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Commons Chamber

Volume 502: debated on Tuesday 15 December 2009

House of Commons

Tuesday 15 December 2009

The House met at half-past Two o’clock

Prayers

[Mr. Speaker in the Chair]

Oral Answers to Questions

Treasury

The Chancellor of the Exchequer was asked—

High Frequency Share Trading

1. If he will make an assessment of the merits of regulating the practice of high frequency share trading; and if he will make a statement. (306840)

High frequency trading practices and the firms that use them are subject to existing regulation, which includes provisions covering behaviour and market conduct. The Financial Services Authority will take action if those provisions are breached, and it continues to assess the risks from changing market practices, in consultation with other securities regulators.

The Minister will be well aware that nanosecond ownership of shares fundamentally changes the relationship between the shareholder and the board of directors, and therefore corporate governance. However, small firms that are, in a sense, not suitable for high frequency share trading will find it more difficult to raise equity capital, and such trading is related to a lot of activity that takes place off the exchanges in so-called dark pools. Does he not think that this at least deserves some detailed scrutiny and review before we walk into another disaster involving instruments that we do not understand?

I agree with the hon. Lady that this needs detailed scrutiny and review. She might be aware of the paper that the Treasury issued on Friday entitled “Risk, reward and responsibility: the financial sector and society”, which discusses a number of these issues. I am not sure that I agree with her point about liquidity and small companies, because there is evidence that high frequency trading is an important way of ensuring that there is additional liquidity. She will be aware, however, that the Committee of European Securities Regulators will be giving advice to the Commission next year on the review of the markets in financial instruments directive, which will certainly include the issue of high frequency trading and the nature of the changing equity market.

May I ask my hon. Friend about speculative share trading in Cadbury? The City Minister, Lord Myners, said recently that he thought that it had become far too easy for British companies to be taken over. Does my hon. Friend agree, and if so, what can be done in Cadbury’s case?

I do not think that it would be appropriate to comment on individual cases. The UK has a long-established regime of open markets and a stock market, and all publicly listed companies are for sale; that is the nature of listing. I am confident that Cadbury is a well-run company. It is putting up a strong defence, and it will be up to shareholders to decide how they want to vote and support it.

Budget 2009

2. What recent assessment he has made of the effect on the economy of the fiscal measures to help businesses he announced in Budget 2009. (306841)

6. What recent assessment he has made of the effect on the economy of the fiscal measures to help businesses he announced in Budget 2009. (306847)

I have never seen the attraction of a flat tax at the best of times. It would mean that people at the top end of the income scale would pay rather less than those at the bottom, and at this time, of all times, there ought to be fairness. Of course, I do not think that a flat tax would help businesses at all. The targeted measures that we are putting in place, such as giving businesses time to pay their tax, allowing them to carry back their losses and the reduction in VAT, are helping—and will help—business.

Will my right hon. Friend tell the House the estimated sum that will be retained by small businesses in the UK as a result of freezing the level of small companies’ corporation tax?

I think that I said in my statement on the pre-Budget report that about 850,000 firms had benefited from that measure. It is important that we do everything we can to help small businesses, because after all, they employ a great number of people and will, hopefully, grow into larger businesses.

Is not the reality that businesses in our constituencies still cannot access the credit that they need, and that all this newly printed money is being siphoned off into purchasing gilts to finance the extra borrowing that is a direct result of the Chancellor’s failure to come up with a proper fiscal plan to reduce the deficit?

No. I believe that the quantitative easing measures taken by the Monetary Policy Committee of the Bank of England are helping the process of recovery. The hon. Gentleman has a point, however, about bank lending. As I have said before, the stock of lending is broadly similar to what it was before the crisis. In addition, the banks in which we have major shareholdings —RBS and Lloyds—have lent an additional £50 billion. At the same time, however, there has been a repayment of lending by other businesses, which is why the net figure looks so low. As I said last week, it is necessary that the deficit be reduced, and we will halve it over a four-year period once recovery has been established—but it is important to ensure that we get that recovery established.

This recession is longer and deeper than either of the recessions of the 1980s and 1990s. Unemployment and youth unemployment are higher than they were in 1997, so the decision to add an additional national insurance burden for employers seems to make no sense, as it will weaken businesses’ ability to create jobs. Does the Chancellor not agree with the chamber of commerce in his home town of Edinburgh that that makes no sense, and that he should have been incentivising job creation, not penalising it?

We have introduced a number of measures to help people get into work, and there are 2.5 million more people in work now than there were in 1997. Also, unemployment would have been much higher if we had followed the course of action taken in the 1990s and the 1980s. The measures that we are taking are working, and they are making sure that we are getting people back into work much more quickly than was the case in the past. Most people find work within six months, and many get back into work in a much shorter period. We will continue to do whatever is necessary to maintain jobs. That is important in every part of the country, including Scotland.

May I report back to the Chancellor the information that I was given yesterday by the Volkswagen training centre in my constituency about the car scrappage scheme? I was told that it had been hugely successful in boosting jobs, particularly in the motor retail sector. The centre’s evidence showed that it had been taken up by people who would not have bought cars otherwise, and especially by large numbers of elderly motorists and women. They valued the simplicity of the scrappage scheme and found it very useful.

I met one such customer in Manchester last summer—[Hon. Members: “That’s two, then!”] On the basis of those two anecdotal pieces of evidence, I am sure that we must be on the right track. Rather more importantly, however, since the Budget last year there have been 290,000 orders for new vehicles. We have made a further £100 million available, and the scheme is an example of how a comparatively small amount of money has helped the confidence in the motor industry, which is a major employer in our country. In addition, Honda has announced that it is switching some production from Japan to this country, and Nissan too has reported an increase in production. This is an example of a policy making a difference to a very important part of our country’s industry.

Businesses need a credible plan from the Government to deal with the fiscal deficit. The universal reaction last week from every single business organisation was that that plan does not exist. One important step that the Chancellor could take today is to be honest about the real-terms cut in departmental spending that the figures that he announced last week imply. Will he confirm what Treasury officials told the Treasury Committee this morning and give us, in the Chamber now, the projections for departmental spending that he refused to give last week?

First, we have set out a plan to cut borrowing by half over a four-year period. I understand the hon. Gentleman’s view, which is shared by some others as well, that we could go further and faster. However, I believe that attempting to do what we are doing in a period one year shorter than that would result in taking £26 billion more out of our economy. That would be damaging to our economy and very damaging to our future prospects, which is why I do not think that his policy on this matter is right.

Secondly, in relation to departmental spending, I said in the pre-Budget report last week that I wanted to ensure that we could protect front-line services in the NHS and in schools, and make sure that we had sufficient police on the beat. I made that clear, but I also made it clear that I was not going to fix individual departmental expenditure limits for each Department at this stage, because there is still a lot of uncertainty around. We already have spending for the next year; that remains my position.

I do not think that the Chancellor can be aware of the universal reaction to his PBR statement last week. The international markets believe that there is “no coherent plan” in the UK, that our sovereign credit rating is “vulnerable” and that interest rates are going to be forced higher, leading to the UK losing its “top-notch status” for the first time ever. Every single business organisation slammed the report as being no plan for recovery, and the Chancellor completely betrayed the high responsibility of his office, which would have been to stand up to a Prime Minister who is pursuing a policy of scorched earth and political dividing lines.

I ask the Chancellor a very specific question: will he publish the departmental spending projections? I am talking not about the projections for individual departments, but about the overall departmental expenditure limits that we had to leak after the PBR. His Treasury officials told the Treasury Committee this morning that they would, so will he publish that information this afternoon?

I said to the hon. Gentleman that we had not fixed the spending for individual Departments, and until that time it would not be right to speculate on what each Department might or might not get, because there is so much uncertainty. In relation to the general point that he makes, I believe that what we have done is the right thing for the economy. We are supporting the economy. To start taking money out of the economy now, as he proposes, would damage our prospects for the future. It is important at the same time to set out a clear path for reducing the amount of borrowing, and I have done that as well. We are one of the first countries to do that. That is a sensible way of proceeding, it is the right thing to do to support our economy, and it is the right thing to do to support jobs, which Labour Members, at least, regard as being of paramount importance.

Financial Services (Regulation)

3. When he next expects to meet representatives of the Bank of England to discuss regulation of the financial services sector. (306844)

Does the Chancellor agree that his Government’s decision to remove from the Bank of England its banking oversight and regulatory function was incredibly misguided and short-sighted? Does he also agree that that is one of the main reasons why the banking and financial crisis in Britain is worse than in practically any other country—apart, perhaps, from Iceland?

No, I do not agree with the hon. Gentleman. That had nothing to do with the origins of the crisis in the banking sector. The start of the problem was that too many banks, particularly in the United States in the sub-prime market, took on risk that they did not understand. If the hon. Gentleman was right in his analysis, there would not have been a banking crisis in any other country. The fact is that every developed country has experienced this—and as the hon. Gentleman knows, they all have different models in relation to regulation and supervision. The primary responsibility for any organisation must rest with the board of directors of that organisation, and in too many cases they were found wanting. I do not agree with the hon. Gentleman. I think that his analysis of what happened is wrong.

