether that is to move forward with the proposal and go out to consultation or not. It might be helpful if I explain to hon. Gentlemen the criteria that we take into account.

First, the proposals must be affordable. The change to a unitary structure must represent value for money and must be met from councils’ existing resources. Proposals must be supported by a broad cross-section of partners and stakeholders. In addition to affordability and support, we also need to check whether proposals provide strong, effective and accountable strategic leadership in an area, deliver genuine opportunities for neighbourhood flexibility and empowerment, and deliver value for money and equity on public services.

The hon. Member for Ludlow raised the issue of the local polls held by some councils across Shropshire and how we take those into account. Of course, we have to have regard to any poll that is held in an area for which a proposal has been put forward to us. That will not be the only factor that is taken into account. Clearly, there is other information as well. A poll will be one of many factors that we take into account in assessing proposals.

The hon. Gentleman used the phrase “set aside”. Clearly, information will not be set aside; it will be considered. He also suggested that I would ignore the poll at my peril. I think that that is a misrepresentation. He might want to reconsider his remarks on that. All the information is considered in the process. Ministers have regard to all the information that comes through. I can give him that assurance, but we need to take into account how accurately the poll reflected public opinion. If the hon. Gentleman asked his constituents, “Do you want to be governed by a remote local authority?” clearly a poll couched in those terms would be regarded slightly differently. The wording of the question is important. We want to have a true assessment and accurately judge public opinion.

We are talking about the devolutionary principle. It is not top down from Government; it is bottom up. That is why an invitation was issued for local authorities that wanted to bid for a unitary authority to do so. The Government are obliged to consider and will fully consider the bid from Shropshire county council and others, and we will take into account all factors that have been presented to us.

Police Ombudsman for Northern Ireland

I welcome the opportunity to address this issue. On Monday 22 January, the Police Ombudsman for Northern Ireland held a press conference to launch her statement on the investigation into the circumstances surrounding the death of Raymond McCord Jr. and related matters. Her statement detailed the outcome of a four-year investigation, known as Operation Ballast, into the police’s handling of informants in a north Belfast grouping of the Ulster Volunteer Force, which is a proscribed terrorist organisation.

The ombudsman’s statement had significant flaws. Without offering any substantive evidence or justification, it made a series of assertions that were highly damaging to the reputations of a number of identifiable individuals and to the collective reputation of the Royal Ulster Constabulary, George cross. Let me make it clear from the outset that I deplore the murders of Raymond McCord Jr., Peter McTasney, Sharon McKenna, Sean McParland, Gary Convie, Eamon Fox, Gerald Brady, Thomas Shepherd, William John Harbinson and Thomas English, all of which were touched on by the ombudsman in her report. Those people were all murdered by the UVF in north Belfast, not by the RUC. There is no evidence that any police officer committed any criminal offence in connection with any of those murders.

The ombudsman’s report made allegations of guilt, but her investigation did not produce prima facie evidence that is acceptable to the Public Prosecution Service. The Director of Public Prosecutions had already directed, before the ombudsman’s statement, that there should be no prosecution of any serving or retired police officer. Similarly, no action in respect of any alleged breaches of police discipline is recommended in the ombudsman’s statement. Despite all that, the ombudsman appears to have concluded that special branch and, in certain cases, the criminal investigation department exhibited a mixture of disregard for the criminal justice system and incompetence, and that somehow special branch, rather than the terrorists, were to blame for Northern Ireland’s ills during the period in question.

Officers of the RUC, GC are very proud of the contribution that they have made to policing in our society, and particularly the contribution that special branch made to bringing relative peace to Northern Ireland. They are also proud that the counter-terrorist techniques that they pioneered in Northern Ireland are helping to save the lives of many people in other parts of the world in communities that have growing terrorist problems and significant organised crime. Officers who served in the RUC are saddened by attempts from some quarters to denigrate the immense contribution that has been made by all the police officers who served the people of Northern Ireland so well. They were not and are not prepared to be willing participants in this attempt at an Orwellian rewriting of history.

The serious shortcomings of the ombudsman’s statement may be attributable to her methodology, which appeared to be to decide the outcome of the inquiry at the outset and then to seek evidence to support the findings. That approach is particularly noticeable in the parts of the statement in which conclusions are based on the “absence of any explanation”. Facts that may tend to suggest alternative conclusions are conveniently ignored.

