With permission, I would like to make a statement about the horrific attack last Saturday at Massereene Army base in Antrim.

The focus for that sickening crime was civilians and young soldiers of 38 Engineer Regiment, part of 19 Light Brigade. The House will know that Operation Banner—the deployment of troops in Northern Ireland—was brought to an end in July 2007. 38 Engineer Regiment is part of the Northern Ireland garrison. Those men and women are part of the new arrangements in which soldiers are based in Northern Ireland for deployment anywhere in the world. The arrangements are not about a garrison to replace Operation Banner.

Those soldiers were in the process of being deployed for active service in Afghanistan, to support international efforts to stabilise and bring peace to that region. At the time of the attack, most of their colleagues had already left for that deployment. A small number remained, awaiting their deployment to begin within hours. While waiting, a small number of soldiers decided to order food from Domino’s Pizza in Antrim. At about 9.40 in the evening, the delivery arrived in two separate cars. The soldiers came out of the main gate of the barracks—the cars delivering the pizzas were parked less than 10 yd away—and as they did so, two masked gunmen opened fire. The initial volley of shots was followed by a second. The attackers were clearly intent on killing both the soldiers and the civilians. They continued firing even when the men were injured and when some had fallen to the ground. The firing lasted for more than 30 seconds. More than 60 shots were fired.

Neither the soldiers nor the civilians had a chance against that premeditated attempt at mass murder. Two of the soldiers were killed. The families were informed yesterday, and this morning the Ministry of Defence released their names. Sapper Patrick Azimkar and Sapper Mark Quinsey were held in the highest regard by everyone in their regiment. Patrick Azimkar was just 21. He was looking forward to facing the challenges of his first operational tour in southern Helmand. Mark Quinsey, who was 23, was equally looking to the operational challenges he would face in Afghanistan.

Two more soldiers were seriously injured. The attack on the civilians from the pizza company was just as barbaric. Both were injured, one extremely seriously. There can be no doubt that those responsible were intent on taking the lives of all these men.

I know that the House will want to join me in expressing our deepest condolences to the families of those who were murdered, and to send our sympathy to the injured and all the families who are also victims of this act of terrible violence, which has rightly been described as evil.

Immediately after the attack, fellow soldiers from 38 Engineer Regiment went to the aid of their friends. They tended the wounded and cared for the dying. I had the honour of meeting some of those young men and women immediately after the attack yesterday morning. This morning my right hon. Friend the Prime Minister flew to Northern Ireland, and with him I again met that group of outstanding young soldiers. Let me put on the record the admiration that we all have for those young men and women. They are the greatest credit to our country, and I know that I speak for the whole House in saying how proud of them we are.

It is now the job of the Police Service of Northern Ireland to conduct the investigation to bring those who murdered and injured these soldiers and civilians to justice. A major investigation is under way. This morning both the Prime Minister and I had further briefings from the Chief Constable, Sir Hugh Orde, from our intelligence advisers, and from Brigadier George Norton, commander of 38 (Irish) Brigade and the Northern Ireland garrison.

The House will wish to know that everything is being done that can be done. It is too early for me to report on the progress of the criminal investigation. However, I should tell the House that yesterday evening the so-called Real IRA claimed responsibility for this act of extreme barbarism. Whatever self-styled name these murderers choose to use, the House will correctly recognise them as barbaric criminals prepared to carry out an act of premeditated mass murder—callously murdering innocent people going about their daily business. They are simply brutal and cowardly killers. It is true that the number of people who make up these criminal groups is relatively low, but they are no less dangerous for their small numbers. We know that they have no community support whatsoever, but their guns are able to murder.

The police have asked for everyone in the community who has information to come forward, and they should do so as a matter of urgency. Anyone in the Antrim area or beyond on Saturday who may have seen anything suspicious, in the vicinity of Domino’s or on the Randalstown road close to Massereene Barracks, should contact the police.

The House will want to know that all political leaders and political parties in Northern Ireland have condemned this evil act. They are united not only in their condemnation and in their expressions of condolence to the families, but in their demand that anyone who can help should come forward. They join in those expressions with my right hon. Friend the Prime Minister and all the party leaders in this House, and they join today in a statement from all the Churches in Northern Ireland condemning the violence and asking those who can help the police to come forward.

It is right for me also to record the expressions of support and sympathy that we immediately received from the Taoiseach and President McAleese, from the United States Secretary of State, Hillary Clinton, and from President Obama, who last night made his position very clear, condemning the attack in the strongest terms and making clear his support for the people of Northern Ireland—those people who have chosen a future of peace.

It may be helpful if I take this opportunity to provide the House with further information about the current levels of security threat in Northern Ireland. As the House will know, both the Chief Constable and I have made public our view that the level of threat posed by dissident republicans has recently been higher than at any time in the last six years. Since 2008 they have mounted 18 attacks, 15 last year and three so far this year.

The House will be aware that last week the Security Service raised the level of threat from Irish-related terrorism from substantial to severe in Northern Ireland. That was a carefully calibrated decision, based on an overall assessment of the last nine months. That period includes the attempted murder of police officers, including one savage attack on a police officer who had just dropped his child at school. Five bullets were put into the man’s chest. There was some uncertainty last week about the wisdom of raising the threat level. I believe this was the right decision and entirely justified.

Policing in Northern Ireland enjoys the highest levels of confidence from the public. In my judgment, it is absolutely essential that the Chief Constable has operational independence. Of course, he is accountable to the Policing Board under the Patten arrangements. He will, if he sees fit, enjoy the same rights as any other chief constable in the UK to request further technical back-up, if so needed; that would be the case in, say, a chief constable dealing with a threat from al-Qaeda and any international terrorism. Indeed, we made that clear at the end of Operation Banner. In a statement to this House on 31 July 2007, the Minister of State for Defence, my right hon. Friend the Member for Coventry, North-East (Mr. Ainsworth), said that after 1 August the vast bulk of military support in Northern Ireland will be broadly comparable to the assistance that is currently provided in Great Britain, but tailored for the particular circumstances in Northern Ireland. He also made it clear that the provision of explosive ordnance disposal would continue; this was, of course, used to deal with the car bomb in Castlewellan in January of this year.

I hope that, whatever concerns may have been expressed by hon. Members last week—and it may be appropriate to comment on the serious distortions and misleading reports in some of the media at that time—hon. Members will now feel reassured about the role of any technical support being used to tackle the current threat. This is, as the Chief Constable has repeatedly said, not about the return of troops to the streets, but it is about protecting the public at a proportionate level, and about protecting those who provide that protection, such as police officers and those who work to protect the international community or on international theatre operations.

It has been 12 years since the last death of a soldier in Northern Ireland, and this has been a very dark few days for Northern Ireland, but it is a temporary darkness at the end of a tunnel of considerable light. The peace process and political progress, as part of shared power, have transformed Northern Ireland. The perpetrators of this attack believe they can stall the progress and, in stalling the progress, instil seeds of self-destruction in the politics of today. Indeed, they have clearly chosen to act in this evil way only because the politics of a shared future is working.

The determination and resolve of all political leaders in the face of this brutal act are working proof of a unity of purpose. We are all united in our resolve that these criminals will not succeed. Our confidence must be stronger, our resolve even greater; and while the House will understandably be sombre as a result of this murderous attack, the greatest memorial to Patrick Azimkar and Mark Quinsey and their families will be in our determination to unite behind the peace process and the political progress in Northern Ireland.

So let us make sure that those responsible for this attack are not given any opportunity to stall or prevent the progress of the people of Northern Ireland. Let us join together, and let this House send this afternoon an unequivocal message: the men of violence will not succeed; these criminals will not succeed—not now, not ever.

I thank the Secretary of State for giving me advance sight of his statement and for his call yesterday. I also join him in sending our deepest sympathies to the families and friends of Sapper Patrick Azimkar and Sapper Mark Quinsey, and to those injured in this cowardly attack. The murdered men were about to travel to Afghanistan to serve their country and to support the Afghan people. The horrific events of this weekend bring into focus the bravery of all those who serve the armed forces, the PSNI and the security services. We should also thank the emergency services and medical staff. We are all indebted to them.

The Independent Monitoring Commission review confirmed our concerns about the dissident threat. We raised this again in the Chamber last Wednesday. This attack follows a succession of near misses on police, and the Chief Constable has been consistent, and increasingly public, about the severity of the threat posed by dissident republican groups. I would like to confirm our firm support for the operational independence of the Chief Constable. Like every other chief constable in the UK, he must have the right to enlist the help of specialists. Will the Secretary of State confirm that the decision of the Chief Constable to call in reconnaissance experts would not have been affected had criminal justice and policing been devolved?

The aim of these attacks was to try to disrupt normal policing, forcing police into barracks and armoured vehicles, and away from the public. Will the Secretary of State confirm that a balance must be struck between the need for the increased protection of officers and ensuring that police are visible and known to their communities? The Government raised the threat level from substantial to severe last week. Was the change due to specific intelligence that had been received, or was it a response to the general security situation? Were civilian guards briefed on the current threat level, and were individual establishments chased up to ensure that this was understood and that appropriate measures had been taken to take account of it? Given the understandable pursuit of normalisation, will he conduct an immediate review of the security arrangements at police stations and military installations? Has he had any discussions with the Defence Secretary about the consequences for defence installations in the rest of the UK?