In his discussions with the Bank of England about regulation, has the Chancellor discussed, or will he discuss, the involvement of Lloyds TSB in the practice of “stripping”—laundering money—from Iran via London into the United States which has caused it to be fined more than $300 million as a preliminary fine, which ordinary people in the UK are having to pay as a consequence of their ownership of Lloyds TSB?

No, but I know that my hon. Friend has raised the matter before. I will write to him about it. I had better do that, for the sake of completeness, and I will arrange for a copy of the letter to be placed in the Library.

The Chancellor said as recently as 30 November:

“The structure”—

that is, the regulatory structure—

“that we have with the Bank and the FSA is the right one.”—[Official Report, 30 November 2009; Vol. 501, c. 876.]

Given that we have seen loan-to-value ratios of 125 per cent. and rampant self-certification in domestic mortgage lending going unchecked, warnings about the asset price bubble going unheeded, a banking system that came within hours of collapse, and total taxpayer exposure to that banking system now equivalent to about £40,000 per family, could he tell the House what kind of disaster it would take to persuade him that that structure was not the right one?

The hon. Gentleman is working on the basis that it was the regulatory structure that caused those problems. Equally, I might ask him how he thinks reversing the FSA into the Bank of England, with the same people doing the same job, would automatically have meant that the problem would not have arisen. I have explained to the House on many occasions what the problem was. Principally, it was a failure in relation to those responsible for running the banks—a failure to understand the risks to which they had become exposed. Yes, there were mistakes in the regulatory system and the supervisory system in every major developed country in the world. There is no doubt about that, but I honestly do not think that putting the FSA into the Bank of England would have prevented the problem from arising in the first place. I remind the Conservative party that just a few weeks before the crisis, the one policy that it had come up with was a policy that it was not necessary to regulate mortgages, because the risk lay with the institutions not with the individuals. Look where that policy would have ended up.

Remuneration Levels

4. If he will commission comparative research into levels of remuneration in (a) the banking sector and (b) the public sector; and if he will make a statement. (306845)

I am happy to look at the case for this research. We understand the pain both of the banking sector and of the public sector quite well, and we are introducing reform to both.

But does the Minister understand the anger that is reflected in the response of public sector workers to the pre-Budget report, when they see the incomes being given, granted to or thrown at the banking sector? Does he not understand that he must take further measures in order to redress the balance? When the economy returns to good health, will he make public sector pay a priority for the Government?

Fixing the very poor level of public sector pay that we inherited was of course a priority for us, and that is why over the past 10 or 11 years the pay of teachers has gone up by 52 per cent., that of police officers by 57 per cent. and that of nurses by 65 per cent. I think that, by and large, we have fixed the investment gap that we inherited from the Conservatives, but as we move into the years ahead we have to prioritise halving the deficit over four years. That is why we are asking for pay restraint in the public sector, starting with public service leaders, whom we are asking to take a pay freeze next year.

On the Government’s proposal to tax banks’ bonus remuneration, are the Government yet in a position to say which of the 192 regulated banks it will apply to; what the main exempted categories are, be they shares or contractual agreements; and, as it will take a long time to suss out the difficult avoidance possibilities, whether they have ruled out the possibility of extending the policy into the next financial year?

I understand that the draft guidance has been published. The proposals that we have introduced are designed to bite on banking groups, but we remain open to the possibility of extending the legislation and the tax if the avoidance measures that some have talked about are put into practice.

But does the Minister not agree that one of the important pieces of unfinished business is the largely taxpayer-owned £1.5 billion bonus pool in RBS? As the board of directors publicly defied the Government over that matter, do the Government propose to take any further action, either by replacing those directors or by giving them fresh instructions about how to deal with that bonus pool?

RBS is a bank in which we exercise a certain degree of influence over remuneration policies—but the hon. Gentleman will be pleased to hear that its management have not yet made proposals for a bonus pool.

If my right hon. Friend undertakes the research that my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) suggested, will he look back to 1979 and see how pay levels have changed since then? Will he look in particular at how the take-home incomes of the richest have been affected by the massive tax cuts for the rich that the Tories introduced at the time?

Banks (Penalty Charges)

5. If he will take steps to limit the levels of penalty charges imposed by banks on their customers; and if he will make a statement. (306846)

The Government announced in the pre-Budget report on 9 December that they would work with consumer groups, the Office of Fair Trading and the banks to agree a new framework that will make bank charges fairer, simpler and more transparent. The Government will take action to deliver change if a voluntary approach does not result in a fair outcome for consumers.

I thank the Minister for that very helpful reply. She was given a fairly broad hint by the judgment of Lord Walker in the case of Abbey National and others, when he said that his decision was

“not the end of the matter,”

and that

“Ministers and Parliament may wish to consider the matter further.”

What can she do to review the operation of section 140 of the Consumer Credit Act 1974, which requires fairness in the contractual relationship between banks and customers?

The Office of Fair Trading is still considering that judgment in detail, and on 22 December it intends to make an announcement about what further action will be taken. Our position is very clear: we want to see a fairer and more transparent system of charges, and we are working very closely with the OFT to achieve that.

I welcome the Government’s decision to stop unrequested credit card cheques being sent to consumers, but I urge the Minister also to consider unrequested credit card limits. That is of great concern to consumer organisations and very detrimental to the most vulnerable consumers.

I thank my hon. Friend for his question. He has a long record of standing up for the consumer in such matters. We were very pleased to be able to introduce measures to stop the practice of unrequested credit card cheques, and we continuously keep under review how we can best protect our most vulnerable people.

Financial Services (Regulation)

The Chancellor of the Exchequer has regular discussions with European Finance Ministers on EU regulation of financial services, most recently at the ECOFIN meeting on 2 December.

Government complacency has seen the role of Commissioner for Internal Market and Services go to France, and France and Germany have outmanoeuvred the Government on the alternative investment fund managers directive. Have the Government learned a lesson and put in place a new procedure to ensure early engagement over the proposals for regulation of the financial services industry?

I disagree. It is not the case that we have not been engaged early in all the processes. The Chancellor and our other Ministers have actively and successfully engaged in the EU agenda, both directly in the EU and within the G20, and I can assure the hon. Gentleman that that will continue. With the allies that we have in the EU and the European Parliament, we can do that; I am afraid I cannot say the same for the official Opposition party.

Earlier this year, the Chancellor was thinking aloud about the potential of an independent macro-prudential early warning system linking the Bank of England to European central banks, and a single micro-prudential rule-making body. Can the Minister say what the state of play is in terms of those developments?

Our position is very clear: we do think that we need an EU-wide system to protect financial stability. We are also very clear that that EU-wide system should not have any impact on our fiscal responsibilities. As a result of the discussions at the ECOFIN meeting, we have now secured the fiscal safeguard that we were seeking.

In June the Chancellor said that he was determined to block the moves to force the UK taxpayer to foot the bill for decisions made by the new European supervisory authorities. However, is not the reality that the Chancellor lost that battle in December’s ECOFIN meeting? None of the safeguards that he or the Exchequer Secretary talked about amount to a veto to protect national sovereignty and national taxpayers.

I absolutely disagree. In the negotiations, we secured the fiscal safeguard that our Chancellor went out there for, and which I brought to the House when we had the debate the day before.

Comprehensive Spending Review

Departmental budgets are set until April 2011. As the Chancellor made clear in his statement, now would not be the time for a spending review, given the uncertainties that remain in the world economy.

But as the Minister will recognise, last week the Chancellor predicted the economic growth for next year, so will he pledge to publish the comprehensive spending review results before next year’s general election?

I think that the Chancellor’s judgment on that will depend entirely on the uncertainty that we see at the time in the international economy.

Does the Minister not agree that there is a need right across the United Kingdom for certainty as we look forward into 2010 and beyond, not just for the next 12 months but for a period comparable to that covered by a CSR?

If the Chancellor had set out a spending review earlier this year, for example, it would have been pretty likely that those figures and settlements would have had to be revised, as unemployment turned out to be far lower than we initially expected. Indeed, today the Secretary of State for Work and Pensions is setting out the argument for the kind of savings that could be achieved on the welfare bill if, as we hope, unemployment is much lower than it might have been over the next few years. Until that certainty is acquired, it would be wrong to set out to the last pound and the last penny what each individual Department should get. We are very clear that halving the deficit over four years is in the right time frame. Halving it any faster—over three years, for example—would involve taking £26 billion out of public spending. That would mean, for example, putting about 5p on VAT, or halving the education budget.

Since last week’s pre-Budget report we have learned that the Treasury itself does not believe that the Government’s spending plans provide a credible route to restoring our public finances, and that the Schools Secretary was still wringing concessions out of the Treasury after the Chancellor went to bed on Tuesday night. Is it not now clear that even if the Treasury Ministers recognise the scale of the fiscal crisis, they are too weak to do anything about it?