Yesterday, a number of senior retired police officers representing the Northern Ireland Retired Police Officers Association published a comprehensive rebuttal of the ombudsman’s report. They have no personal detailed knowledge of the specific events to which the statement refers. It is their earnest hope that the renewed interest in these matters will increase the prospect of a successful completion of police inquiries into the dreadful crimes that are referred to in the statement. Neither they nor I will do anything that might inhibit those prospects. The purpose of the rebuttal is not to question the detail of police action or to revisit the particulars of the ombudsman’s investigation into that activity, but to criticise the methodology of the ombudsman’s statement—its construction, layout and findings.

The statement has, predictably, been used as a political tool. It has been used most inappropriately, because it is flawed—its findings and conclusions are based on a total absence of contextual understanding and on dubious reasoning. One must recall that at the time of the events in question, there was still a serious situation in Northern Ireland with ongoing terrorist attacks and with the UVF in north Belfast being particularly active. It is easy, after the event, to apply conventional policing methodology to a situation, but policing then had to be unconventional at times, because we were involved in a conflict situation and engaged in countering terrorism. The important points are that it was unconventional within the law and that it was in accordance with the norms of gathering intelligence to counter terrorism. It is worth bearing in mind that many people in Northern Ireland are alive today because of the intelligence that police were able to acquire by infiltrating terrorist organisations—not only the UVF, but the Provisional IRA and other terrorist organisations.

Let me put on the record that the RUC successfully prosecuted more loyalist paramilitaries than republican paramilitaries, and that it had a high degree of success against loyalist paramilitaries. That is sufficient to counter the notion that the RUC was collectively and systemically engaged in collusion with loyalist paramilitarism. There is simply no evidence to support that accusation, yet some in the political realm have sought to use the ombudsman’s report to create the impression that there was systemic collusion by the RUC. Not even the ombudsman suggested that, but her report has been exploited to that end, and she has failed to rebut those allegations. That failing on her part ought to be corrected.

The ombudsman’s statement about collusion suggests no definition whatever for what constitutes collusion. The broadest interpretations of collusion are in the ombudsman’s report: it can mean an act of omission as much as an act of commission. It can mean destroying intelligence documents, which was a routine police action to protect intelligence—indeed, it is still a routine action for intelligence services in the UK.

While I am talking about intelligence, let me voice my deep concern about the way in which the ombudsman’s office is used to publish reports on paper and on the internet that expose vital intelligence-gathering techniques deployed by the police and intelligence services. That leaves this country vulnerable, because it is not only law-abiding people who read those reports. If I were in al-Qaeda or were a terrorist in the UK who sought to understand the methodology of the security services, I would need go no further than the website of the Police Ombudsman for Northern Ireland to find out a lot about the methodology adopted by our security services.

I draw attention to the publication, on 13 December 2006, of the ombudsman’s report into the murder of Stephen Restorick, a soldier who was murdered at Bessbrook in County Armagh. If one reads that report on the website, one will see detailed information about the intelligence-gathering techniques that are used by the security services in Northern Ireland, including techniques that are still used by security services throughout the UK today. In the context of the war on terrorism, that is a dangerous thing—it is a matter of grave concern that the Government need to examine closely. Of course there is a need for openness, but we must protect our country and our security services, which are doing valuable work to save lives. That aim is being compromised by the lack of accountability of the Office of the Police Ombudsman for Northern Ireland and by the publication of sensitive information.

The hon. Member for Lagan Valley (Mr. Donaldson) has referred to the police ombudsman’s report on a complaint about the murder of Stephen Restorick. Does he recognise that the report found that the suggestion or allegation that the Royal Ulster Constabulary could have prevented that murder was wrong? A number of the police ombudsman’s reports have discharged the RUC of allegations of either complicity in specific murders or of dereliction as far as investigations are concerned. Some of its reports have discharged the RUC of those suspicions, although others have found a suspicion to be upheld.

I am not suggesting that we should dispense with the services of the police ombudsman. The hon. Gentleman has completely missed my point, which is about not the ombudsman’s findings in her investigations of complaints, but the information that she publishes. My concern is that such publications potentially compromise our security services in their war against terrorism. That ought to be a matter of concern to the Minister and the Government, because it leaves our security services in a very vulnerable position and the techniques that they use might be being compromised unnecessarily. It is not necessary to publish such information in order to give the findings of a report.

I am limited in the time that I have available, so I must move on.

I want to make a number of key points about the ombudsman’s report. There is a lack of objectivity on the part of the Office of the Police Ombudsman for Northern Ireland, particularly in relation to the role of special branch. I urge the Minister to read the report that has been prepared by the Northern Ireland Retired Police Officers Association, and I shall ensure that he is provided with a copy. It goes to the heart of the matter and not only touches on the ombudsman’s investigation into the murder of Raymond McCord Jr. and related matters, but opens up wider issues about the conduct of the police ombudsman’s office, its powers and the manner in which its investigations are conducted.