The attackers showed a devastating ruthlessness in shooting their victims a second time on the ground. Does the Secretary of State believe that that cold brutality suggests that these were experienced terrorists? The crime scene will reveal valuable ballistic and forensic evidence. Experience from previous investigations shows that speed is of the essence, so will he confirm that these category A murders will receive top priority? Will he also confirm that the most competent and experienced officers will be in charge of the investigation?

I would like to confirm that we will support the Government’s efforts to bring these ruthless murderers to justice. We believe that they have no support in the wider community, and the support for the police investigation from all political parties is welcome. The key to defeating terrorism in Northern Ireland lies with all parts of the community. I endorse the Secretary of State’s appeal yesterday for anyone with information on these criminal acts to come forward: even the smallest piece of information could be vital and might help to bring this investigation to a swift conclusion. We welcome the public statement by the Irish Justice Minister and the Garda Commissioner and their commitment to help.

Although huge progress has been made, Northern Ireland still has some way to go before normal security arrangements are appropriate. Thanks to the peace process, which was begun by the previous Government and continued by this one, Northern Ireland has been transformed. An unrepresentative minority of dissidents are determined to undo the good work of the past 15 years. It is incumbent on us all to respond to this shocking attack by going about our business normally, but with increased vigilance. The good work of recent years must continue—terrorism, in any form, must never succeed.

The decisions of the Chief Constable to call in technical back-up support, to which the hon. Gentleman was referring, would, of course, not change under any arrangements in the future for devolution; those are decisions for the Chief Constable. On the balance to be struck between enabling the police to continue normal policing—again, I pay a huge tribute to the work of the PSNI, as it has ensured that it is, indeed, normal policing that takes place in Northern Ireland today—and addressing the huge risks taken by the men and women of the PSNI, I can confirm that the Chief Constable always has the interest and welfare of the PSNI at heart and I believe that the balance is very carefully struck. That is a matter for the Chief Constable, but I have full confidence in the decisions that he has made.

The hon. Gentleman asked whether there had been specific intelligence about the threat last Saturday evening and the connection of any such intelligence to the decision by the Security Service to raise the level of threat last week. The reasons for raising the threat level last week were a carefully considered calibration of the events of the past nine months and the fact that although it is a small number of people who self-style themselves as the Real IRA, there was, none the less, an indication that they were intent on perpetrating further violence and criminal acts. We did not have specific intelligence about a threat last Saturday evening at the base.

I am pleased to report to the House that of course the guards were briefed and that special arrangements were put in place at the base following the decision to raise the military threat level in Northern Ireland. Of course, the young men and all those serving there were spoken to and reminded of the change in the security threat level. As for the implications for other military barracks and police stations in Northern Ireland, of course the Chief Constable and Brigadier Norton separately undertake reviews as a matter of course. I am certain that in the light of the tragic events of Saturday evening further reviews will be conducted in the course of this week.

I hold regular conversations with the Defence Secretary on matters related to these issues and I am sure that uppermost in his mind will be the need to review the security arrangements for those people serving with the MOD, not only in the light of last Saturday but always. As for the investigation, it is too early for us to speculate as to who might have been responsible. On the subject of who is in charge of the investigation, I reassure the hon. Gentleman and this House that it is being personally overseen by the Chief Constable and those at the highest levels in the PSNI. I hope that sooner rather than later we will be able to bring these people to justice.

May I, too, thank the Secretary of State for advance sight of his statement today and for the briefing he provided yesterday? I associate myself and my right hon. and hon. Friends with the expressions of condolence expressed to the friends, families and comrades of Sapper Patrick Azimkar and Sapper Mark Quinsey, who were killed yesterday, and extend to those who were injured our very best wishes for their recovery. We also join the Secretary of State in his forthright and unambiguous condemnation of this senseless and barbaric act.

May I also echo the sentiments that have been expressed elsewhere by the right hon. Member for Belfast, East (Mr. Robinson) as First Minister and by Martin McGuinness as Deputy First Minister? In particular, they have called for all communities to co-operate fully with the police investigation. For Martin McGuinness in particular to be able to make a call of that sort is an indication of just how far we have come in this peace process as well as of how much we have to lose. The communities in Northern Ireland have been well served on this occasion by both the First Minister and the Deputy First Minister.

On behalf of my colleagues, I place on the record our admiration of and support for Sir Hugh Orde, the Chief Constable, and his officers in the PSNI. As has already been recognised, they have been the subject of a number of aborted attacks. I am reassured by the Secretary of State’s comments about the availability of every resource for their investigation, and I think that in time this event might give us some pause for reflection on the correct level of support and resourcing for policing in Northern Ireland from hereon in.

Many will see this event as a threat, but I think we should see it not just as a threat but as an opportunity. It is an opportunity for the people of Northern Ireland to come together, as they did last night in Antrim, with a remarkable quiet dignity and determination, to show that nothing will turn this process backwards and that what we saw on Saturday night was not a glimpse of the future but a reflection of the past.

I thank the hon. Gentleman for his support. It is extremely important that the House sends a united message today, and that support is extremely valuable. I thank him for it. On the issue of resources, my right hon. Friend the Prime Minister made it crystal clear in the briefing to Sir Hugh Orde this morning that Sir Hugh should be absolutely certain that every resource that he needs for the investigation will be made available.

May I, too, express to the Secretary of State and the Minister of State my appreciation for the help and support that they have given me in fulfilling my responsibilities in the past 48 hours? May I associate with my remarks my hon. Friend the Member for South Antrim (Dr. McCrea), who, as the Secretary of State will know, regrettably cannot be here as he was admitted to hospital today? He was in the constituency, at the base, on Saturday evening and again on Sunday, when he accompanied me to the site. He was with the Secretary of State and the Prime Minister this morning, on his way to the hospital.

May I join with the Secretary of State in expressing our condolences to the families of the two brave young men who were slain at the Massereene base on Saturday evening? It is a very sorrowful and devastating time for those families, and our hearts and prayers go out to them. We express our sympathy for the families of the two other soldiers injured, and the two members of our local community also injured.

Does the Secretary of State welcome, as I do, the remarks made by all Unionist leaders—and indeed by representatives of the Ulster Political Research Group and the Progressive Unionist party who will be associated with the loyalist paramilitary associations—that the matter should be left entirely to the PSNI, that people should give their support to the police service, that due process is the way forward, and that all information that is available should be given to the police, so that they can apprehend those responsible?

Does the Secretary of State agree that there is no such thing as a mindless terrorist attack, and that every terrorist attack has a purpose? The purpose of this attack was to drive our community apart, to cause division and to drag us back to the bad old bloody days of the past. Those terrorists can never achieve that unless the people of Northern Ireland allow them to. Does he agree that there is a spirit in Northern Ireland characterised not by the evil we saw on Saturday, but by the good we saw on Sunday and since? People in Northern Ireland are saying together, loudly and clearly, “We’re not going back.”

I thank the right hon. Gentleman for his support, and I wish to commend to the House the very strong leadership that he and the Deputy First Minister showed yesterday to the people of Northern Ireland. I also want to mention his support for the hon. Member for South Antrim (Dr. McCrea), whom the Prime Minister met this morning to discuss the barbaric events of Saturday evening. I absolutely agree with the right hon. Gentleman that there should be no cover provided by putting the event under the heading of a terrorist attack. It was a criminal attack of the most callous, brutal and evil kind, and I absolutely join him in recognising the contrast between the evil of Saturday night and the good shown by the public yesterday. One small example is that of a local Catholic church: the priest led the entire congregation out on to the street, near where the evil act was committed, and everybody in that Catholic church prayed for the souls of those who had died. There could be no greater distinction between what is good in people on the one hand, and the evil of Saturday night, and what is terrible, on the other.

I join the Secretary of State in offering sincere condolences to the family of Patrick Azimkar and Mark Quinsey, their colleagues—those who travelled, and those who had to stay behind, both as witnesses and to offer support and comfort to the families. I also offer my sympathy to the injured soldiers and their families, and the injured civilians.

Does the Secretary of State recognise that on Saturday, the Real IRA attacked not just a British Army base but the chosen will of the Irish people, which was for a peaceful future and shared political institutions? Does he agree that, as all the parties in the Assembly seem to be saying today, the message needs to go out very strongly that it may cut down two young men on a Saturday night, but it will not bring down our political institutions, mandated by the people of Ireland, north and south?

It may gravely wound civilians, but it will not be allowed to injure the integrity of the new beginning to policing, which has been so central to delivering the degree and strength of condemnation and call for information that has been so apparent at this time. That has been on a level and to a degree not seen before, not even in the aftermath of the Omagh bombing.

Does the Secretary of State share the resolve of all the parties speaking today in the Assembly that we will allow no difficulty or difference that exists between us on any issue to be exploited by these vicious terrorists who, with their callous violence and their vicious language justifying it, want to bring us back? They may be steeped in the violence of the past, but they will not plunge the rest of us back there.

I agree with every single word.

I am sure I speak for the whole of the Northern Ireland Affairs Committee in endorsing what the Secretary of State, the First Minister and the hon. Member for Foyle (Mark Durkan) have said.

Does the Secretary of State agree with me on two points? First, is it not crucial that every politician from whatever party who expresses support for Sir Hugh Orde, who so magnificently leads the PSNI, should accept that it is Sir Hugh’s decision and his alone where he calls for assistance in trying to anticipate attacks and to find out who has committed these barbaric attacks? Secondly, does the Secretary of State agree that it is crucial that when those who have caused such brutal murder are brought to justice, they should not think that any future political move would ever shorten their sentence?