I am sure there must have been a question lurking in there somewhere. I advise the hon. Gentleman not to believe everything he reads in the newspapers. What the Chancellor did last week was set out a clear plan for how we can halve the deficit over four years. It is pretty much the fastest consolidation plan in the G7, and it is also the clearest. We stand by the judgment that four years is the right period over which to halve the deficit. Of course there are people who have advised us to take a different direction and halve the deficit over three years, which would involve some pretty difficult judgments. That is the policy advocated by the Opposition, but they have not yet said whether they would put up VAT by 5p or halve the education budget. Is that because they do not know, or because they will not say?

UK Budget Deficit

9. What recent assessment he has made of the relative effect of the UK budget deficit on the economy in comparison with other G20 economies. (306851)

In common with that of other G20 countries, UK fiscal policy will continue to support businesses and families until the recovery is secure.

Does not the fact that Britain’s deficit is larger than that of Greece, which has had its credit rating downgraded, mean that we urgently need to get our finances in order and keep interest rates low so that we can get Britain growing again?

We have seen an unprecedented global downturn, and the debt is going up in all the G7 countries as well as other countries. Of course UK debt was low at the beginning, giving us extra fiscal space, as the International Monetary Fund has pointed out. The additional support that we have provided has meant fewer jobs lost, fewer business failures, fewer homes repossessed and less damage to the economy. As my right hon. Friend the Chancellor has explained, we will now halve the deficit over the next four years and so secure the public finances.

Is not the most important thing the fact that we have a deficit reduction plan, so that we can keep money in the economy, get through the recession and keep up front-line spending, particularly on health services? In Stoke-on-Trent we need the Haywood hospital and we need our schools, and we do not need the deficit.

My hon. Friend is absolutely right. It is vital that we have a plan—as we do—and that we can show how we will continue to live within our means while also providing the investment that her constituency and the public services need. We must also continue to support the economy, given the uncertainty that is still around. The Opposition made the wrong call on the banking crisis and the wrong call on the recession, and now they are making the wrong call on the recovery as well.

UK Credit Rating

We follow the assessments of the credit rating agencies closely. Moody’s restated last week that the UK is a resilient triple A sovereign. Standard and Poor’s reaffirmed the UK’s triple A rating in May, and Fitch did so in July.

The Minister must recognise what terrible financial damage, and loss of prestige to our country, would result if our rating were lowered. How confident is he that our triple A rating will not be lowered over the next six months?

It is important that all three major agencies assign us a triple A rating. As I said, Moody’s reaffirmed its rating just last week. It clearly helps that we went—[Interruption.]

Order. I apologise for interrupting the Minister, but there are a lot of private conversations taking place in the Chamber, and it is very unfair both to the Member—[Interruption.] Order. Mr. Fabricant, you know a lot better than that. I know where to look, and I do not require your help. Private conversation is very unfair on the Member asking the question and on the Minister answering it, and I think it would probably be regarded by members of the public as rather rude.

Thank you, Mr. Speaker. It does help that we went into the recession with low debt, as was underlined in the Moody’s note of 26 October. It is also important that we have the plan that we have set out for halving the deficit over the next four years. That is the responsible approach.

Bank Recapitalisation

11. What his most recent assessment is of the effectiveness of his programme of bank recapitalisation; and if he will make a statement. (306853)

Since the events of last October, the Government have acted decisively and comprehensively to support the stabilisation of the banking system and protect depositors. The recent entry of the Royal Bank of Scotland into the asset protection scheme on terms that improve incentives and deliver better risk sharing with the private sector, as well as Lloyds Banking Group’s private capital raising, means that banks are better capitalised and better positioned today to support the economy in its recovery.

Is the Minister aware of the National Audit Office report that says that neither Lloyds nor the Royal Bank of Scotland are meeting targets for lending to business? Bearing in mind that small and medium-sized enterprises in particular need the oxygen of available credit, what action is he taking to ensure that those two banks meet one of the objectives of re-capitalisation following the huge input of taxpayers’ money?

I am certainly aware of the NAO’s report—a couple of questions on the Order Paper cover the same matter. As the hon. Lady will be aware, the situation is that RBS and Lloyds banking group have made significant strides in improving lending to SMEs. However, a lot of small and big businesses have been paying down debt during this recession, which is why the net lending figures do not look so promising. The banks have signed lending commitments, which are binding, and we expect them to keep to them. We continue to monitor the issue very closely.

Banks (Government Support)

13. What response his Department plans to make to the National Audit Office report on the Government’s support for banks; and if he will make a statement. (306855)

The Government welcome the National Audit Office’s recent report, and particularly its conclusion that the support that we have provided to the banks was justified. We will consider the report and respond in the normal way.

I am sure that that response will make very interesting reading, but perhaps the Minister will explain why the Treasury gave a clean bill of health to the Royal Bank of Scotland just weeks before the bail-out.

It is my understanding that the Treasury did no such thing. We will obviously respond to the report in detail in due course, but I should like to quote paragraph 19 to the hon. Gentleman:

“If the support measures had not been put in place, the scale of the economic and social costs if one or more major UK banks had collapsed is difficult to envision. The support provided to the banks was therefore”

clearly “justified”.

Economic Growth

15. What estimate he has made of the current and future level of growth in the UK economy compared to other G20 countries; and if he will make a statement. (306857)

The pre-Budget report forecast that UK gross domestic product will have fallen by 4.75 per cent. in 2009 and will recover to 1 to 1.5 per cent. growth in 2010. The report did not forecast what will happen in other G20 economies, but world GDP is expected to contract by 1 per cent. this year, then to grow by 3.25 per cent. in 2010.

I am grateful to the Minister for those numbers. Given that we are the only G20 country still in recession, he will have to forgive us for not taking his forecast for granted. However, given that over the next couple of years, between pre-crash and post-crash levels, the level of debt in this country will have doubled—in fact, the rise in the debt will be third only to Iceland and Ireland—is the Minister not concerned that our growth levels will be much lower as a result? That will be a dangerous situation for everyone who lives in this country.

Let me first of all reassure the hon. Gentleman about our forecast. We said at the time of the Budget that we forecast 1 to 1.5 per cent. growth in 2010. At that time, most people, including the Opposition, said that that was much too optimistic. Today, however, the consensus has caught up with the forecast that we set out. I hope that the hon. Gentleman will be reassured by that vindication of my right hon. Friend the Chancellor’s forecast.

Right across the world, countries are borrowing more, which is the right thing to do. The stimulus that we provided has reduced uncertainty and helped to prevent a spiral of falling confidence and demand. That is why the impact of this unprecedented global shock has been so much less in the UK than many expected. If we had taken the advice of the Conservatives and let the recession take its toll, the damage and the long-term cost to the economy would have been far greater.

I am sure my right hon. Friend is aware that in certain sectors, there is potential for growth, and those are the ones that the Government need to invest in. I am thinking particularly of so-called green jobs. Intelligent Energy in my constituency is growing as a consequence of not only Government investment but investment from the private sector. That will deliver on jobs, but also from an environmental point of view in, for example, hydrogen fuel cells. Will he ensure that all Government aid is targeted at those future job growth areas, where we will make a significant impact on UK plc?

My hon. Friend is right, and I very much enjoyed my visit to Intelligent Energy as his guest a few years ago. Our “New industry, new jobs” strategy is targeting those parts of the economy with the biggest growth potential—for example, green jobs and the digital sector—and ensuring that we have the wherewithal to do well in the future in those sectors.

Comprehensive Spending Review

16. When he expects to announce arrangements for the next comprehensive spending review; and if he will make a statement. (306858)

Yes, but does he not think that the answer he gave to my hon. Friend the Member for Putney (Justine Greening) bears all the credibility of that of the Prime Minister when, two years ago, he said that his decision not to hold a general election had nothing to do with the fact that the polls were so bad?

Even the hon. Gentleman would admit that there remains a degree of uncertainty in the international economy. We need only look at events in Dubai and the Gulf to see the kind of instability that persists. Indeed, we are only halfway through the measures agreed at the G20 in London, so we are by no means out of the woods yet. Recovery is not guaranteed, and we cannot know how much we should allocate for welfare benefits. Therefore, it is difficult to pin down to the last pound and penny how much each individual Department should have. Last week, my right hon. Friend the Chancellor set out one of the clearest deficit reduction plans in the G7. We set out our priorities for the year to come, including some £15 billion of cuts and efficiencies in lower priority programmes. What we have yet to see is any plan of sufficient clarity from the Opposition.

Youth Unemployment

17. What recent representations he has received on the effect on the economy of the level of youth unemployment. (306859)

Treasury Ministers and officials receive representations from a wide range of organisations, including on the issue raised by my hon. Friend. We are taking action to ensure that young people are supported through this recession. As he will be aware, this includes a guaranteed job, work experience or training for those young people who remain unemployed for more than six months. That will ensure that we avoid the long-term detachment of young people from the labour market that was such a feature of previous recessions.