I regret the way in which retired police officers have been dealt with during this investigation. It was wrong for the ombudsman’s statement to identify a number of senior retired police officers, because their security has been compromised and their families have been put under stress when the officers have done nothing wrong. The ombudsman’s statement contains no evidence to suggest that they are guilty of any wrongdoing.

I must tell the hon. Member for Foyle (Mark Durkan) that statements that he made in the House following the publication of the report also compromised the security of those senior officers unnecessarily. They should not have been singled out, which was regrettable. We must not get into a situation that is about seeking out, and naming and shaming, senior police officers who have made a massive contribution to building peace in Northern Ireland and to securing a future for our people. It is entirely wrong for them to be treated in the way in which I have described. I hope that he will take the opportunity, at some stage, to apologise to those officers for the stress and the wrongdoing—

If the hon. Gentleman is intervening to do that now, I shall give way, but if he is not, I shall need to make progress.

I want to pose the Minister some questions. Will he accept that the rebuttal report that was published yesterday by the Northern Ireland Retired Police Officers Association demonstrates that the original report published by the ombudsman on 22 January is crucially flawed? He might not have had the opportunity to read it, but I hope that he will do so.

The Minister will be fully aware that the Public Prosecution Service had directed no prosecution of any serving or retired police officer before the publication of the ombudsman’s report. Does he therefore accept that the use of the word “collusion” is not anchored in legislation, and that the word has no legal definition and has simply become a political catch phrase for use at the whim of the investigator when nothing else fits? Does he accept that correspondence clearly shows that the three former assistant chief constables, who were named in the House by the hon. Member for Foyle, provided considerable assistance to the ombudsman’s office and made themselves available for further inquiries that were not made to them?

Does the Minister also recognise that those officers’ rights have been infringed, including, potentially, their rights under article 13 of the European convention on human rights? Does he accept that the officers were never formally interviewed or reported by the police ombudsman for any alleged offence? Does he accept that the ombudsman’s report has potentially compromised the security of police officers and agents, and has disclosed secret security force methodology in a reckless manner, thereby damaging national security operations in the UK and abroad?

As the rebuttal report will show, the original ombudsman’s statement is crucially flawed. The RUC collectively and the officers who have been maligned both by the statement and subsequently are entitled to a public apology for the manner in which they have been treated. Instead of simply accepting the ombudsman’s report at face value, as the Government have done hitherto, it is incumbent on the Government to examine all aspects of the report in more detail, to carefully consider the rebuttal document that was published yesterday and to take a more rounded and balanced view of the entire situation.

There must not be a rewriting of the history of the troubles in Northern Ireland, whereby the RUC and the Army are painted as the bad guys and the paramilitaries come up smelling of roses. That is the danger, because the paramilitaries do not keep records and can get away with so much. We know that the police are rightly accountable under the law, but this process must not be a witch hunt. It must not be about the Government releasing prisoners early and trying to draw a veil over the paramilitaries’ past, while police officers who did their best to defend the people of Northern Ireland and the United Kingdom from terrorism end up in the dock being accused of things that they have not done by the broad use of terms such as “collusion”, which no one can really define. I hope that the Government will see the need to recognise that if we are to unpick the past like this—in a one-sided and unbalanced way—we would be storing up trouble for the future. None of us wants that; we want to move on.

I congratulate the hon. Member for Lagan Valley (Mr. Donaldson) on securing the debate and on raising this issue. Although it is controversial, it is important for his constituents and others, so it is good that he has had the opportunity to raise it. I also congratulate him on the constructive way in which he posed his questions. He raised issues about the role of the ombudsman, and asked specific questions about the recent report into the murder of Raymond McCord Jr.

I shall deal with some of the specific points shortly, but it is important to understand at the outset the important role that the police ombudsman plays in Northern Ireland. The ombudsman adds to a range of scrutiny that is perhaps as great as any that exists in the world, and it is important for community confidence in the PSNI that the ombudsman does the job well and with the full support of the whole community.

The ombudsman is empowered under part VII of the Police (Northern Ireland) Act 1998. Her job is to create an efficient, effective and independent complaints system. We are talking about complaints about the conduct of specific police officers, but she must also deal with issues that may be referred to her by the Secretary of State, the Northern Ireland Policing Board or the Chief Constable. Her officers must, of course, operate within the law. Many of them have the same powers as police officers, and must operate under the relevant police and criminal evidence legislation. She must deliver a fully independent system. While people may have a range of opinions about her report, she must have the independence to carry out her investigations and deliver her conclusions. An important assurance is that she must operate within the strict guidance and rule of law that applies to the police.