Of course I agree with the hon. Gentleman’s second question. In relation to the first, I endorse the fact that the Chief Constable must always enjoy operational independence.

The clear message today is that the people of Northern Ireland will be the ones who will send the clearest message that they will never, ever let those people take them back to where those people want them to go. Will the Secretary of State join me in welcoming the decision by the Northern Ireland committee of the Irish trade union movement to call a series of peace rallies with other non-Government organisations for Wednesday lunch time, and wish them well in asking as many people as possible to support those rallies?

I thank my hon. Friend for his remarks, and join him in wishing the peace rallies on Wednesday every success as a show of solidarity with those who were murdered and those who were injured.

It has been said that great grief is not great at talking. We know that. There is a silence in the House today; there is a silence all over Northern Ireland today. There is grieving and despair, but behind the despair there is being born a unity that we have not seen before. I am sure that the Secretary of State will want to commend the people of Antrim from all denominations who showed that they were one in condemnation and one in unity, standing together by the forces of the Crown and the police to bring those who have committed these murders to the laws of this land and to make them obey the laws of our country.

I commend publicly here today the Roman Catholic priest of Antrim. He made one of the greatest speeches that I have ever heard from any of the cloth, and he set it down to everyone that he did not want in his parish anybody like the men who did that task. Those of us who know Northern Ireland know that it takes some strength to say those words in a place like Antrim, and I trust that we will see out of this something that we never expected we could see.

I share the sentiments that have been expressed in sorrow for those who have laid down their lives. We are coming up to St. Patrick’s day. St. Patrick preached the gospel of Jesus Christ in Ireland. I was just thinking today that the only thing that these murderers have done is to desecrate the shamrock by trying to pour the blood of their innocent victims upon it. But it will not be: the truth of the gospel will prevail. I am glad of that, and I am glad that today the House has taken aboard what has been said by the Secretary of State. I am glad that the Prime Minister was able to be in Ulster and see and hear for himself what is happening. Good will come out of this evil, and we will see progress towards an absolute peace in our Province, rather than a retrograde step back to trouble and murder.

The people of Antrim are indeed an example to us all. The right hon. Gentleman spoke of grieving, despair but also unity; perhaps he might add hope. Whatever evil may have occurred on Saturday evening, from that evil we are seeing people stronger and the institutions stronger, and very clearly resolved that they will not be damaged in any way by the acts of these barbaric few.

I hope that I may be allowed to say—on behalf, I am sure, of everybody in the Chamber and many people without it—how deeply impressive I found the statements made by the right hon. Member for Belfast, East (Mr. Robinson) and my hon. Friend the Member for Foyle (Mark Durkan). I also congratulate the Secretary of State and the Prime Minister on their rapid response, which was both right and, above all, respectful.

May I draw the Secretary of State’s attention to the remarks made by the hon. Member for Belfast, West (Mr. Adams) a few hours after the appalling incident on Saturday night? He said:

“The popular will is for peaceful and democratic change.”

I ask my right hon. Friend to give the House the assurance that it seeks: that there is no threat to that popular will.

I thank my hon. Friend for his remarks and I totally enjoin myself to what he said. I entirely endorse his view that we will not allow this, in any shape or form, to be any kind of challenge to the popular will of the people of Northern Ireland. We will only do even more to ensure that democracy succeeds in Northern Ireland.

Until last year, 38 Engineer was based in Ripon in my constituency and had been for many years. Does the Secretary of State appreciate the deep pride of the citizens of the second oldest city of England in the bravery of its soldiers, demonstrated notably in Afghanistan and Iraq? If any soldiers can be described as peacemakers, the Engineers must certainly qualify for the description. Would not the greatest tribute to the two soldiers, who expected to face death in Afghanistan but in fact found it on the streets of the United Kingdom, be for everybody to seek to bring to justice the people who have carried out this murder and to demonstrate, above all, that what those people did will not make the blindest bit of difference to the peace process in Northern Ireland?

I entirely agree with the right hon. Gentleman. I extend my sympathy to him and his constituents, who will feel particularly wounded by the events of Saturday evening.

I associate myself with the condolences that everybody has offered today; there have been many fine condolences. Little did I know when I asked my question at Northern Ireland questions that something such as this was about to happen. My right hon. Friend will be pleased, as I know other Members of the House are, that the Prime Minister’s measured response today has been well received.

I am a Member of Parliament for the city of Glasgow, and we have more than a close relationship with all sides of the divide in Northern Ireland. I am sure that the people of Glasgow will send their condolences as well. Will my right hon. Friend make sure that there are plenty of resources for the police, that they get any help that they need to make sure that the parasites who did this are taken to justice, and that the courts do everything to make sure that those people never again walk the streets of Northern Ireland?

I can give that undertaking, as well as the reassurance that my hon. Friend the Minister, who is responsible for security in Northern Ireland and to whom I would like to pay tribute for working so tirelessly throughout the weekend, will ensure that those resources are there when they are needed.

While noting that the reaction in Northern Ireland over the past 36 hours and reaction here today at Westminster makes it absolutely clear that the objectives of these callous murderers have totally failed and that the peace process will continue, I ask the Secretary of State to clarify one very small point. He referred several times to the “self-styled” Real IRA. Is he implying that this is not the same Real IRA that committed the awful atrocities at Omagh and elsewhere?

I thank the right hon. Gentleman for his comments. The reason why I refer to it as the self-styled Real IRA is that it chooses another name. Of course, they may well be the same group of individuals responsible for the barbaric act in Omagh, but I say “self-styled” because we should be under no illusion: these are barbaric criminals.

The Secretary of State will be aware that the young soldiers based at Massereene were part of the international security assistance force destined for Afghanistan. My right hon. Friend the Member for Belfast, East (Mr. Robinson) and I had the privilege of meeting some of those young men and women in Afghanistan last year. They are working for peace and democracy in Afghanistan, but the Real IRA—so-called—is on the same side as the Taliban and al-Qaeda; it trades in terror and in violence. As we approach St. Patrick’s day, with a focus on that in the United States, we should be driving that message home to the Americans. A tiny number of Americans still support these organisations, and they need to understand what they are supporting.

Members of the Northern Ireland security guard service, which is responsible for guarding military bases in Northern Ireland, are concerned about a review of that service that has been undertaken. They are concerned for their own safety, and they want to have proper equipment. Will the Secretary of State speak with his right hon. Friend the Secretary of State for Defence to ensure that the service is well equipped and has the resources that it needs to improve security at military bases so that this kind of attack can be prevented in future?

I know that the right hon. Gentleman takes a very close interest in security matters in Northern Ireland. I wish to reassure him that we will ensure that everybody engaged in protecting the public in Northern Ireland has the equipment that they need. However, it may be appropriate for me to say that, in relation to the attack on Saturday night, there is no suggestion that had the equipment been any different it would have made any difference whatsoever. Those who were determined to murder on Saturday night came there to murder—to execute—the people at the Army base, and they drew no distinction between off-duty soldiers and civilians, as we know from the attacks on those who were delivering the pizzas.

I immediately had contact with the United States on Saturday evening. We immediately saw expressions of support from Senator Clinton and from President Obama, and from the Senate and Congress. Indeed, I refer the right hon. Gentleman to the statement by Congressman Richie Neal, which is a very fine statement of condemnation that precisely records the fact that across America this is felt to be an evil act.

rose—

Order.

With permission, I shall make a statement on the asset protection scheme, and the agreement in principle reached on Saturday between the Treasury and Lloyds Banking Group. My right hon. Friend the Chancellor is travelling to Brussels ahead of the meeting of European Community Finance Ministers tomorrow to discuss the G20 Finance Ministers meeting this weekend, so he has asked me to make this statement.

The asset protection scheme was announced in January. In my right hon. Friend’s statement of 26 February, he gave details of the participation by the RBS Group, and he mentioned the negotiations under way with Lloyds. The approach that we adopted with Lloyds is similar to that adopted with RBS; discussion involved a large amount of complex detail and it was important to take time to reach a satisfactory conclusion. An agreement in principle has now been reached that helps to ensure financial stability, to safeguard the interests of the taxpayer and to support the real economy by increasing lending.

Under the asset protection scheme, the Government will provide protection against certain credit losses on particular assets in exchange for a fee. A first loss, similar to the excess in insurance policies, remains with the institution. Lloyds will meet all of that. The protection provided by the Government will cover 90 per cent. of the remaining loss. The other 10 per cent. will remain with the institutions as an incentive to manage the assets prudently. The Government will accept applications to the scheme for other eligible institutions until 31 March.

Lloyds announced on Saturday its intention to place £260 billion-worth of assets in the scheme, on which it has already taken impairments of £10 billion. Through the first loss mechanism, it will retain a further exposure of £25 billion. Of any losses beyond that, 90 per cent. will be borne by the Exchequer and 10 per cent. by Lloyds. The protection will cover a range of assets including mortgages, unsecured personal loans, corporate and commercial loans and Treasury assets.

Lloyds will pay a fee of £15.6 billion in new, non-voting B shares. Those will count as core tier 1 capital. The Treasury has also agreed to replace its existing £4 billion of preference shares. Current shareholders will be able to purchase these ordinary shares as part of an open offer. The Treasury will take up its pro rata share of the open offers, maintaining its minimum voting share at 43.5 per cent., and will subscribe for any additional shares not taken up by existing shareholders. If no other shareholders take up their entitlements, the Treasury’s ownership of ordinary shares will increase to 65 per cent. Taking into account B shares paid as a fee, its economic ownership would reach 77 per cent.