I thank my hon. Friend for that reply. Has he taken note of the recent International Monetary Fund “World Economic Outlook” report, which makes it clear that the fiscal stimulus should be continued next year until recovery is on a firmer footing? What assessment would he make of the effects on youth unemployment if deficit reduction replaced going for economic growth as the main aim of economic policy, as some in this House would prefer?

My hon. Friend is right. The judgment that the Chancellor made at the time of the pre-Budget report was that we needed to take action to secure sustainable public finances, but we needed to do so in a way that did not jeopardise the recovery. That is why we are planning to halve the deficit over four years. That action, as opposed to the more precipitate action that the Opposition prefer, will give us the best chance of ensuring that we have a sustainable economic recovery and can address youth unemployment.

If the Government’s policies are working so well, why is unemployment in Wellingborough more than double what it was in 1997?

As the hon. Gentleman well knows, we have been going through a recession in the UK, just like most countries around the world. That has obviously had an effect on unemployment, and that is very regrettable. However, the active labour market policies that this Government have introduced have been highly successful in getting people back to work. Youth unemployment continues to be a problem, but more than half of people leave jobseeker’s allowance within three months, and three quarters do so within six months. That is as a result of the programme of policies that we have put in place.

Public Services

18. What recent assessment he has made of the likely effect on the economy of maintaining present levels of Exchequer spending on public services. (306860)

The combined action of the Bank of England and the Government is supporting up to half a million jobs at the moment. The Government believe that, as there are still risks to the economy, it would be risky to consolidate too quickly.

The Government have done a lot to try to help young people during the recession, particularly with the guarantee of a job or training after six months of unemployment. Does the Chief Secretary agree that any attempt to reduce spending immediately would scupper the chances of economic recovery and impact in particular on young people coming into the jobs market?

There are those who believe that we ought to be cutting public spending faster, even now, before recovery has been locked in. We think that that would be a risk and that the price would be paid in higher unemployment and more repossessions. That is why last week the Chancellor set out further measures to help to combat youth unemployment and why we think that the right approach is to say to our young people that if they have been out of work for six months they will be offered a job, a place in training or, of course, community service.

What does the Minister think of the work by the International Monetary Fund showing conclusively that the higher the proportion of public spending in an economy, the slower the growth rate?

If the right hon. Gentleman looks at other economies in the OECD or the G7, he will see that the levels of debt forecast among them are pretty much in line with our own. This recession has hit us all. However, we are probably the country that has set out the clearest plan to halve that deficit over the next four years.

Topical Questions

My right hon. Friend will be aware of the present difficulties in investment levels in key driving areas. How does he intend to co-operate with the CBI and the TUC to try to maintain the recent excellent progress?

It is very important that we do everything possible to get a return of private sector investment in the economy. The public sector has been supporting the economy, particularly through public expenditure, over the past year or so. We can continue that until recovery is established, but part of getting recovery established and achieving growth in the future must be to get private investment going again.

T4. Does the Minister accept that a decision to press ahead with changes to the furnished holiday let rules will introduce a distortion into the domestic tourism industry, with self-catering accommodation now placed at a competitive disadvantage to bed-and-breakfast accommodation and hotels, and that it will hit rural communities such as mine in Pembrokeshire particularly hard? (306869)

No, I do not, although I am aware of the concern on this issue. We are putting furnished holiday lettings and bed-and-breakfast accommodation on a level playing field. However, a query has been raised, for perfectly understandable reasons, about the legality in European law of providing help to furnished holiday letting accommodation purely in the UK and not elsewhere in Europe. It is very important that we comply with international law.

T2. In my constituency, more job vacancies are being advertised, and many of those who lost their jobs earlier in the year are now returning to work. However, as growth returns, what more can the Government do to ensure that returning to work always pays more than staying on benefits? (306867)

My hon. Friend is absolutely right. It is important that we encourage people back into work, and as part of that, we must ensure that if people do go back into work, they can see the benefit of it. As the House will know, my right hon. Friend the Secretary of State for Work and Pensions will make a statement shortly, and I hope that she will have something further to say about that. However, my hon. Friend is right to emphasise that job vacancies are being advertised everyday. It is our job to ensure that we get people to fill those vacancies as quickly as possible.

T6. Will the Chancellor explain how it is fair that after the national insurance rise, people on low incomes will be paying 32 per cent. tax on their income, while he is letting bankers off the hook with a tax that will be easy to avoid, is full of holes and will raise just 10 per cent. of the £5 billion expected to be paid in bank bonuses this year? (306871)

In relation to the bank payroll tax, we are trying to change the behaviour of some banks that still want to pay out very large sums in bonuses when we believe that the money would be better applied to building up their capital position. Of course, from next April, people earning more than £150,000 a year—that will include many recipients of these bonuses—will pay tax at the top rate of 50p. In addition, the hon. Lady asked about national insurance. I made the position clear last week. In particular, I made the point that people earning less than £20,000 would not be paying more as a result of the measures that I introduced.

T3. Can my right hon. Friend assure me that the level of investment in high-speed rail through the west midlands will be maintained? (306868)

We have invested a considerable amount of money in the railway system in the west midlands. The upgrading of the west coast main line cost between £7 billion and £8 billion, and has meant more services and, above all, more reliable services than in the past. That is an example of what happens when public investment is run down, because that line last had serious investment in the 1970s. We have put that right and we will continue to do what is necessary to ensure that the railways work.

Has the Chancellor seen the helpful comments of the right hon. Member for Norwich, South (Mr. Clarke), with whom he used to sit in the Cabinet, who said yesterday:

“the reason why this Pre-Budget Report has been so disappointing is that the Prime Minister used his constitutional authority as First Lord of the Treasury to ensure that no full account of our economic predicament was provided, no systematic reform of banking was promoted and no clear account of Labour’s approach to closing the fiscal deficit was made”?

The truth is that the Prime Minister and the Schools Secretary overruled the Chancellor of the Exchequer. Sofa government is alive and well, in the form of a Chancellor who bears the impression of the last person who sat on him. Will he take this opportunity to demonstrate his independence and publish the overall departmental spending limit—not for the individual Departments; the overall number, which was leaked by us after the Budget and which he now has an opportunity to publish—after this pre-Budget report? Just answer that question, on the third time of asking.

I did see the article by my right hon. Friend. It is fair to say that he has had his disagreements with the Prime Minister over some considerable time; there does not seem to be anything new there. In relation to the departmental expenditure limits, I made the position clear earlier, and I have nothing further to add to that.

T5. The Chancellor was correct when he said that private businesses had a key role to play in Britain’s recovery. Has the Treasury made any comparisons on the relative impact of the current recession, compared with that of the 1990s, on business insolvencies? (306870)

Yes, indeed we have. If we had repeated the experience of the 1990s recession, we would have expected something in the region of two and a half times as many businesses becoming insolvent as have actually done so. The action that we have taken—through the business payment support service, the time-to-pay initiative, the enterprise finance guarantee and other measures that we have taken—has had a genuine impact. There is a distinction to be made between a Government who have provided real help now to businesses through this recession and a Government who, during the 1990s, did nothing and just let companies go to the wall.

T7. I understand that the total cost for the administrators, lawyers and consultants to clear up after the Government break-up of the Dunfermline building society is approaching £26 million. Who was representing the taxpayer’s interests when such outrageous fees were agreed for such a small building society? (306872)

I am not sure that I recognise those figures, although I will certainly write to the hon. Gentleman as soon as we have the final figures. However, there is a broader point to be made in relation to Dunfermline building society. It would have been nice if we had not been put in that position in the first place, but unfortunately that building society got itself into difficulties and they had to be resolved. That is precisely what we did. Both the hon. Gentleman and I would have liked the Dunfermline to continue as an independent building society. That was not possible, but the reason was that it got itself into difficulties and we had to sort the problems out.

Can we follow the lead of other European countries and introduce a cap on interest rates for the likes of store cards? People will be using store cards over the next few weeks in the run-up to Christmas. If someone spends £1,000, it will take them 15 years to clear that if they simply pay the minimum. That is totally unacceptable.

I entirely agree with my hon. Friend that there is a problem with the high rates of interest charged by some lenders, particularly to vulnerable people. I am aware that some other EU countries have introduced interest rate caps. However, the evidence from those countries is that introducing a cap has not resolved the problem, as the institutions have got round it by introducing other charges. However, we are still reviewing the position with the Office of Fair Trading.

Given the recent announcement by the Secretary of State for Wales of a floor for devolved spending in Wales relative to England, are the Government guaranteeing, at least as far as Wales is concerned, that they are banishing the Barnett squeeze?

The position in relation to the Barnett formula is that it continues to be the Government’s policy, and it is the basis on which allocations will be made to Wales, Scotland and Northern Ireland. Over the past 10 or 12 years, Wales has benefited from the increase in public expenditure right across the piece.