Some of the ombudsman’s investigations, including the one that we are discussing, deal with difficult issues from the past, and they arouse controversy and emotion. I understand that. She is the only investigatory authority in Northern Ireland with the power to investigate, for example, events that led to a death involving a police officer, so the territory that she covers is bound to be controversial. In fact, it is worth noting that, since the ombudsman’s office was opened for business a few years ago, it has dealt with 18,000 complaints from a wide variety of sources from all communities, including military personnel and the families of police officers. It is important to understand that many of the reports and investigations have reaffirmed the fact that the police acted entirely appropriately.

I regularly receive reports, for example, about police use of CS spray. The Chief Constable automatically refers any incident in which that happens to the ombudsman. Every report that I have seen exonerates the police and supports their action. Even today, the ombudsman has released information about a report into an incident, and the headline on the press release is “Officers justified in shooting man who left bomb in city centre.” That report was about a specific case in which a firearm was discharged by the police. It was automatically referred by the Chief Constable, and hon. Members can read the press release for themselves, but it absolutely exonerates and supports the police officer’s action. Before dealing with the detail of the report into Raymond McCord Jnr., it is important to get the balance right. The police ombudsman has often reported affirmatively on the police’s conduct.

Is the Minister aware that the figures show that 85 per cent. of police officers investigated by the ombudsman believe that they were treated fairly during the investigations, and that 91 per cent. believe that her investigations are impartial? That confidence is reflected in the figures for public confidence, both Catholic and Protestant, thereby rebutting the picture painted by the hon. Member for Lagan Valley (Mr. Donaldson).

I have seen the evidence from the polls, and the figures given by my hon. Friend are accurate, but we must face the fact that, because the report that we are discussing is controversial and takes people back into difficult territory, some of them may have less confidence than the majority. We must deal with the report, and I want to speak about the detail now. I shall not comment specifically on every question that the hon. Member for Lagan Valley asked, but I shall examine his questions carefully and write to him with a considered response, so that I give him the best information.

The hon. Gentleman is entirely right in saying that there should not be a witch hunt against former RUC officers or serving members of the PSNI. We must put the report into perspective. It details the unacceptable conduct of a small number of officers, which means that thousands of officers who served with the RUC or are serving the PSNI do so with honour, distinction and great dedication. Many of them undertake dangerous duties and save lives, day in, day out. It is important to paint a balanced picture.

However, as the hon. Gentleman acknowledged, when there is wrongdoing it should be investigated and dealt with. If police officers have committed criminal acts, and there is evidence of it, of course they should be brought to justice, which is why the Chief Constable has accepted recommendations for further investigations to be carried out. If there is evidence of wrongdoing, it should be referred to the Director of Public Prosecutions.

Will the Minister put on record today the debt of gratitude that the people of the United Kingdom, and especially of Northern Ireland, owe the RUC, GC and the RUC Reserve, which protected people against one of the most bloodthirsty groups of people that terrorised any part of the United Kingdom?

I happily pay tribute to the many thousands of officers—former RUC officers and current PSNI officers—who served their communities with great dedication and skill. The fact that a small number may have been found wanting should not detract from that. It is important that I put that on record this afternoon, and I am happy to do so. Indeed, it is also important to acknowledge that the gathering of human intelligence is a vital part of the policing process. It is essential. I have met some of the officers who do that work, which is dangerous, but the end product is that they save lives. I am happy to acknowledge their contribution. At the same time, I make the point that if people have done wrong, they should be investigated, and if there is evidence of that, they should be brought to justice. That is entirely right.

It is also important to acknowledge that what the ombudsman found could not happen now, because of the advances in the Regulation of Investigatory Powers Act 2000, for example, and the accompanying guidelines on how informants and human intelligence are handled now, which is very different from some time ago. That gives us a better, more accountable system in which people can have confidence.

The hon. Member for Lagan Valley asked me to comment on the use of the word “collusion”, which has been the source of enormous debate and difference of opinion. The Northern Ireland Office does not have its own definition, but the ombudsman has her definition and we are familiar with it. I understand that that has become a debating point, but the ombudsman selected a particular use of the word and deploys that in her report.

My remarks in response to the intervention of the hon. Member for South Antrim (Dr. McCrea) a couple of minutes ago were not my words. They were very much those of my right hon. Friend the Secretary of State, who spoke recently at the international policing conference in Belfast and said what I said, particularly about those who gather human intelligence: they do an important job.

The debate takes us into the past and it is worth saying in passing that we need to find a way in Northern Ireland of dealing with past issues, without relying simply on individual litigation, court cases and public inquiries. They have their place, and it is important that that work continues, but somehow we must find a way of promoting dialogue and conversations across communities that can help to draw a line under the past and help us move forward. That work will need to be carefully thought through, and discussed with all political parties and all the communities involved. It is important that that takes place.