As my right hon. Friend the Chancellor set out, the asset protection scheme is a key step to put banks on a stronger footing, to insure their balance sheets and to boost lending to businesses and individuals. As part of that deal, in return for access to the asset protection scheme, Lloyds has agreed to increase its lending by an additional £14 billion over the next 12 months —£3 billion for homebuyers and £11 billion for business lending—and it has made a similar commitment for 2010. Consistent with RBS, Lloyds will be required to present a detailed implementation plan to the Government, and to report monthly on compliance with the lending agreements. The Government will publish an annual report on these arrangements, which will be made available to Parliament. The agreements are binding and will be reflected in the performance-related pay of bank staff involved.

Another condition for Lloyds, as for any bank participating in the scheme, is a requirement to develop a sustainable long-term remuneration policy. That means reviewing policies and implementing new policies consistent with the Financial Services Authority’s recently published code of remuneration practice. We have agreed that no discretionary bonuses will be paid in 2009 except to junior staff earning an average of £20,000, and that there will be no annual free share award at all.

At the heart of the current financial and economic problems around the world is a crisis of confidence about bank assets. That lack of confidence is having profound effects on UK companies and on individuals who are not able to secure business loans or mortgages. The critical obstacle to expanding lending is uncertainty about the value of banks’ balance sheets, so we are acting now to enable the banks to clean up their balance sheets, making them better able to lend to individuals and businesses.

Transformation will not happen overnight, but that is the essential starting point, and it must go hand in hand with broader reform of banking supervision and regulation. Action must be taken not only here but by Governments across the world. The alternative would be a failure of the banking system here and elsewhere, which would make the recession longer and more painful and put more jobs at risk. Getting the banks to lend again is essential to economic recovery and to our fight against the global recession.

The Government are clear that British banks are best owned and managed commercially, rather than by the Government. The future of the UK as a financial centre, and the future of our economy and of many thousands of jobs, depends on being able to run banks commercially. All countries are having to deal with the same problem—how to isolate assets that are damaging confidence in the banking sector and preventing banks from lending more. Over the coming weeks, we will continue to discuss with other countries, including the United States and the European Union, how best to co-ordinate our approaches to the shared challenges that we face. As part of our presidency of the G20 this year, my right hon. Friend the Chancellor recently wrote to Finance Ministers setting out a set of shared principles for dealing with asset protection and insurance.

It is essential to restore confidence in the banks, allow them to clean up and rebuild and get lending going again. Economic recovery and thousands of jobs depend on that, and I commend this statement to the House.

I thank the right hon. Gentleman for his statement and for his courtesy in allowing me to see a copy of it in advance.

The right hon. Gentleman explained to the House that the Chancellor is travelling to Brussels for a meeting tomorrow, but I think that the House will none the less be disappointed that we have apparently reached the point where the assumption by the taxpayer of an additional £250 billion-worth of contingent liabilities is not considered a sufficient reason to reschedule one’s travel arrangements. There will also be disappointment that a Treasury Minister is before the House for the first time since the momentous decision last Thursday to begin quantitative easing, and has not taken the opportunity to update the House on that decision and its far-reaching implications for Britain.

This massive second round of banking bail-outs is proof that the Prime Minister’s first bail-out last October failed. The test of it will be whether credit actually begins to flow through our economy again, not what promises of more lending the Government say they have secured. The £14 billion of lending commitments that the Government claim to have extracted from Lloyds Banking Group is less than half of the total taxpayer investment in Lloyds, and less than 5 per cent. of the total taxpayer exposure to Lloyds HBOS. Will the Financial Secretary confirm that the additional promised lending will be subject to the group’s prevailing commercial terms and conditions, including on pricing and risk assessment, and, in relation to mortgage lending, that it will be subject to the group’s standard credit and other acceptance criteria? If that is the case, is not this pledge just more simple rhetoric?

It is now clear that the merger of Lloyds and HBOS was a bad deal, put together without full and proper understanding of the state of the HBOS book, certainly on the part of Lloyds and possibly on the part of the Government. Until last October, Lloyds had stood aloof from the chaos engulfing the banking sector, as a sound, somewhat old-fashioned bank with a reputation for caution that attracted small investors and drove to distraction those in the City who preferred riskier plays. In the space of a few weeks, that sound, solid bank, which would have been quite capable of prospering without the support of the taxpayer, has been transformed into a banking behemoth that is incapable of surviving without these huge infusions of taxpayer funding. I ask the Financial Secretary whether the Government really believe that the creation of this crippled giant at the heart of our banking system is the best outcome if the objective is to maximise the flow of credit from the banks to Britain’s recession-hit businesses and households.

Back in October we were told that the merger was a commercial deal put together by the managements of the two banks, and that all that the Government were doing was removing the competition barriers that would have prevented it from going ahead. However, there were persistent stories at the time, promoted by those close to the Prime Minister, that in fact the Prime Minister had brokered the deal and driven it through to completion.

Now that the taxpayers’ total exposure to Lloyds HBOS is approaching £300 billion, will the Financial Secretary explain why neither the Government nor the Prime Minister realised at the time that, far from rescuing HBOS, the merger would drag Lloyds down the path of taxpayer bail-out and part nationalisation? Is the Financial Secretary sure that, of all the options available to them, the route that the Government have chosen—insuring assets within the banks—is the best way to get credit flowing at the minimum long-term cost to the taxpayer? Can he look the House in the eye and tell it that the guarantee option has been chosen on the basis of the economics and long-term best value for money for the taxpayer, not simply because, alone among the alternatives, it keeps the cost to the taxpayer off the balance sheet and out of sight until the losses crystallise?

The Prime Minister’s mantra is that the crisis was made in America and blew in on the wind to afflict a blameless Britain. He paints a picture of toxic assets, which comprise US sub-prime mortgages, complex derivatives and impenetrable credit default obligations. However, will the Financial Secretary confirm that more than a quarter of the toxic assets that the Government are guaranteeing in the deal are plain, old-fashioned UK mortgages, lent by HBOS in a bout of over-exuberance, which testifies to the failure of the Prime Minister’s tripartite regulatory system? In effect, is the taxpayer not taking a £75 billion bet on future house prices not falling by more than 10 per cent. from 31 December 2008? Perhaps the Financial Secretary has not noticed that they have already fallen by 3.3 per cent. in the first two months of the year. I do not know of a single commentator who does not believe that they have further to go.

Let me consider fees. The Financial Secretary set out in his statement, and Lloyds set out in its statement to the stock exchange, the fees payable by Lloyds Banking Group to the Treasury. However, the end of the Lloyds announcement refers to “certain interim arrangements”, agreed between the Treasury and Lloyds and relating to the management of the assets in question. I imagine that the right hon. Gentleman knows that, in the deal between the Dutch Government and ING, as well as the fee payable by the bank to the Government for the guarantee, a fee is also payable by the Government to the bank for managing and financing the assets that the guarantee covers to maturity. Will he give hon. Members a categorical assurance today that no fees whatsoever are payable under the deal by the Treasury to Lloyds Banking Group? Will he confirm that the ban on cash bonuses that he announced for this year will extend to future years? Will he adopt, at least for Lloyds Banking Group, our policy of a £2,000 permanent limit on cash bonuses? Will he also tell the House what steps the Government have agreed, as part of the deal, about executive and director pensions in Lloyds Banking Group?

For the size of the British economy, we have committed more than any other country to bailing out our banks—approximately £1.2 trillion—and we have precious little to show for it so far. The first banking bail-outs failed to get lending flowing again, requiring taxpayers to stump up hundreds of billions of pounds in further guarantees and capitalisations. The temporary VAT cut has failed to stimulate consumer spending and the stamp duty holiday has failed to stop house prices nosediving. The Government have made a plethora of announcements of support for business and home owners, many of which have been shown up as hollow rhetoric, with most schemes not yet operational and none delivering measurable assistance to the front line.

Hard-pressed businesses, families and home owners throughout the country have had enough of the rhetoric, the endless announcements and the activity for activity’s sake. They want normal credit conditions to be restored—that will be the test of today’s announcement, and the very least that taxpayers should expect in exchange for the £1,200 billion that the Government have pledged on their behalf to the banking system.

I can agree with the hon. Gentleman’s final comment, but there is not much else with which I can agree. To fix the economy we have to fix the banks first. As with previous measures, capital support for banks is an investment and it will eventually be sold for the benefit of taxpayers. With the insurance scheme, the eventual cost to the taxpayer over the lifetime of the scheme will depend on economic conditions and how assets are managed.

However, the key is ending the uncertainty that has been holding Lloyds back from lending and enabling it to make a significant additional commitment on lending, which is certainly not rhetoric, as the hon. Gentleman suggested, but an additional £14 billion on top of what was planned for this year, with a similar sum envisaged for next year. I can confirm that that lending will be subject to the bank’s normal commercial considerations, but that lending will be made. It will be reported regularly to the Government and we shall report regularly to the House, as I said in my statement.

The hon. Gentleman made some comments about the merger between Lloyds TSB and HBOS. The priorities that we were concerned about were stability in the financial sector and, in particular, avoiding a catastrophic failure on the part of HBOS. Lloyds and HBOS had been talking for some time and they asked the Government whether it was possible to modify the competition rules to allow the merger to go ahead. Like others, we concluded that that was the right thing to do. The hon. Gentleman suggested that it was not the right thing to do, but he might wish to have a word about that with the shadow Chancellor, who said on “Newsnight” on 17 September, “I spoke to both of the chief executives today of the two institutions and made it clear the Conservatives support what they’re trying to put together”. The shadow Chancellor’s view is therefore somewhat different from the one that the shadow Chief Secretary has put to the House this afternoon.