This is a difficult time of year for many small and medium-sized businesses in the UK, with holiday closedowns, holiday pay, and so on. What more can the Government do to improve the payment methods used by UK companies to encourage them to pay their suppliers more quickly?

We have introduced a number of measures that will help businesses. One of the most effective has been the time-to-pay regulations, which mean that businesses can stagger their payments of tax. That has eased their cash flow. It has also meant that 95 per cent. of the undertakings have been met, which benefits the Revenue as well. In addition, we have provided guarantees for loans, which have benefited firms in Scotland, and tax credits have meant that many people’s income has been supplemented by as much as £37 a week as a result of what we have been able to do.

T8. Is the Chancellor of the Exchequer confident that the banks that have benefited from direct taxpayer support are not exploiting that advantage to the detriment of the building societies? (306873)

This is something that we keep under close review. I am well aware that we need to ensure that the larger banks—particularly the two in which we have substantial shareholdings—do not behave in a way that is detrimental to the smaller building societies. This is something that we, along with the Financial Services Authority and the Office of Fair Trading, will continue to keep a close eye on.

This is a difficult time for savers, and they are not being helped by the practice of banks that market savings accounts with a bonus attached to them without telling the savers when the bonus is going to fall away. Could we not require banks to provide that information?

I am very much in favour of making more information available to savers—and, indeed, to borrowers—so that they can understand exactly what the terms and conditions are. I agree with my hon. Friend that, at times, those terms and conditions are not as clear as they should be. We want more people to save, and the best way to achieve that is to be very clear and up front about what the saver will get and when they will get it.

Can the Chancellor confirm that the Treasury completely ignored warnings from the Department for Communities and Local Government last autumn about the impact of the rise in business rates on the economy?

I only heard part of what the hon. Lady said, but what I can say—which will probably not satisfy her—is that we announced measures earlier this year to allow companies to spread the rates increase over three years, to ease the burden on them.

In the aftermath of the pre-Budget report, and given the importance that Members of Parliament in Stoke-on-Trent attach to the relocation of jobs from the south-east, what advice can my right hon. Friend give to people in Stoke-on-Trent on how to ensure that we can get such jobs relocated there?

Over the past few years, we have moved something like 24,000 jobs out of London and the south-east. Just before the pre-Budget report, we said that we would seek to move another 13,000 out over the next few years. I would be very happy to sit down with my hon. Friend and other colleagues from Stoke-on-Trent to talk about how we can maximise Stoke-on-Trent’s chances of getting a big share of those new jobs.

T9. Can the Chancellor tell the House how much his Government will be paying in interest on our national debt in the current financial year, and what his estimate is of the interest that will be paid in the next financial year? (306874)

It is understandable that the hon. Gentleman is concerned about debt, and I can tell him that the debt would have been very much higher had we not taken the action that we did to support our economy and to ensure that we got through the recession. Otherwise, the amount of borrowing and debt would have been far greater.

Despite the cheaper pound and rising house prices, stalled industrial output is still holding the economy back. Will the Chancellor tell the House what progress has been made on his plan to diversify the economy away from the financial services sector?

In the pre-Budget report last week, I set out a number of measures to encourage low-carbon industries and to encourage business generally. It is important that we have a diverse economy. The research and development tax credits and the reduced rate of corporation tax for firms that patent discoveries in this country and then develop them here are part of a range of measures all designed to make sure that we have a more diverse economy in the future. In the 1980s, rather too many firms went under and rather too many sectors were badly damaged: we cannot afford to repeat that mistake.

At some stage in the relatively near future, the Chancellor will receive a welcome windfall from the auction of the spectrum release by the digital dividend process, so will he honour the pledge given to users of radio microphones in the “Digital Britain” White Paper and earmark at least a small proportion of those significant revenues fully to compensate those users for their unwelcome eviction from the spectrum?

The Government are in discussion, as I think the hon. Gentleman knows, with those who represent that particular interest. We recognise the importance of it and we are looking to see what we can do to help.

Future Defence Programme

I am announcing today changes to the defence programme, which will enhance the support to our personnel on operations in Afghanistan, worth £900 million over the next three years, and reductions elsewhere to make these enhancements affordable and to match our expenditure against available resources. In doing so, I have made every effort to ensure that we balance the priority of supporting our forces in Afghanistan with our commitment to maintaining the capabilities necessary for the future, and that we do not take decisions on major changes that should properly be made in next year’s defence review.

As I have said repeatedly to the House, support for our operations in Afghanistan is our main effort. I saw for myself last week the contribution being made by our forces across Afghanistan—taking on the Taliban and beginning to train and partner with the Afghan national army. I pay tribute to their bravery, their professionalism and their dedication.

The defence budget has had the longest period of sustained real growth since the 1980s: it is now £35.4 billion—over 10 per cent. more in real terms than in 1997. As the Chancellor confirmed at the pre-Budget report last week, not a single penny is being cut from the defence budget in 2010-11, but despite this significant investment, acute cost pressures remain. There are a number of reasons for this, including rising fuel and utility costs, increases in pay and pensions and, above all, cost growth in the equipment programme. A number of major projects, while providing superb military capability, have cost more than twice their initial estimate in real terms.

All of this presents us with a significant challenge both in this financial year and as we look forward. The National Audit Office’s “Ministry of Defence: Major Projects Report 2009”, published today, describes the result of these pressures. Going forward, I am determined that we take action to deal with these pressures and to address the challenges head on. That is why we commissioned the hard-hitting Bernard Gray report, why we are taking steps now to implement his report and why we are reforming defence acquisition better to match our priorities to our spending. Getting this right is critical; tough choices are required. We will be publishing in the new year the strategy that will provide a planning and management framework to produce an affordable equipment plan.

I am determined to ensure that those who put themselves in harm’s way on our behalf remain properly supported and resourced. Our priorities in Afghanistan are to provide the best levels of personal equipment and protection to meet the fast-changing threat and to increase investment in key capabilities, including helicopter capability and our strategic air bridge.

I am therefore pleased to announce a number of capability enhancements to support the mission in Afghanistan. They are in addition to the operational costs paid for from the reserve, which continues to increase year on year and has risen from £738 million in 2006-07, when we deployed to Helmand, to over £3.7 billion this year. By the end of 2009-10, the reserve will have contributed over £14 billion to operations in Iraq and Afghanistan, including some £5.2 billion on urgent operational requirements.

My decision to fund these enhancements from the core defence programme reflects our determination to ensure that the Ministry of Defence is supporting the current campaign, and our belief that we expect such capabilities to feature in a range of future conflicts that our forces may face. The enhancements total £900 million over three years. They include an improved dismounted close combat equipment package, making equipment such as state-of-the-art body armour and night vision goggles available to 50 per cent. more troops so they can train with it not only before deploying to Afghanistan but before they embark on pre-deployment training; more Bowman tactical radios and patrol satellite systems to improve communications between troops and commanders; an additional £80 million for communications facilities for special forces; increased funding for our intelligence, surveillance, target acquisition and reconnaissance capabilities; and a doubling of Reaper capability.

As the Prime Minister announced yesterday, there will be further improvements in our counter-IED capabilities, particularly intelligence and analytical capability to target the networks that are doing so much damage to our troops and to Afghan civilians. There will be an additional C-17 aircraft to strengthen the air bridge, and improvements to defensive aids suites and support arrangements for the Hercules C130J fleet so that we can maximise their deployability and use. There will be 22 new Chinook helicopters, with the first 10 arriving during 2012-13, as set out in the future rotary wing strategy which I also announced today.

In addition to that package, the Treasury has signed off the latest funding from the reserve—over £280 million—to support a range of additional equipment for Afghanistan. It will include more new vehicles—for instance, there will be a 31 per cent. increase in the number of Husky tactical support vehicles and a 40 per cent. increase in the number of Jackal fire support vehicles for deployment in Afghanistan—and additional equipment to combat the threat of improvised explosive devices, including over 400 hand-held mine detectors, robots, and other items of kit. That one-off package is in addition to the resources already allocated for urgent operational requirements for the current financial year, and in addition to the protected mobility package that has already been announced.

The pressure on the public finances means that we need to prioritise carefully within our resources. We need to make reductions in lower priority areas to fund these enhancements, and to better match the defence programme to available resources. That has meant stopping or slowing spending in other areas, and pushing down hard on headquarters costs and overheads. Inevitably these measures will have an impact on some capabilities, but we judge that it will be manageable.

We will continue to reduce the number of civilians working in the Ministry of Defence. We recognise the importance of the civilian work force and the critical outputs that they deliver. That is why in the pre-Budget report we announced an independent study of the shape and size of the civilian work force, including the distribution of tasks between civilian and military personnel. This study will be undertaken by Gerry Grimstone and will inform the defence review. Without prejudicing its outcome, we would expect to be able to continue reducing the overall size of the civilian work force, above the 45,000 reduction already made since 1997. This is not just about doing more with less; we will need to make some hard decisions about what we can stop doing altogether, and about how we can bear down on other costs.