In conclusion, I welcome the report that has been published by the retired police officers. I will consider it carefully, and ensure that there is an appropriate way—[Interruption.] My hon. Friend the Member for Foyle (Mark Durkan) wants to intervene in the short time that I have left. I will happily ensure that arrangements are made to listen to the concerns of retired police officers and to respond to them.

My hon. Friend mentioned the ombudsman’s report. My right hon. Friend the Secretary of State has accepted all its recommendations, as has the Chief Constable. Further investigations will be carried out and, where justice needs to be done, it will be done. It is important to put on the record that there is full support for the ombudsman’s recommendations, but we will also consider carefully the report that the retired police officers drew to our attention. I shall ensure that there is a proper way for Ministers to engage with and feed back into that.

The ombudsman must deal with high-profile, sensitive issues, and she has a record of doing so in an exemplary and fine way. She must deal with difficult territory, but she acts with integrity, investigates thoroughly, and makes her reports accordingly.

North Sea Oil and Gas (Taxation)

I am pleased to have obtained the debate, especially having been granted it two weeks ago, but having had to withdraw, as I had committed myself to accompanying the Holocaust Educational Trust and some young constituents to the Auschwitz extermination camp. I am therefore grateful to have a second chance today.

When I saw the new date for the debate, I thought that it presented a problem. Should I prepare a speech in advance or wait to see what the Budget turned up on Budget day? I wondered whether there would be anything in the Budget on North sea oil and gas taxation. I am glad that I prepared something, because as far as I can see, there have not been any changes to the North sea fiscal regime—not even the corporation tax and capital allowances changes that will apply to all other industries in the country. I shall return to the question whether that is good or bad for the oil and gas industry, but today, we have a rare opportunity to debate oil and gas taxation in detail on Budget day. Now that we have that opportunity, and the Treasury has not made its mind up, I hope that my hon. Friend the Financial Secretary will take on board what I have to say and return with some good proposals in the pre-Budget report later this year.

To some people, the debate is simple: oil companies make a great deal of money, and the majors make enormous profits, so we should tax them as highly as we can, and if the oil price goes up, we should tax them more. I do not have any problem with taxing people who can afford to pay, because I want the public services that taxes provide, but we must remember that those companies’ profits are worldwide, based on each company’s global operation and their substantial investments throughout the world. The issue for the UK is the proportion of that worldwide investment that we attract, and the Treasury should monitor it carefully for several reasons.

The investment that we receive is huge, and it has been for many years. Last year, the oil and gas industry spent £11.1 billion in the UK, which was an enormous injection in our economy. That investment boosts growth, and it dwarfs spending by most other sectors. It probably makes the industry the largest industry in the country, because it amounts to about 11 per cent. of all industrial investment in the UK. It finds its way down the supply chain, it sustains many other businesses and it leads to the employment of some 480,000 people, so it is hugely valuable to our economy and we cannot afford to lose any of it.

What else do we get from the investment? We are self-sufficient in oil and still receive enough gas to meet 92 per cent. of our demand, and we obtain all that from an indigenous source which is surely our most secure energy supply. The investment also makes a substantial contribution to the balance of payments. Indigenous production of oil and gas last year saved £30 billion in oil and gas imports, and the industry supply chain exported goods and services worth £4 billion. Overall, therefore, the industry contributed £34 billion to the balance of payments, which is not to be sneezed at. The industry paid £10.3 billion in tax last year, and its corporation tax payment alone amounted to 20 per cent. of all corporation tax paid by UK companies.

I congratulate the hon. Member for Waveney (Mr. Blizzard) on putting forward a strong case for the importance of the industry. In his opening remarks, he mentioned that there had not been anything for the industry in the Budget. The Chancellor rarely mentions the industry, but he has mentioned the falling revenues that he now receives from it. Does that not highlight again the importance of ensuring the best possible investment climate, so that future generations secure the best tax revenue from the industry?

The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) is absolutely right. If we do not secure continued investment, we will not secure continued tax revenue. Considering the huge benefits that this country acquires from the industry, we must talk about it and take care of it. The Government need to value the industry, and, as the hon. Gentleman has said, we must try to maintain that investment.

All the figures that I have used so far come from the United Kingdom Offshore Operators Association and the Department of Trade and Industry’s joint activity survey, which was published in February. If my hon. Friend the Financial Secretary has not read it, I urge him to do so, because it contains some important observations that I shall focus on shortly.