The boards of both banks recommended acceptance of the agreement to their shareholders and both sets of shareholders agreed. Lloyds shareholders voted on 19 November, with more than 95 per cent. of them in favour of the merger, and HBOS shareholders voted on 12 December. There was therefore broad agreement on what was done.

Of the assets that are covered by the announcement today, rather more than 80 per cent. come from HBOS, which was largely active in the UK, but also, to an extent, in Ireland and, to a smaller extent still, in some other territories. I can confirm to the hon. Gentleman that there are no fees payable to the Treasury as part of the package announced today. The costs of setting up the scheme will be charged to the participating institutions.

Finally, the hon. Gentleman is quite wrong about the VAT cut. because there is growing evidence of its effectiveness in stimulating the economy. Let me draw his attention to information published by Goldman Sachs just over a week or two ago. As others have pointed out, the effectiveness of the VAT reduction as a stimulus to the economy will grow over the course of this year, leading up to the rise back up to a rate of 17.5 per cent. on 31 December.

There would once have been a time when a Government commitment of £260 billion of taxpayers’ money, which is just under a quarter of gross domestic product, would have merited the attention of the Prime Minister, let alone the Chancellor. It is no disrespect to the Minister, who is generally regarded as very decent and very capable, to say that on this occasion not only are we denied the attentions of the organ grinder, but we are not sent the monkey either, only the monkey’s second assistant.

I agreed with most of the questions that the hon. Member for Runnymede and Weybridge (Mr. Hammond) asked; most of his points were well made and valid. Like the Minister, however, I am a bit puzzled. The hon. Member for Runnymede and Weybridge—and, indeed, all of us—had five weeks in which to do due diligence on this merger, and to think about its implications. When the matter was put to a vote in the House, he and his colleagues voted with the Government in favour of it, leaving us to vote against it.

Let me get to the core of the statement and the Lloyds HBOS proposal. Will the Minister confirm that this is now a nationalised bank that is publicly owned and controlled? Will he also repudiate the comments of the chief executive, Mr. Daniels, who described the taxpayer—the majority owner of the bank—as

“just another name on the share register”?

How can the Government have retained as chief executive someone who treats the taxpayer with such total contempt?

When will the Government at last put their own Government directors on to the board to ensure that the bank acts in the national interest, particularly in relation to lending? The Conservative spokesman quite rightly referred to the ambiguities of the bank’s lending policy, but is it not the case that Lloyds entered into a lending agreement last October, which has not been observed? Why should we have any more confidence in this one, unless the bank is properly directed?

I want to ask the Minister about tax avoidance. Quite apart from HBOS, Lloyds is known to have undertaken large-scale tax avoidance. Will this stop, now that the bank is fully publicly owned? Mr. Daniels has been described as enjoying a £25,000 tax planning allowance from his bank, to help him to avoid paying UK taxes. Will this continue under public ownership?

As far as payments are concerned, we have had the scandal of Sir Fred Goodwin. Are we going to have a similar problem with Sir James Crosby and with Mr. Cummings, whose property dealings brought down HBOS and who I believe is entitled to a £6 million bonus? Are those arrangements going to be preserved? So that we can have clarity about who is being paid what, may we have an assurance that, if very highly paid executives in this bank and elsewhere are paid large amounts—let us say, more than the Prime Minister—those emoluments will be made fully transparent? I believe that Lloyds is today refusing to divulge the payments that are made to its senior executives. Why cannot those figures be put fully into the open?

On bonuses, I would go even further than the Conservative spokesman. I do not see any justification for paying bonuses. This is a bank that has made large losses. Why should the taxpayer pay those bonuses? It is all very well to appeal for sympathy for the relatively low-paid staff, but how would people react if it was announced that every public sector worker was to be paid a £1,000 bonus, in the present state of the public finances? There is no justification for such payments, certainly at the top end, or altogether.

My final question relates to the document, “Evidence to the Office of Fair Trading on the proposed Lloyds TSB and HBOS merger”. The private shareholders are rightly outraged about the way in which they have been treated, and they are rightly calling for the head of Sir Victor Blank. They want to know why the documentation lying behind this Treasury paper is not being made publicly available. It states that, in September, the Government considered a range of alternatives. Will they publish those alternatives, and the reasons why they rejected them? As the paper is so heavily redacted, will they also publish the full version, so that we can be sure that nothing is being hidden from the public and the House?

I am grateful to the hon. Gentleman for his description of me as “decent and capable”. I regard him as decent and capable as well, but I ought perhaps to remind him of what he said about HBOS and Lloyds on 6 October. Referring to the Chancellor, he said that

“we have no quarrel with what he did in relation to Bradford & Bingley and HBOS-Lloyds—that seemed to be the right approach.”—[Official Report, 6 October 2008; Vol. 480, c. 27.]

Perhaps he needs to be a little more cautious before he attempts to rewrite history.

The hon. Gentleman asked some questions about the board, and I can tell him that Mr. Tim Ryan and Mr. Tony Watson have been appointed to the Lloyds board, with Government agreement. That arrangement is in place for two directors now, and that opportunity has been taken up. The hon. Gentleman talked about agreements that were reached as part of the arrangements that were made before Christmas—the announcements that were made at the beginning of October—and the lending commitments. Actually, bank lending on the part of the UK banks involved has, indeed, risen but as the hon. Gentleman knows, the great problem we faced was the withdrawal of non-UK banks from the UK market, leaving a gap of perhaps some £100 billion of lending capacity. The £14 billion that Lloyds announced on Saturday is a valuable step towards making up some of that shortfall.

On tax avoidance, let me reassure the hon. Gentleman that we will continue to take a very assertive approach to it, wherever it occurs and whoever is responsible for it. Her Majesty’s Revenue and Customs will continue to be very robust and I can also say that the G20 leaders will boost the role of global co-operation to address tax avoidance at the London summit on 2 April. The Prime Minister spoke about it last week in the US. The key is transparency and exchange of information; we are confident that we can make substantial progress on that when the leaders meet at the beginning of next month.

On the question of bonuses, I do not agree with the hon. Gentleman that, as a result of these arrangements, relatively modestly paid staff who have done a perfectly good job should be prevented from receiving the rewards that they were entitled to expect. What we most certainly have put in place is the assurance that there will be no rewards for failure. The Financial Services Authority has published good practice guidelines for bank remuneration and the arrangements that Lloyds is putting in place are consistent with those guidelines: no reward for failure, minimum payments only in 2009 and the rest deferred, nothing in cash and all subject to clawback if good standards of success are not achieved. We are tying rewards to long-term sustainable success, which is the right approach.

On the chief executive’s pay and pension, I believe that they are publicly announced; certainly the chief executive’s pension pot was in the most recent Lloyds TSB annual report, so the hon. Gentleman can find the details there. As to the documentation, only commercially sensitive information has been redacted—as, of course, it must be. The arrangements announced on Saturday are an important and valuable step towards bringing back into the UK economy lending capacity that has been lost, rebuilding the economic momentum that we all want to see.

May I thank my right hon. Friend for reiterating the position on bonuses? May I tell him that a number of junior staff in my constituency have been exercised that the bonus that is part of their salary might be impaired by the present arrangements whereas in other banks, not in this particular bank, those on higher salaries have been rewarded for poor performance? May I ask him to look again more liberally at the bonus for those on an average salary of £20,000 to which he referred, as there are many in my constituency and elsewhere who actually receive less than that amount?

My hon. Friend is, of course, absolutely right that there are plenty of staff in Lloyds on £17,000 salaries or less. I understand that the average bonus of which we are speaking amounts to less than £1,000. I think it is absolutely right that much more senior staff forgo their bonuses—and they have done—but when it comes to the sort of staff my hon. Friend speaks about, I completely agree with him.

The Financial Secretary said in his statement that £11 billion-worth of loans to small businesses would be provided. Given that we are now the majority shareholder in this bank, can he reassure us that those loans will be genuinely new loans for new businesses and will not be used by the bank to service existing contractual loans?

I can reassure the hon. Gentleman that the £11 billion of business lending will be additional to what was being planned by Lloyds in the course of this year.

My right hon. Friend referred to the fact that the bank would be making monthly reports to the Government in compliance with the lending agreements. Will he make at least the headline figures in those reports available to the House so that we and the public can see that the bank is complying fully with the increased lending agreements? Probably what the public most want to see is the banks resuming lending and the money going into the economy.

My hon. Friend is absolutely right to highlight the importance of that. We will be reporting annually on the delivery of the lending commitments—we are not proposing to publish information every month, but we will do so annually. We also committed during the passage of the Banking Bill to report every six months on financial commitments we have entered into relative to the financial crisis, and we shall of course report to Parliament on contingent liabilities in the usual way.

Is not the truth that the taxpayer is not just being asked to stand behind £585 billion of especially toxic assets in the two big banks, but in practice is standing behind £3 trillion of assets and liabilities in the two banks? There is presumably no circumstance in which the Government would bring down one of those banks now they have bought a majority shareholding in it, so will the Minister come clean and say how the taxpayer can be expected to take a £50,000 risk for every man, woman and child and how much money the Government will lose on the scheme before they realise what a disaster it is? What does the business plan say about the losses at Lloyds in 2009?