The other key adjustments we are making to the current programme are as follows. In line with our current aspirations to reduce to two fast jet types—the Typhoon and joint strike fighter—we will pursue without delay the Typhoon future capability programme phase 2. This is fundamental to the development of its multi-role capability and integration with the latest weapons. We will reduce now the size of our Harrier fast jet force by one squadron, close RAF Cottesmore and consolidate the Harrier force at RAF Wittering. This will maintain our joint carrier-based combat air capability. We plan to reduce our Tornado and Harrier force by a further one or two squadrons; decisions on the make-up of our future force will be taken in the defence review.

We intend to withdraw the Nimrod MR2 force 12 months early and slow the introduction of the MRA4. This will have an impact on our use of RAF Kinloss, but there is no change to our assumptions on the future basing of the MRA4 at this stage. The decision to withdraw the MR2 has been taken for financial reasons and is unconnected to the report by Mr. Haddon-Cave on the circumstances that led to the tragic loss of the Nimrod XV230 in Afghanistan. Mr. Haddon-Cave was very clear in his report that the aircraft remains safe to fly. I will make a further statement on Mr. Haddon-Cave’s report in the House tomorrow.

We intend temporarily to reduce some aspects of Army training that are not required for current operations. We will also take one survey ship and one minehunter out of service early, and cancel the current competition for unprotected utility vehicles and defer the programme for two years. We will bring forward the planned reduction in some of the older maritime Lynx and Merlin Mk 1 aircraft prior to the transition to the more capable Wildcat and Merlin Mk 2. We will spend less next year than previously planned on the wider defence estate but will continue to prioritise investment in both service family accommodation and single living accommodation.

The measures I have set out will also have implications for service personnel numbers. The details have not yet been finalised, but the emphasis will be on prioritising our manpower for operations in Afghanistan. Changes will be targeted so as to avoid affecting personnel involved in current operations. Reductions in service personnel numbers will mainly be managed by slowing recruitment and releasing some personnel, in accordance with their contracts. I appreciate that these changes will be difficult for many service and civilian personnel, their families and the communities in which they are based. I am fully aware of the consequences, and we will support those affected.

In making these choices, I have had to consider that the Government and the Opposition parties are committed to carrying out a defence review after the next election. A Green Paper explaining the Government’s vision of what that review should encompass will be published early in the new year. The measures reflect our stated priority of support for the Afghan campaign, and continued investment in new capabilities with enduring military benefit. This is a difficult balance to strike, but I am confident that we have got that balance right, and that that will be demonstrated where it matters most: on the front line, where our brave servicemen and women, supported by MOD civilians, are fighting for the future of Afghanistan and the security of our own country.

I am grateful to the Secretary of State for his statement and for prior sight of it, although we read much of it this morning in the media. It is hard not to feel some sympathy for the Secretary of State, whom I know to be personally very committed to our armed forces. However, despite the sweeteners, making cuts to our wider defence capability when we are fighting a war in Afghanistan only strengthens the perception that we have a Government who do not give a high priority to the armed forces.

The Government who were willing to waste £12.4 billion on a pointless VAT cut when they had to salvage their own reputation do not seem to have the same resolve when it comes to the country’s national security. The Ministry of Defence’s internal instructions were clear: allow for standing military tasks and do not prejudge the strategic defence review; and there is to be no capability removal but some shaving off. In other words, this is about numbers not fleets.

What will be the effect of the pre-Budget report on the MOD’s core budget, given that the Institute for Fiscal Studies says that non-protected Departments in the settlement will have to bear cuts of 16 per cent. over three years? By how much does it increase the £6 billion black hole highlighted in the Gray report? Is it true that the new Chinook aircraft will be funded from the cancellation of the future medium capability helicopter programme, not from savings arising from cuts in the RAF’s Tornado and Harrier fleets? If so, where has the £1 billion of savings from those cuts gone? What impact will the reduction in Tornado and Harrier squadrons have on the RAF force elements readiness strategy? What does the Secretary of State mean when he says that decisions on the make-up of our future forces will be taken later? Does the Treasury intend further cuts? Although more Chinooks will be welcome, we have to accept that we will not get them until 2013—12 years after we went to Afghanistan. Does that not indicate the sheer stupidity of the Government’s decision to cut the helicopter budget by £1.4 billion in 2004? When we get the new Chinooks, will they have a standard US army fit or will they incorporate the Thales Julius cockpit upgrade being applied to current RAF aircraft?

How will our submarines be protected following the withdrawal of the Nimrod MR2 next spring? How will the requirement for long-range rescue and maritime reconnaissance be provided once the Nimrods are gone? What aspects of Army training does the Secretary of State intend to reduce? Will he be specific about that? What implications does his statement have for the defence training review and RAF St. Athan?

Why are we cutting minehunter capacity when tension in the Gulf is rising? The Secretary of State is well aware that our minehunter capability is one of the capabilities most valued by our US army allies. We need to ensure that we maintain that capacity at a time when there are rising fears and tensions about what Iran intends to do. There is a real possibility of the Gulf being mined, so will he think again about removing a minehunter at an extremely sensitive time? In particular, will he consider the impact that that will have on the confidence of our allies?

There are many questions to be answered. The Secretary of State says nothing about the current carrier status and the possible downgrading of our facilities in Cyprus—again, that has been widely trailed in the media. The important thing for the House to consider is why cuts are being made to our defences at all. This is not about reprioritising spending for Afghanistan. He told us on television at the weekend that the Treasury reserve is paying, mostly, for the extra costs in Afghanistan. The Government say that they have maintained defence spending at about 2.5 per cent. of gross domestic product during their time in office, but that is only if spending in Iraq and Afghanistan is included. In other words, by their own definition, they are trying to fight wars on a peacetime budget. Our defences are being cut not as a response to a diminished threat—if anything, the threat is going up out there—or to a reassessment of our strategic needs, or in order to reshape our armed forces. A Government who have had four Defence Secretaries in four years, one of whom was part-time, and no defence review for 11 years are now cutting the capability because of their own catastrophic economic management.

Overspent and over-borrowed, in a worse economic mess than most of our competitors, last out of recession and with a shrinking wealth creation sector, the Prime Minister in his bunker is still living out the fantasy of what a great Chancellor he was, while all the time his Secretaries of State are having to make real cuts to their departmental budgets. This is the end—the final pathetic chapter in the new Labour project. After 12 wasted years, in debt up to our eyeballs, barely able to finance the Government’s borrowing and worried about our credit status, we are now having our national security cut as a consequence. Who is paying for the Government’s incompetence? Our brave armed forces, at least until we get a general election, when the real culprits will pay.

I did explain to the hon. Gentleman—he knows the true facts—that no cuts in our budget are proposed this year. None whatsoever. We have enjoyed a steady rise in the defence budget that has made it 10 per cent. higher in real terms. He says repeatedly—I have heard it before—that we are fighting wars on a peacetime budget, but the Opposition supported our operations in Iraq and in Afghanistan and do not offer a single penny more for defence. He can go round all he likes trying to undo the public statements of the shadow Chancellor by ringing up members of the defence industry and saying, “It won’t really apply,” but the Opposition have to tell one story in public and the same story in private. The hon. Member for Woodspring (Dr. Fox) does not offer a single penny more for defence, despite his allegations.

On the withdrawal of Nimrod, I do not take these decisions without consulting the Chief of the Air Staff and the First Sea Lord. Other platforms are capable of providing the maritime patrol responsibilities. They have done so before—they are Merlin and Hercules, and we can meet our obligations with those other platforms. We will continue to support the cost of current operations through the reserve, but it is quite ridiculous of the hon. Gentleman to suggest that the only thing that ought to pay for anything that is usable in current operations is the reserve. Of course we need Chinook in theatre in Afghanistan, but we will use Chinook elsewhere. Chinook is a considerable uplift in our helicopter capability not only for Afghanistan but for elsewhere, too.

The hon. Gentleman has nothing to complain about. He offers no additional money for defence and he really should stop pretending that he does.

I thank the Defence Secretary for his statement and for advance sight of it. Nobody will argue against the new equipment that will go to our front-line troops in Afghanistan and the additional capability that it will give them, but one must inevitably ask some questions about the details. The most eye-catching is the order for 22 new Chinook helicopters, of which the first will arrive in 2012-13. But how many will really arrive in 2013, when will the others get there and how does that fit in with President Obama’s timeline of beginning the withdrawal from July 2011? Would it not have helped if this decision had been taken a good deal earlier? Does this not prove the folly of the 2004 cuts in the helicopter budget?

We will all feel sorry for the Secretary of State because the Treasury has made him come here today, raiding core defence budgets to pay for these additional orders. What sense does it make for these decisions to be taken outwith the strategic context of the strategic defence review, which everybody is signed up to after the election? What will be the additional cost to the long-term defence budgets, and what will be the diminution of our core capability?