Oil and gas investment decisions are by their nature long-term, because it takes many years of big spending on initial exploration through sanction to eventual production before a penny of return materialises, and one cannot forecast the future oil price when one decides to invest. The industry’s thinking is, none the less, short-term, and it responds to oil prices. No one invested when the price was $10 a barrel, but in the past few years, with the price at $50, $60 and even $70 a barrel, there has been a mini boom in North sea investment. The boom occurred despite the Treasury imposing two supplementary corporation tax charges, and the industry leaving itself terribly exposed in the market for drilling rigs and paying ridiculous prices to drilling rig operators. I do not understand why the industry gets itself in such a mess by shooting itself in the foot because it does not have a proper supply of the services that it needs. However, the result is that unit costs per barrel have gone up by 45 per cent. since 2005.

That frantic period of activity masked the long-term trend in the UK continental shelf, because the real picture is that, although we are just over halfway through the production of all our oil and gas reserves, the remainder will be different from the first half. The big reservoirs have all been discovered, and the rest amounts to small fields. A typical discovery amounts to about 10 million barrels, and the activity survey forecast that 88 per cent. of future exploration prospects would be less than 20 million barrels. The small reservoirs will be more costly to discover and develop than the previously larger fields, and new developments are possible only because of technical innovation and by tying them to existing infrastructure, which is mostly old.

I have made it clear for a long time that for the second half of the North sea oil and gas province’s life, the so-called mature stage, it needs a different fiscal regime from that which it had for the first half. We can argue with the Treasury about the level of overall taxation, and oil price makes a difference, but we cannot and must not ignore the underlying structural situation: in a mature province, the industry has to spend more, to discover and produce less, if we want to extract as much of our reserves as possible, especially when we have to compete with other parts of the world for investment. Notwithstanding oil price, the North sea oil and gas tax must be set at such a level that we can continue to attract and maintain investment.

The key messages from the activity survey are that even after 40 years, there is plenty of activity in the North sea. There was capital investment last year of £5.6 billion—the highest since 1998—and exploration and appraisal drilling activity was strong. We will also be self-sufficient in oil this year, 2007-08, although we will probably become a net importer in 2010, at which time, incidentally, the North sea would still be able to supply 60 per cent. of our gas. But—and this is the big but—production fell by 9 per cent. last year and is expected to continue falling. Most worrying of all is the forecast of a reduction of investment in 2007 of between £1 billion and £1.5 billion, down to just £4 billion to £4.5 billion. That would represent the first slowdown in capital investment since 2003. That is worrying evidence that the UK is becoming less able to attract investment in a competitive world market, which is a more challenging perspective than we have seen for some time. If we value the benefits of the oil and gas industry that I have outlined, we need to carefully factor those findings into the kind of work that the Treasury is doing in its consultation, which started with the pre-Budget report of 2005 and has resulted in a further discussion paper today.

Before coming to that, however, I should like to raise some points that my hon. Friend the Financial Secretary needs to address. Oil prices may be high, but gas prices are not. The two supplementary charges have sought to match that oil price rise to secure for the nation a fair share of the higher value that the markets now place on our national assets. However, companies that are involved in gas exploration and production have to pay the same taxes as the oil companies, but the economics of gas are not the same. In fact, the overall price of oil and gas in the North sea is the equivalent of about $40 a barrel, which is not quite the windfall price of $60 a barrel for Brent crude with which we are familiar. With the high costs that it now faces, the industry is worried about what would happen if oil prices fell.

My second point is about the uncertainty out there about the fiscal treatment of decommissioning, which we are told is beginning to have an impact on asset trading. We need plenty of asset trading for the health of the UK continental shelf. We need therefore some decisions on tax issues concerning decommissioning. With the agreements that were signed to start with, my understanding was that decommissioning would come with quite a big cost to the Treasury, so probably none of us would welcome it. Linked to decommissioning, however, is a window of opportunity. I have said that most new development is linked to the older infrastructure. That older infrastructure has an economic life, and 45 per cent. of it could be closed down by 2020. Without that infrastructure, however, much of our remaining oil and gas recovery would be uneconomical, which would mean reserves being abandoned. That would be a nightmare scenario, because we would lose indigenous energy, investment in jobs and the tax revenues from that. However, if we can sustain current activity, that decommissioning can be avoided. If investor confidence is maintained, decommissioning could be delayed by 10 to 15 years on many of the systems out there, bringing benefits for everybody.

Briefly, another issue is the gas reserves in West of Shetland, which really need to be unlocked. There are talks on that, and I urge my hon. Friend the Financial Secretary to take a personal interest in them. West of Shetland could provide 3 per cent. of the whole country’s gas by 2011 and 6 per cent. by 2016, but it must be economic. If we cannot make it economic again, the gas will remain there, and we will get no tax returns from it.