Of course, there is some uncertainty about what the arrangement will cost over time. The uncertainty is the reason why the arrangement is necessary, because that is what has been preventing Lloyds from lending until now. However, not wholly dissimilar arrangements have been in place in Sweden and Japan and, more recently, in the Netherlands and the US, and experience shows that the ultimate price is a small proportion of the value of the assets insured. The insured figure for Lloyds is £260 billion; the cost to the taxpayer, however, will be a great deal less. We do not know exactly what the figure will ultimately work out to be, but the cost of doing nothing would be very significantly more because of the loss to the economy of momentum and lending capacity. We need that capacity in the economy to navigate a way out of the recession—the downturn—we are in at the moment.

The asset protection scheme is clearly playing a vital role in helping to resolve the problems in the banking sector, but as my right hon. Friend says, it is just a start. Can he say more about the process whereby the assets that now secure that protection first receive a robust valuation and then leave the underwriting and return to the bank?

Yes, a good deal more work has to be done before the final details are absolutely pinned down and signed off. I envisage all that work being done between now and the summer. Of course, there is no immediate payment to be made; there will be a payment only when, for example, there is a default on a loan and the insurance is triggered. A great deal of detailed work needs to be done over the next few months, but the shape of the package is clear. We have a list of assets that are covered, although that may change a little over the next few months, but the benefit in terms of additional lending will start immediately.

Whatever the intentions of the Prime Minister, will the Financial Secretary accept that the effect of his intervention to railroad through the deal has been not to save a poor bank but to destroy a strong one? What message does the Financial Secretary have for the tens of thousands of small Lloyds shareholders who have now seen their shareholdings wiped out?

The hon. Gentleman is quite wrong to characterise what happened between Lloyds and HBOS in that way. As I have already pointed out to the House, the shadow Chancellor strongly supported the arrangement at the time, and indeed spoke to the chief executives of both banks to reassure them that he supported their merger. In addition, when Lloyds shareholders voted on 19 November, more than 95 per cent. of them voted in favour of the merger. That does not look like railroading to me.

Is it not worth while to make the point that we should use the right language in relation to saving the banks? In reality, this step, and subsequent steps, had to be taken because more than 70 per cent. of voters have bank accounts. We had to save one bank in particular, and then others, because if one had been allowed to fail, there would have been a domino effect, with them all failing. That is why all parties agreed on the rescue at the beginning—they knew that their voters would not want to see a bank finish up in the gutter. We should use that language, and not give the impression that somehow we are saving bankers, bonuses and all the rest. While I am on the subject, in the absence of full-scale nationalisation, when thinking about future legislation, has my right hon. Friend looked at the idea that I put forward the other week—to pay Fred Goodwin and all the top executives’ bonuses out of the toxic debt, so that they would then get nowt?

My hon. Friend is absolutely right to point out that we all depend on the banking system—businesses, people with mortgages and savers. It was absolutely clear from the start that we needed to save the banking system from the collapse that was on the cards at the beginning of October. As a result of our measures, as he rightly points out, no saver in a UK bank has lost a penny. We are absolutely determined that that should continue to be the case.

When can the House expect a statement on the quantitative easing policy that is now being pursued by the Bank of England?

I refer the hon. Lady to what the Bank of England said last week: monetary policy is a matter for the Monetary Policy Committee of the Bank of England.

Does the £11 billion figure for business lending include private finance initiative lending, which will be repaid by the taxpayer in the long term anyway? Do the Government have any tests for approving the detailed implementation plan? Who do the monthly compliance reports go to, and how will they know the truth of what they are being told? Will Parliament get the annual report only, whenever it comes? Should we not have oversight that matches the scale of the underwrite?

My hon. Friend is right, and that is why we will scrutinise very closely, through United Kingdom Financial Investments, what happens over the next few months. I would not envisage excluding PFI advances from the £11 billion figure. We will monitor closely and actively what happens over the next few months, because it is vital that the commitments that have been made are delivered, and they will be.

Further to the Financial Secretary’s reply to the hon. Member for Foyle (Mark Durkan), he has consistently referred to Lloyds’ agreement to increase lending by an additional £14 billion and has said that that agreement is binding. Can he tell the House what sanctions are available to the Government if Lloyds does not so increase lending?

Ultimately, it would be possible for the Government to withdraw access to the scheme. That will not arise. The lending will be delivered.

I would like to put it to the Financial Secretary that some of us feel that we are involved in the banking and financial equivalent of mission creep. His statement relates to the Lloyds settlement, but since the Chancellor last made a statement on the RBS, a contingent liability report has been placed on the Table of the House. Why will the Government not publish all the details of the announcement today and of the RBS ongoing negotiations, which have not been concluded, instead of producing only two copies—one, technically, on the Table, and one in the Library—of such key and critical decisions? I confess that, like many other Members, I find it difficult to comprehend the scale, let alone the details, of what I am signing up to and, through my silence, acquiescing to. We need full disclosure. We need Command Papers that are numbered and printed, rather than just those two copies that have been supplied to the House.

This is a failure, and it is time for it to be addressed. We need proper, full disclosure to the House, proper debate, and a vote subject to the affirmative procedure if necessary.

My hon. Friend is right about the size of the numbers with which we are dealing. As I have said, we will continue to report on contingent liabilities as we are always required to. As for RBS, there is—as I made clear in the context of Lloyds—continuing work to be done before the final details are signed off.

I repeat that we will report to the House regularly. If my hon. Friend feels that there is some lack in that regard, I shall be happy to look into it, but we have no intention of withholding from the House the information that it needs in order to exercise its oversight.

In his statement and in his subsequent answers, the Minister reiterated that the Government would report only annually on the extent to which banks had complied with their lending agreements. Given that the situation is changing all the time, given the desperate need for businesses and individuals to receive that money now, and given the lack of clarity on the extent to which previous agreements have been upheld, do we not need to know more often than annually that the position may again have entirely changed?

As I said earlier, we shall be receiving more regular information, and it will be possible for us to update the House from time to time. I agree with the hon. Lady about the essential nature of the commitments to lend more, but I can assure her that they will be delivered, and we shall be happy to keep the House updated on progress.

A moment or two ago, the Financial Secretary said that the Treasury would take robust action against tax avoidance in Lloyds and elsewhere. During the most recent Treasury questions, when the nation did not quite own Lloyds—it does now—I pointed out that Lloyds had been not only promoting but personally utilising complex and dubious tax avoidance schemes, including double dipping. Does the Financial Secretary agree that allowing such schemes to continue when the bank is publicly owned would be the equivalent of not just biting the hand that feeds you, but biting it off somewhere above the elbow?

I do not think that anyone should be allowed to continue double dipping or any of the other avoidance bad practices that we have seen. As I have said, tax evasion and avoidance will be on the agenda when the G20 Finance Ministers meet on Saturday, and when the G20 leaders meet on 2 April. There is widespread support across the G20 for the countries to do more together. We require international co-operation in order to be effective, and I am confident that the G20 will allow us to make a good deal of progress.

May I return the Financial Secretary to his answer to my hon. Friend the Member for Putney (Justine Greening)? Surely he is not really saying—notwithstanding the independence of the Bank of England—that the House should not discuss, debate and question quantitative easing when it has led to the biggest printing of money in our lifetime. Will he give an assurance that that will happen?

My right hon. Friend the Chancellor of the Exchequer has already commented on the issue in the House. The announcement was made last week by the Bank of England, which is responsible for monetary policy, and it is consistent with the inflation target of 2 per cent. plus or minus 1 per cent. that the Government have set for the Bank. There will be plenty of opportunities for Members to question the Chancellor and other Treasury Ministers on this topic.

The Financial Secretary has said on a number of occasions that the shareholders voted for this merger, but I am not sure if they were aware that perhaps only one third of the normal due diligence had been carried out. In the light of both that and the apparent Government pressure for the merger, do the Government not accept some responsibility for what has turned out to be a bad merger?

The initiative for the merger came from the banks themselves; I understand they were talking about it some time before they approached the Government. The board then recommended merger to the shareholders, and the shareholders voted in favour of it. The hon. Gentleman may well want to ask some questions of board members, but this was clearly an initiative that came from the banks.

May I join the hon. Member for Thurrock (Andrew Mackinlay) in saying that I am feeling somewhat bemused by the enormously large figures, to which we are not giving a lot of scrutiny? On Thursday, I asked for a statement on quantitative easing. May I ask where the figure of £75 billion was plucked from, and what scrutiny has been given to the effects of this on pension pots and annuities?

As the hon. Lady knows, the Monetary Policy Committee is the responsibility of the Bank of England, which operates independently. It chose the figure it wanted to adopt. My right hon. Friend the Chancellor commented on this topic back in January, because the Bank of England MPC has indicated for a number of weeks that it thought it would wish to go down that road. There was an exchange of letters last week between the Bank and my right hon. Friend, and he will, of course, be happy to comment on this topic when he is back in the House.

The Financial Secretary referred earlier to what happened in Sweden, which had the advantage of completely cleaning up private sector banks, which were fully nationalised. Why have we not pursued that policy option? What is superior about the Government’s approach, which essentially means bad banks operating while remaining within the current commercial banking system?

Of course, it is an option for banks to set up, effectively, a bad bank or divide themselves into a bad bank and a good bank; that is a matter for the banks themselves. Our view is that banks are best managed under private ownership in the commercial sector. That has guided us through this process, so the establishment of a bad bank would be a matter for the board of that particular bank.