In 2001, we entered Afghanistan, and in 2003 we entered Iraq. The fact of the matter is that the fighting has been done on the cheap ever since. It is true that the Treasury has supplied UORs, but the fact of the matter is that the core defence budget has been creaking under the strain of these engagements ever since they began. The Secretary of State and the Ministry have tried to put off painful decisions until after the general election, but today harsh reality has caught up with them.

As I said in my statement, 10 of the 22 Chinooks will become available in the financial year 2012-13. It is all right for Opposition Members to talk about it being too late, but they know that we have doubled the helicopter hours available to our troops in Afghanistan and that there are 79 per cent. more helicopters. We have just put the Merlin into theatre, and the new Chinook capability not only will be greatly welcomed, but will come on top of all the enhancements that we have managed to achieve in the current fleet.

The hon. Gentleman talks about us cutting core capability, but how is providing twice as much Reaper capability in theatre, as we have at present, and providing additional Chinooks cutting core capability? Yes, these decisions are being taken ahead of a strategic defence review, but can he tell me what sensible person believes that ISTAR, unmanned aerial vehicles, helicopter lift in theatre and the kind of strategic airlift capability provided by C-17 are not what will be needed in the future? I do not believe that any of these decisions are cutting across decisions that will quite properly be made as part of a strategic defence review.

Order. Thirty-two right hon. and hon. Members are seeking to catch my eye. As the House knows, there is another statement to follow. I should like, as usual, to accommodate as many Members as possible but, to do so, short questions and—I gently say to the Secretary of State—short answers will be required.

I listened to my right hon. Friend’s statement with interest, and I require reassurance on two quick points. First, will he reassure me that the cut to the minesweeper and survey vessel will not impact on Plymouth and the work carried out there? Secondly, when looking at the defence estate, will he, as I assume that he will, do everything he can to speed up the sale of significant parcels of land that have been hanging around for some time and need to be moved on?

The detail of my proposals has to be worked through, but I will talk to my hon. Friend and any other constituency Member about the consequences of the withdrawal of the minesweeper and the survey vessel. Of course, if there are opportunities to release capital receipts by disposing of land that is not required, we will try to do that as quickly as possible. I know that the city of Plymouth wants us to do that so that reshaping can happen and people can get on with their development plans for the city.

Several of the announcements will be very welcome—not least the wonderful announcement on Chinook, which will fly into and out of the equally wonderful RAF Odiham, which is in my constituency—but others will be less so. Precisely what aspects of Army training will be reduced, and by how much?

We will prioritise the training that is required for current operations. As the right hon. Gentleman knows, there has been a big shift towards using facilities in Kenya, which are very suitable for current operations. However, we must consider other aspects of Army training, for example regarding Challenger 2 tanks. We will not require the Challenger in Afghanistan because it is not suitable for that theatre. There are therefore reductions that we can make so that we can focus and improve our concentration on, and support for, current operations.

Will the Secretary of State confirm that the Government intend to continue building two aircraft carriers? Furthermore, will he confirm that it is in fact only the Government who are committed to building carriers at all?

We are committed to the carriers. Nothing that I have said today affects the carrier programme in any way. I am sorry to tell my hon. Friend, however, that that does not mean that we can provide the three or four carriers that he has on occasion asked for.

Does the Secretary of State begin to understand the very dangerous precedent that he has created by giving in to the Treasury demand that Afghan expenditure should be funded from the core defence budget and not from the contingency fund? Does he not understand that there is hardly an example in living memory of that being done? How will he resist future demands from the Treasury—and they will come—that Afghan expenditure should be at the expense of the core defence budget itself?

It is right and proper—and the principle remains in place—that the additional costs of our operations in Afghanistan will be paid for out of the reserve and not the core budget. Everything, from the bullets and bombs that are used through to the additional allowances paid to our troops, comes from that source, and will continue to do so. Is the right hon. and learned Gentleman seriously suggesting that we should not be interested in using the core defence budget on major upgrades, such as a whole new fleet of helicopters? Is he saying that we should not buy anything that is relevant to our current operations out of that budget, but that we should expect the Treasury to buy anything and everything that is usable in theatre in Afghanistan? That really is unsustainable, and I think that he knows it.

This time last year, my hon. Friend the Member for Plymouth, Devonport (Alison Seabeck) and I had just returned from Afghanistan. My right hon. Friend’s announcement today of enhanced capabilities for our troops in Afghanistan includes many of the things that they were asking for, but I want to ask particularly about close combat. Is he listening to what the front-line troops are saying about how we need to evolve our close-combat gear to give them additional agility and to improve their effectiveness?

Absolutely. I have had, as my hon. Friend will have had, repeated requests from troops. We know that there have been considerable improvements in personal kit and equipment for our operations in theatre, but we want to train as we will be expected to fight. We have enough close-combat equipment to provide for our troops in theatre, and overwhelmingly for their pre-deployment training before they go into theatre, but this package will allow people to get the kit and equipment that they will be using in pre-deployment training and in theatre before they begin their pre-deployment training. They will therefore be able to train with it for longer, and thus be more familiar with it and more capable as a result.

Will the Secretary of State confirm that the number of RAF recruits going through basic training at Halton is due to fall next year, compared with this? Does that imply that the Government expect the RAF to become smaller in size over the next few years?

Our recruitment to all our armed forces has been very effective in the last couple of years, to the point that the Army is now fully manned. The detail of the impact on personnel is yet to be worked out, but I do not envisage the kind of effects that the hon. Gentleman talks about.

I welcome the measures announced by my right hon. Friend, but does he not think that it is time to reflect on whether we can avoid a reduction in non-operational training, for example, by determining whether we will get good value for money from the replacement of Trident?

The Government’s position on the nuclear deterrent is clear. We consulted widely on the White Paper that we published in 2006, and our view has not changed. I do not think that any sensible person would say that we should not prioritise the kind of training needed for the current operations at the expense of lower priorities at this time. We have 9,500 people in theatre and, as we have sadly found out, it is a very dangerous theatre of operation. That has to be our main priority and our main effort.

Does the right hon. Gentleman understand that, while the deployment of the 22 Chinooks in Afghanistan is much to be welcomed, many of us believe that they should have been ordered many months ago? Does he understand that that omission was culpable and negligent, and that men have died needlessly as a consequence?

As I have said to the right hon. and learned Gentleman, he stands as a member of a party that supported our operations, yet does not offer and has not offered a single penny more for defence. He has to square that with the kind of comments that he has just made.

Can my right hon. Friend be absolutely confident that there will be no capability gap between our existing aircraft carriers and the deployment of our new carriers as a result of any slippage in the carrier programme?

I know why my hon. Friend asks that question. A statement was made in his Committee this morning. That was an erroneous statement. There is not a problem of a gap. There is an issue of training that we need to look at and of which we are fully aware. We are examining it and mitigating it. There is no gap in the programme between the existing carriers and the future carriers.

Does the Secretary of State understand that many of us believe that he is a victim of the serious misjudgment of the military action against Iraq, compounded by the parsimony of the Treasury? What are the foreign policy and military implications of such a substantial reduction in the offensive capability of the Royal Air Force in advance of a defence review?

There is some £3.5 billion from the Treasury reserve this year—the figure has gone up from £700-odd million in 2006—so if that is what the right hon. and learned Gentleman calls parsimony, they are pretty big figures and they have covered the additional costs of our operations in Afghanistan. When he talks about the effects on the RAF, to some extent the future of the RAF lies with unmanned aerial vehicles, and there is a proposal for a very substantial increase in unmanned aerial vehicles in the package that I am announcing today.

In August two lightly damaged Chinooks—one of them damaged by small arms fire—were destroyed by our own forces because the security situation is so dire that we could not guard them for the 36 hours that it would have taken to lift them to a place of safety. Because of the deteriorating security situation, is it sensible to order more Chinooks that are vulnerable to small arms fire and to surface-to-air missiles?

The Chinook is far, far from a vulnerable aircraft. Those two will be replaced, and the replacements for the two that were damaged in theatre will be paid for by the reserve in line with the principles that underpin what should be paid for by the Treasury reserve and what should come from the core defence budget.

What plans does the Secretary of State have to explain to the British people and to his colleagues in Government the direct relationship between the excellence of Her Majesty’s forces, which comes at a price, the security of this nation in terms of energy, food, water, all the goods that they buy to fill their kitchens and their fridges, their cars and their computers, and the ability of Her Majesty’s forces to have global reach to protect this country, all of which comes at a price worth paying?

The principal vehicle for doing that is the Green Paper that we will publish in the new year, which will raise all those questions, and I hope inform the debate about the future of defence. We have co-operation from all the parties that are part of the defence advisory board that is looking at the Green Paper and should provide a good intellectual underpinning for the strategic defence review that will be necessary and come after the general election.