Everything that I have said suggests that the Treasury needs to think what the right level of tax is to sustain investment and recover the remaining reserves. We have to watch out for fields and platforms that were invested in many years ago on the basis of oil being $20 a barrel, and which are still pumping away with oil at $60 a barrel. Those kinds of platforms do not need any fiscal incentive, because we cannot guarantee that their profits will be reinvested in the North sea. We need to focus on new investment. I have not yet done the sums on today’s announcement on corporation tax and capital allowances, so I do not know whether the industry is better off being treated differently from the other industries. My initial response was that the choice of capital allowances rather than corporation tax for a reduction may be right, because capital allowances focus more on investment, although I say that guardedly. However, the question we need to consider is whether the total amount of tax still being taken will result in insufficient investment for the future.

I should like to draw my hon. Friend the Financial Secretary’s attention to two things in the consultation document. The fourth criterion that he will use to make decisions is that any change should be equitable. I remind him of what I have said about oil and gas: companies focusing on gas are not being treated equitably, because they are paying a supplementary charge, which was levied essentially to deal with the high oil price, the profits from which need to be shared. The initial conclusion is that the Treasury probably wants to keep petroleum revenue tax and not make any changes.

I note that the Treasury is quite cool on any incentives targeted at exploration. My general feeling is that my hon. Friend the Financial Secretary is not minded to make any changes. The industry will find that disappointing. However, it will notice that the doors are still open and that things are not closed down. Where are we going with the process and when will it conclude—it started with the pre-Budget report of December 2005? When will the consultation conclude, and should it not involve the industry-Government body PILOT?

Finally, the activity survey to which I have referred points to two possible futures for our oil and gas province. The better future would mean still being able to supply 40 per cent. of our needs by 2020; alternatively, we could let the existing trends continue and supply only 8 per cent. I am told that the industry is willing to step up to the plate, but we need to attract and sustain the investment. We will need a fiscal regime for the second half of the life of the North sea field that can do that. I hope that when the consultation finally concludes, my hon. Friend the Financial Secretary will come forward with that answer.

I congratulate my hon. Friend the Member for Waveney (Mr. Blizzard) on securing this debate today, in time for the Budget. His timing is excellent as always, as is the authority with which he speaks on the subject. He is the chairman of the all-party British offshore oil and gas industry group, and is active and knowledgeable as a result. I also welcome the interest of the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), who also has a track record of concern about the industry.

I shall deal later with my hon. Friend’s observations that today’s Budget somehow means no change for the North sea oil and gas industry. That may be the case in respect of the business tax package that my right hon. Friend the Chancellor announced, but some important developments are captured in the discussion paper that we published alongside the Budget this morning, “The North Sea Fiscal Regime”.

Our approach to the North sea is underpinned by our continuing commitment to maintaining a vigorous North sea oil and gas industry, with the aim of maximising the economic recovery of the UK’s oil and gas reserves. The North sea oil and gas industry is one of this country’s great success stories. It is globally competitive, with many important global players. It utilises much of the latest technology and operates in what is recognised throughout the world as one of the most hostile environments for the recovery of natural resources, as I saw for myself last October when I went out to the Claymore platform with Talisman. My hon. Friend is right; it is a fact not only that, to date, we have managed to extract about 36 billion barrels of oil-equivalent in the working life of the North sea, but that substantial reserves—an estimated 15 billion to 20 billion barrels—remain. As my hon. Friend rightly argued, that indigenous supply should and can continue to play a vital role in the UK’s energy security and consumption for many years to come.

A combination of underlying geology and, as my hon. Friend mentioned, future oil and gas prices are the dominant drivers of investment. However, we also have an important role in ensuring that the right fiscal and regulatory regime is not only appropriate for the North sea, but does its best to encourage the required investment for the future. In recent years, Her Majesty’s Revenue and Customs, the Department of Trade and Industry and the Treasury have been working closely with each other and the industry to try to achieve that.

On the regulatory side, there is the well established PILOT forum, in which the industry and the Department of Trade and Industry consider regulatory issues. There is a certain advantage in maintaining a separation from straight tax issues; it allows the industry to deal directly with the Treasury on tax matters. The industry does that now, and we are encouraging it to do it further, as I shall explain in a moment. On the fiscal side, the Treasury and Her Majesty’s Revenue and Customs have been considering the wider structural issues of the fiscal regime for the North sea, following the pre-Budget report 2005.