The Financial Secretary may know that I have been having a running battle with the Chancellor and the Government since 7 October regarding the percentage of GDP commitments they have been entering into, particularly as they have escalated. We have now discovered that the original figure given by the Financial Secretary of 37.3 per cent. has increased considerably. What might the impact be of the percentage increase he has currently announced in respect of GDP, and what implications will that have for taxation and public spending by the Government?

I am having some difficulty in recognising the figures to which the hon. Gentleman has referred. Let me just say once again that the announcement covers, effectively, an insurance for £260 billion-worth of assets, but the cost to the taxpayer in due course will be a great deal less than that. As I have said, Lloyds is paying £16 billion for access to this facility, and we will have to see whether the cost is more or less than the fee being paid. Clearly, there is at this stage a great deal of uncertainty about what the ultimate cost will be; if there were not uncertainty, it would not be necessary to put this scheme in place. We need the scheme in order to end the uncertainty about the value of assets on the Lloyds balance sheet, and so to enable Lloyds to lend, which the economy needs.

I am grateful for the opportunity to debate this important subject. My speech will fall into three main sections: first, an assessment of the structure of the Department for Business, Enterprise and Regulatory Reform and of the need for a business Department at all; secondly, an assessment of how well BERR is coping with the consequences of the recession; and finally, drawing on the Select Committee on Business and Enterprise’s 14th report and the Government’s response to it, an assessment of the accountability of the Department to this House.

It is somewhat ironic that a Department that the Prime Minister was apparently once set on abolishing is now at the eye of the biggest economic storm to hit this country for at least a generation. It is a much-shrunken Department; as these estimates remind us, it has lost responsibility for energy to the new Department of Energy and Climate Change and before that it lost responsibility for science to the new Department for Innovation, Universities and Skills. However, it is still the business Department—the Department for commerce— and it faces some of the most important questions that our nation faces.

As a Select Committee Chairman, it would be quite wrong of me to apportion blame for the crisis that we face, so I am not going to do so. I am very glad that we still have a business Department to address those problems. My own party once toyed with the idea of abolishing it and the Liberal Democrats may still have that as official policy—I hope that that is not the case, because we need to have a new consensus based around the need for such a Department, so that the voice of business can be heard loudly and clearly in Whitehall. After all, most of what the Department does has to be done by someone, so it is better for it to be done by someone with a rough understanding of the needs of business.

I know that opinions differ on how well the Department does that job; last week’s custard thrower thinks that it sweeps all before it in the argument about Heathrow, whereas others, in the business world, think that it has sometimes been slow and inadequate in its response to the current crisis. This debate provides an opportunity to see who is right.

Debates on the economy are all too rare in this House, and I have mixed feelings about this half-day debate; I am pleased that my Select Committee and the Liaison Committee are providing this opportunity for a debate on the economy, but I am sorry that the Government have not done so before now, and although I understand the reasons for the two statements made today, it is regrettable that, once again, an estimates day debate is being truncated by very important statements.

My hon. Friend rightly says that we need to probe these estimates in the Department of his choice, but is he aware that the biggest single item in these estimates is a massive £20 billion increase in the estimates for the Treasury, yet we have been given no explanation and no opportunity to debate it?

My right hon. Friend makes an extremely important point. If we are being honest, we must say that this House is not always very good at scrutinising the expenditure of government generally.

My hon. Friend is being most indulgent in giving way at the outset of his speech. Does he agree that at a time when we need to hold the Executive to account far more thoroughly on a day-to-day basis, our task would be far easier if the Secretary of State were in this House and not in the other place?

I shall be exploring that theme at some length towards the end of my remarks, but for now it suffices to say that I agree with my hon. Friend.

Although we have a Budget debate starting on 22 April, that is still six weeks away. We should be having regular debates on the economy—on the central issue of our time—and not relying on estimates days and Opposition supply days. We are talking about the Budget, so I should point out that one of the three Commons Ministers to whom I wish to refer is in his place—the Economic Secretary, who is also a business Minister. I am intrigued by the suggestion that his very presence in two Departments—again, that is one of the issues that I wish to address later—may inhibit his ability to stand up for business. I am told by business that it sometimes wants tax cuts—the last thing that the Treasury wants—and sometimes its interest in issues such as the VAT reduction may not be being properly represented because the economic and business Minister has to defend Treasury decisions.

That interesting situation leads to a rather important point about the current structure of BERR. I do not think that sharing Ministers is a very clever idea on the whole, and BERR has far more than its fair share of shared Ministers. My view of Whitehall is that it works on constructive tension between Departments, and although internalising too much tension may look like joined-up government, it makes for bad government. There has even been criticism—I see that the hon. Member for Ellesmere Port and Neston (Andrew Miller), my friend who is Chair of the Select Committee on Regulatory Reform, is in his place—of the fact that responsibility for regulatory reform has been taken away from the Cabinet Office and given to BERR, because that has internalised a very important conflict.

I was pleased to hear Lord Mandelson express concerns in public about the level of planned future business regulation. I have a lot of sympathy with the view of the British Chambers of Commerce that there should be a three-year moratorium on non-essential Government regulation that imposes a cost on business. Although business has been talking about this for a long time, when preparing for this debate I was struck by the new urgency from the business community about the need to curb the growth in regulation.

Does the hon. Gentleman accept that, as part of that debate, we should look at business rate reform, because small businesses in our constituencies, particularly small retail outlets in our shopping centres, are suffering terribly in the current economic crisis? We should be doing something specifically about that particular problem.

I agree with the hon. Gentleman, but it would have been nice to have seen him in the Chamber on Friday when we debated this issue. He would have had the opportunity to speak up for his constituents then and it is a shame that he was not here to make that point, with which I agree.

There are conflicting views about the status and activities of BERR. One leading business organisation member said:

“BERR needs to clarify its authority on the business agenda and should require ultimate sign-off on business issues.”

He means across Whitehall. He added:

“The risk is that other government departments are using businesses for more and more outcomes that benefit”

their own

“department’s core stakeholders—councils, schools etc—and leaving BERR with the role of managing the fallout amongst the business community.”

The construction sector has continuing concerns about the Department, and the constant merry-go-round of Ministers who are responsible for construction does not help. The current Minister responsible for that issue is in his place, but if I am right, there has been quite a lot of change in who has worn that hat over the past few years. A representative of the construction industry said to me:

“One of the difficulties that BERR found fairly quickly, however, was demonstrating that it was actually ‘fighting the corner’ for business. Decisions on a number of tax issues”—

tax issues again—

“in the autumn of 2007 which went in favour of Treasury despite strong protestations from business harmed its credibility, as it seemed to industry that the department had rolled over with little or no fight on behalf of those it represented.”

Perhaps more worryingly, that representative also said:

“Proposals earlier this year to develop a strategy for the recovery seem to have been put in abeyance and the focus is more and more on fire fighting. Strategic thinking seems to have gone out of the window.”

I am delighted that the Department has accepted the key recommendation of our Committee, which was the recommendation for a chief construction officer. I think that that will do a lot to address the inevitable flux in Ministers, but it would be nice to have that person in post soon. I know that the consultation has begun and I welcome that, but there are big issues. For example, there is tension between the Department for Children, Schools and Families, which has unspent capital in its budget, and the Department for Innovation, Universities and Skills, which cannot find the money to fund the essential further education college building programme. A modest transfer from one to the other would help the nation’s skills agenda and the construction sector. The chief construction officer could and should be knocking heads together to achieve that.

The good news is that BERR seems to be doing better than its predecessors. That is the judgment, it seems, of a number of organisations. The CBI said that it saw an improvement from the old Department of Trade and Industry, a positive change and transition and greater emphasis on shaping policy across government. However, the CBI also said:

“BERR still has some way to go to achieve its mission. BERR should continue to strive to influence critical business issues across Government, including tax competitiveness, labour market flexibility, infrastructure, skills, and energy prices and security.”

The Engineering Employers Federation, Ministers will be pleased to hear, is quite kind too. It states:

“BERR appears to have developed a greater sense of purpose and a more confident relationship with other government departments. In part this is down to personalities and there is no doubt that the Department has a forceful and often impressive Ministerial team. It is arguable that the economic downturn has helped give BERR a clearer sense of purpose.”

So, there are mixed views outside, but the general sense is that the Department could and should be doing better.

One matter that does not seem to have been mentioned by the CBI is over-regulation and the role of my hon. Friend’s Committee and the Department in the context of billions of pounds-worth of over-regulation. Commissioner Verheugen has already identified a cost of £100 billion a year for the whole of Europe, Boyfield and Ambler and others have calculated a figure of £23 billion for the City and, as my hon. Friend mentioned earlier, according to the British Chambers of Commerce, cost increases to business amount to £20 billion a year. In that context, is it not absolutely essential in weighing up the cost-benefit of the Department to start digging deeply into that over-regulation and to take all necessary steps in this House and in Europe to ensure that the whole thing is dealt with properly?

I am very pleased to agree with my hon. Friend. To be fair to the Department, many of the regulations that impact on business come from other Departments. We need to get a handle on other Departments’ behaviour, too, and not just on BERR’s.

I had hoped to discuss at some length the distraction of Sir Fred Goodwin’s pension scheme and the real issues that we face but given the time available, I will not do so. Sometimes I think that the Government are throwing up a smokescreen in front of our eyes and promoting some issues over some of the more fundamental issues. I shall not talk about that today, but shall simply say that the banks and the Government got us where we are by allowing indiscriminate lending and over-borrowing, both public and private. My friends in business find it somewhat confusing to be told by business Ministers that the Government are suggesting that banks must restore lending, especially lending on property, to the very levels that helped to create the problem. I hope that it is uncontroversial now to say that we believe that the Government and the Bank of England should have acted sooner to correct the huge asset price bubble that we knew was an unsustainable boom that was bound to end in bust.

We have just heard from the Financial Secretary to the Treasury that the new deal with Lloyds will release an extra £3 billion for home loans. Does not my hon. Friend share my concern that that extra lending will be without any direction from the UK taxpayer, who is the majority shareholder, on the income or assets on which that lending should be based?

I hope that we will again move towards a world where more prudent guidance about lending is offered to individuals who are making the most important purchase of their lives. One of the great failures of the past few years has been the failure to provide that guidance, so I am very sympathetic to what my hon. Friend says.

The trouble is that the indebtedness in our economy— the indebtedness of individuals, companies and the Government—poses huge challenges to business. There is an overwhelming need to refinance corporate debt this year, a lot of it held by foreign banks that are now desperately short of liquidity and unprepared to offer that refinancing. Intriguingly, one senior banker said to me that in the great scheme of things, given the scale of the tidal wave of corporate debt requiring refinancing this year, the schemes that we are debating in our consideration of the estimates today, such as the enterprise finance guarantee scheme, amounted to little more than “a rounding error”. That is a salutary thought. When I think of the hundreds of billions of pounds that we have been talking about, I see what he means.

It would have been nice to have had a statement in the House on the implications of quantitative easing; that would have been good, and I am surprised and disappointed that we have not had such a statement. Quantitative easing may make the refinancing of corporate debt more achievable, but its scale does not match up to the level of corporate debt that needs refinancing. Anyhow, the smaller businesses that are rightly of concern to the Government and the House will not be selling bonds to the old lady of Threadneedle street for a while yet; that is for sure. What businesses, and small businesses in particular, need is working capital; it is often overdrafts that they need, not loans—a point that my hon. Friend the Member for Northampton, South (Mr. Binley) made in a very fine speech on Friday in the debate on my private Member’s Bill on small business rate relief. I am sorry that the Government could not bring themselves to back my Bill. Small schemes of that kind add up and form a big picture; they would make a world of difference to small and medium-sized businesses. I will not repeat all that my hon. Friend and I said about the importance of small businesses to the economy. Members of the House who are interested can read the debate in Friday’s Hansard. The fact remains that small businesses are still finding it desperately difficult to access the finance that they need.

The Business and Enterprise Committee had a session with the banks before Christmas. Their evidence appears in the tagged bundle of papers provided for today’s debate. Intriguingly, we heard clear evidence from them that the political pressure that they were under had led them to make improvements, as regards base rates and overdraft rates, particularly for small businesses. It is important that the House keeps up the pressure, and reminds banks of the need to address the issue. However, the CBI’s chief economic adviser has said:

“Significant government measures aimed at restoring credit flows are gradually being put into place, but the pace of delivery is slow. As can be seen in this survey”—

that is, the CBI’s February survey—

“businesses’ access to credit is just as difficult as it was a month ago.

The cost of borrowing, the credit freeze and the lack of a solution on trade credit insurance”—

I shall come to that issue in a minute—

“are having a growing impact on business activity.”

The CBI’s director general, Richard Lambert, has called for the Government to use a clearer, louder voice to explain the recovery plans, as there is confusion in business about what those plans cover and how they fit together. That follows what the CBI said in January about the need for a clearer timetable. The Federation of Small Businesses told me that it really appreciates what the Government are trying to do, but it adds that

“feedback from our members suggests that generally, small businesses are not satisfied with the speed with which measures to help small businesses are being passed on.”

The Engineering Employers Federation told me:

“The government has announced a number of support measures for business, with BERR in particular leading on measures to free up the flow of credit. There has been some criticism of the piecemeal nature of these initiatives and the lack of an overall discernible strategy.”

The enterprise finance guarantee scheme is aimed at viable businesses that have a history of borrowing from banks, but the EEF gave an example of a shortcoming in the detail of the scheme. It says:

“The Enterprise Finance Guarantee (EFG) Scheme, announced in January, has been slow to get off the ground. In January, EEF’s steel division, UK Steel, also pointed to the incorrect exclusion of steel from the scheme and this has only recently been reversed.”

I have had to write to Lord Mandelson to seek clarification on whether the scheme fully applies in Northern Ireland; that is apparently still not clear. On 16 February, the Financial Times reported that only £12 million had been lent under the scheme a month after it was launched.

The FSB has carried out a survey, which is available today. It says that a third of all small businesses are expecting to close down, or to lay off staff, if they do not have more help, but fewer than half of them had even heard of the enterprise finance guarantee scheme. In another FSB survey, no respondents said that branch bank managers were promoting the Government funds at all. The FSB says:

“Generally, it is apparent from responses that while some businesses have benefited from Government measures, for the most part, high street banks are either not aware of the detail or Government schemes, do not know how they would operate, and/or are concerned about the risk they would carry (25 per cent.).”

I saw a long story about that issue in The Sunday Times yesterday, and there are serious concerns about the level of personal security still being sought from companies under the enterprise finance guarantee scheme. There are big questions there.

If I had more time—if it were not for the statements—I would cite some case histories that prove that these are not anonymous concerns. They have specific roots in reality. I can show business after business that is not getting the help that it thought it would get as a result of issues with the way in which the schemes work, but I will not do that, to save time. I shall also not expand at length on the delay to the much bigger working capital scheme—a £10 billion scheme, which was revealed in the Financial Times last week as being “weeks behind schedule”. It is another example of a scheme winning headlines, but still lacking tangible reality.

What about the promise of 10-day payment from the public sector? All members of the Federation of Small Businesses who responded to the survey cited waiting more than 30 days to be paid by central Government Departments, local authorities and primary care trusts, so the 10-day deal is not working.

The Government have said that they are looking at trade credit insurance. The importance of that cannot be overstated. All business organisations are concerned about the withdrawal of trade credit insurance. It is affecting a growing number of businesses, particularly in the construction, retail and electronic sectors. I know that manufacturing businesses in my constituency are suffering from the lack of trade credit insurance. We need to know soon—very soon indeed—whether the Government intend to act on trade credit insurance or not.

Let me give one example. Focus DIY, one of the largest DIY retailers in the UK, owns 183 stores and employs almost 5,000 people. I am told, and I have no reason to disbelieve it, that it is in healthy economic shape and has just opened two new stores. It has had all its trade credit insurance withdrawn. The consequences do not need to be spelled out. That is happening across the retail sector, leaving otherwise completely healthy businesses facing an inevitable funding crisis. If those retailers collapse, jobs will be lost not only in those businesses, but in the manufacturing industries that supply those retailers. Sorting out trade credit insurance must be a very high priority for BERR. I look for reassurance from the Minister when he replies to the debate that that is indeed the case.

Another issue that we have not heard much about, but that ought to go on to the Minister’s agenda, is leasing. Despite Government’s initiatives and support for UK banks, there continues to be a sharp decline in the liquidity needed to enable small and medium-sized enterprises to lease essential business assets, such as telecoms and data services equipment. Demand from the SMEs continues at last year’s levels, but the almost complete withdrawal of UK banks from funding smaller businesses on normal terms, if at all, means that specialist leasing companies have to rely on foreign banks and to take more risk on their own books, and they cannot afford to do that for much longer. That reduces the number of SMEs able to access affordable leasing arrangements. There will be serious consequences for SMEs if we cannot give them the quality systems and technology that they need to develop their businesses. Leasing, sometimes of quite small items of kit, is hugely important in the SME sector, but the money is not available to finance it. I hope the Minister will be prepared to look into that with representatives of the leasing sector.

The hon. Gentleman is the Chairman of the Select Committee on which I sit and I have listened to his list of issues affecting small businesses. As a representative of a constituency with an enormous number of small manufacturing businesses, I recognise some of the problems that he has outlined. Does he agree that where there are problems with the schemes that the Government have introduced and that do not seem to be getting through to the businesses, the local chambers of commerce and the regional development agencies will have a crucial role to play in bringing the finance sector and the local manufacturing companies together to ensure that those schemes get through?

Some schemes have been put in place, but people are not being told accurately and in detail what is involved. Other schemes are not yet in place and ought to be. Yet other schemes are hinted at but are not yet offered, even in broad terms. Those are three separate problems, but I agree that the RDAs have an important role to play.

I regret the moving of Business Link from my Hereford and Worcester chamber of commerce to the regional development agency. It was a very well run Business Link which had strong links with the local community. It is now more remote, so communication is sometimes a more difficult challenge in my area. That situation differs in different parts of the country and even in our shared region. I am grateful for the hon. Gentleman’s thoughtful contribution.

Leasing is important to the automotive sector. That leads me on quickly to a discussion of one of the topics in the estimates—the package of loan guarantees to automotive manufacturers. I am worried about the lack of attention to the supply chain and small suppliers. We know how important that is. I have at least one automotive supplier—I am not prepared to name him in the House—in desperate difficulty with his bank, for no good reason. He desperately needs access to finance and cannot get it. We need to look much more than we have at the supply chain in the automotive sector.

I welcome, I think, what the Government have done for the automotive sector, as does the Society of Motor Manufacturers and Traders. However, we still have to be clear in our own minds about the basis for supporting the automotive sector as opposed to any other sector. We must not allow dangerous precedents to be set; the Government cannot support every sector.

rose—