The announcement of the discussions at the pre-Budget report was part of the package of tax changes that we announced, reflecting an upward shift in not only contemporary prices, but the oil price outlook. It was an important rebalancing of the fiscal regime between the interests of oil producers, consumers and general taxpayers.

The discussions to date have been useful. We have explored important issues with the industry. There are many different companies in the North sea, so there is a wide range of viewpoints, sometimes directly contradictory. Nevertheless, some important and consistent themes have occurred and recurred in the discussions. Those have included the future of the petroleum revenue tax system, the treatment of decommissioning by the fiscal regime, incentivising future exploration and development, and how the North sea fiscal regime will apply to the change of use of assets. Some North sea companies are increasingly considering such change as they diversify away from hydrocarbon extraction to other activities such as carbon capture and storage, and offshore wind farms.

We responded to some concerns in the pre-Budget report in December last year. My hon. Friend was concerned about exploring the application of existing tax rules to changes of use of North sea infrastructure; that is the subject for consideration by a joint group that we have set up with the industry. It aims to report back this summer. We also announced the removal of petroleum revenue tax from North sea oilfields and gas fields that had previously been decommissioned to encourage new investment in old fields. That was another point raised by my hon. Friend.

My hon. Friend’s third point was about West of Shetland. I recognise that the issue is not only the high costs involved with working in a hostile part of the North sea, but that the limited amount of infrastructure is a potential barrier. We are working with the industry to examine whether there are collective approaches to dealing with such infrastructure difficulties.

We also wish to examine with the industry the other issues raised in the preliminary period. That is why we have published the discussion paper today. It summarises the discussions that we have had so far and sets out the initial views that the Government have drawn from the process. It also outlines the criteria that we will use to assess proposed policy options. First, any changes will need to be in line with the twin objectives for the fiscal regime of encouraging investment and ensuring a fair return for the UK taxpayer from our national, natural, finite resources. Secondly, they will have to make sure that the fiscal regime continues to have the minimum possible impact on investment decisions.

Thirdly, any changes will need, as my hon. Friend said, to be equitable; they should not fall unduly on any one type or section of companies involved in the North sea. Fourthly, they will need to be consistent with the Government’s wider concern to reduce the administrative burden imposed on business generally. Finally, we are mindful of the long lead times for investment projects in the North sea; any changes to the regime should enhance the stability, certainty and sustainability of the system, both now and for the future.

There is a lot of ground to cover with the industry, and on our side there is a real interest in doing so. However, in light of those criteria, we have also announced today at the Budget the following decisions, which will settle concerns raised by the industry on two areas. By doing so, I hope that the certainty of the fiscal regime will improve.

In the document, we state clearly that we are not attracted to any mechanism that would remove petroleum revenue tax and rebalance the fiscal regime through increasing the supplementary charge. That would impact heavily on companies that operate in the North sea, but whose investments do not currently fall within the auspices of the petroleum revenue tax fiscal regime. It would therefore risk damaging the very thing about which my hon. Friend is principally concerned: investment in exploration and development. I also confirm that we are not attracted to any regime that explicitly links the tax level with the oil price. Such a regime would increase uncertainty for the industry and the Government; we will not be examining that proposal any further.

I turn to the Budget changes. My starting point is that the North sea has unique features and so presents unique challenges for industry and for the Government. It needs a tax rate that reflects those unique circumstances and characteristics and strikes a fair balance between producers and consumers. The view that we took in the Budget was that the principal basis for the changes in the pre-Budget report for 2005 remains, particularly in light of the continuing high returns on the capital employed and the recognition of the importance that the industry places on stability and certainty. That has led the Government to conclude that, at this point, it would be inappropriate to make the changes to North sea taxation that we might have considered for the rest of the business tax regime.

Clearly, the industry might focus on the cut in corporation tax. The special and necessary, but generous nature of the capital release regime for the North sea means that the industry might not have studied the proposals that are part of that wider business package. A regime based, as this one is, on 100 per cent. capital allowances is important for the North sea and should not be changed as part of the general changes that we have considered.

On a separate regime for oil and gas, our initial analysis suggests that any changes to the fiscal regime intended to discriminate between oil and gas would have a minimal impact on investment, add considerable complexity to the regime and involve significant compliance costs. However, we have not discussed the issue widely with the industry; I invite it, if it wishes, to provide us with further evidence as part of our conversations.

It is for those reasons, and because we recognise the importance of stability to the industry, that we take the view that there is not a case for tax reductions or major changes such as those announced today for other business reliefs. I hope that the publication of the discussion paper shows the strong basis for further conversations with the industry, which we look forward to continuing—

It being Five o’clock, the motion for the Adjournment of the sitting lapsed, without Question put.