The whole country will agree that my right hon. Friend has taken the right decision in focusing entirely on the important activity in Afghanistan. He referred to a survey vessel. Will he ensure that in working through the details of the withdrawal of that vessel, there is close integration and discussion with the broader scientific community to make sure that the valuable work that that vessel has done is not lost?

We have to try to maintain oceanic survey capability to the maximum degree that we can, but we have to prioritise our current operation, so the answer to my hon. Friend is yes—of course we will try to look at the detail and make sure that we still have the necessary minimum capability.

The Secretary of State will be aware that the chief of defence materials told the Defence Committee this morning that he is willing to consider building the Chinooks through AgustaWestland under the existing licensing agreement with Boeing. Will the Secretary of State assure me that he will instruct his officials actively to explore that option, if it can be done on time and on budget?

I would not turn my back on that option in principle, but, on the costs and the time frame, I do not believe that we will be able to get the Chinook capability via that route. If somebody were able to convince me otherwise, that would be absolutely fine. I can say, though, that in our remodelled helicopter fleet, AgustaWestland will have a very important role. It will still provide two of the four helicopter platforms that we plan to continue into the future—the Merlin and the Lynx Wildcat.

Will the Secretary of State explain why the statement did not include anything about Britain’s nuclear weapons? Would it not have been a good opportunity to announce the cancellation of the Trident replacement programme, thus saving a great deal of money?

The answer to that is: I do not believe that it would be a good idea to make such an announcement, because I do not agree with my hon. Friend.

Most of the capabilities that the Secretary of State has today announced will be sent to Afghanistan have been flagged up over the past year by the military in Afghanistan, as many hon. Members have said. Why has it taken so long for those capabilities actually to come into play? Is it because the Treasury and the Prime Minister delayed them?

It has not taken so long, and the hon. Gentleman knows that we have made repeated announcements of capability uplifts in all kinds of areas. I heard some so-called expert on the television today say, “Why are we only getting IED capability now when we have been in Afghanistan for eight years?” Well, we have not been in Helmand for eight years, and the threat changed. If we care to remember, a couple of years ago the big problem was head-on assaults, small arms fire and rocket-propelled grenades.

There is an overwhelmingly responsibility on any British Government to protect and support British manufacturing and British jobs. Following the question from the hon. Member for Yeovil (Mr. Laws), could I, as joint chair of the Unite parliamentary group, ask what discussions my right hon. Friend has had with AgustaWestland, as part of its strategic defence agreement with the MOD, to build the Chinook helicopter under the existing licence agreement? Will he consider—even at this late stage—a British bid and meet Unite representatives so that they can put forward their case?

I have said that I would not rule out in principle such an option, but in the circumstances in which we find ourselves, where budgets are tight and we need to have that capability as quickly as possible, I am not prepared to enter into an arrangement that delays and increases the cost of those aircraft. I want those Chinooks; I want them as quickly as I can get them; and I want them at an affordable price. I do not think that we are breaking our long-term relationship with AgustaWestland, which will continue to be a major supplier of helicopter capability to us.

The Secretary of State mentioned the cost growth in equipment programmes, and we understand from this morning’s report that the Government delay in pursuing the carrier contracts has caused an uplift in the price of more than £600 million and had knock-on effects on the work forces of Rosyth and Devonport. How is that value for money?

Look, difficult decisions have to be taken in order to prioritise the equipment programme. I heard a Conservative spokesman today describe how things might be different, but the Conservatives would have ordered the carrier, wouldn’t they? They would also surely—or would they?—have prioritised the things that we have prioritised, so if they are going to make the allegation that we did something wrong, they have to be prepared to spell out what they would have done differently, and they have singularly failed to do that.

My friend said a few moments ago that Government policy on Trident had not changed since 2006, but that is incorrect; the Prime Minister has floated the possibility of going down from four boats to three boats. If that were to happen, how much would be saved?

My hon. Friend needs to look at the White Paper, because the possibility of going down from four boats to three boats was floated at the time. I have to say to him that that would not save money in any near year because, as I am sure that he will appreciate, all the costs of the fourth boat come pretty late in the programme.

Given that the Tornado force is being reduced, RAF Marham in my constituency will be affected. The Secretary of State will appreciate that it is an extremely busy base that could not function without its dedicated local staff. What impact assessment have the Government undertaken to assess the effect that the cuts will have on local unemployment and unemployment as a whole?

We will obviously have to look at that. The operation at Marham is particularly impressive—I have been there myself—and we do not want to do anything to undermine the good work that is being done there. However, we have to prioritise the kinds of kit and equipment that are needed for our current operations, and that will lead to a reduction in the number of fast jets that we have. The decision on the breakdown between Harrier and Tornado will have to be taken as part of a strategic defence review. Considerations of the kind that the hon. Gentleman is talking about will of course be part of that evaluation.

The counties of Rutland and Leicestershire will be alarmed at the proposed closure of RAF Cottesmore, which is, inter alia, a significant contributor to the local economy. Will the Secretary of State, as a well-regarded trade unionist in a former life, indicate to the House what plans he has to consult the local work force and, indeed, the wider local community about the impact of this suggested closure?

We will be consulting them through the chain of command, and helping them in any and every way that we can. All I would say to my hon. Friend is that if we are to pay for the kind of enhancements that we need, and that are and should be our priority, there has to be something on the other side of the balance. We will try to help the people affected.

I thank the Secretary of State for the advance copy of his statement. He will know that Government statistics show that, since 1997, 9,500 defence jobs have been lost in Scotland, bases have closed, regiments have been amalgamated, and in recent years £4.3 billion less has been spent on defence in Scotland than has been contributed by taxpayers in Scotland—and today the cuts have continued. RAF Kinloss and RAF Lossiemouth in my constituency will be significantly affected. The MOD must have worked out the manning and spending implications of today’s announcement. Will the Secretary of State confirm the staffing implications of the announcement for RAF Kinloss and RAF Lossiemouth? What are the projected cost savings at both bases? Taking into account the changes in the statement, how many service personnel and civilian MOD staff will be based in Scotland? How much will the defence underspend in Scotland grow by?

All I would say to the hon. Gentleman is that if the policies of his party were pursued, short of his policy of independence, there would be massive reductions in MOD-related jobs in Scotland. If he then got his own way on independence, one can only imagine the calamity in terms of the defence footprint north of the border. We are not going to close Kinloss, but obviously Nimrod MR2 activity there will cease, and that will have a significant impact on the levels of activity out of the base.

A few moments ago, my right hon. Friend said to my hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan) that if the Chinooks came in on time and at the right price, he would not turn his back on British workers. Will he agree to meet my hon. Friend, with Unite colleagues, to talk about that issue?

I am prepared to talk to my hon. Friends and other hon. Members at any time, and I had some discussions with the Unite trade union yesterday evening. Within the parameters of what I have said, of course I will talk to my hon. Friend and others.

The Secretary of State deserves respect for taking some very tough decisions that his predecessors should perhaps have taken many years ago. Nevertheless, he said in his statement that from the £900 million to be raided from the core budget, he is funding body armour, night vision goggles, Bowman tactical radios and counter-IED capabilities. By no stretch of the imagination is that justified, because he is raiding future defence capability to fund current operations, which the Treasury should be paying for directly.

The close combat support package needed for our operations in Afghanistan is already in place and being provided, and we have additional capability for pre-deployment training. What the Army would ideally like is that suite of capability right throughout the Army, and this change takes us a step towards that so that it has equipment such as night vision goggles before pre-deployment training. We cannot reasonably ask the reserve to fund that and to re-equip the Army completely.

On behalf of the 2,000-plus workers at the Scotstoun yard in my constituency, may I thank my right hon. Friend for his announcement about the carriers? Can he allay some of my concerns about servicemen and women who come back from Afghanistan or any other theatre, and those who retire? I am concerned that they may not receive the help, financial support and training that they sometimes need when getting back into civilian life. Will he assure me that the cuts will not affect those people?

First, carriers are a very important capability that we remain committed to. With regard to the ongoing welfare needs of our armed forces, the Under-Secretary of State for Defence, my hon. Friend the Member for North Durham (Mr. Jones), is looking seriously at how we can enhance the situation and protect people. We take the matter very seriously.

It is a central tenet of military life that time spent in training saves lives on operations, even if that training is of a more generalised nature, as the Secretary of State said in reply to my right hon. Friend the Member for North-East Hampshire (Mr. Arbuthnot). What precise cut in the training budget is he looking for?

I am looking to maintain all the training necessary, if at all possible. That includes both pre-deployment training for Afghanistan and the kind of training that we undertake in perfectly relevant theatres such as Kenya. There has been an emphasis on Kenya, and therefore we have done less training elsewhere in recent years. We have to give priority to the kind of training that is necessary for our current operations, and that is what we will do.

When will the Secretary of State be in a position to make a statement to the House about the future of HMS Endurance? Is he aware of the debilitating effect that the continuous drift of the carrier programme is having on the work force in Portsmouth dockyard? They were led to believe that dates for the carrier build would be given this year, but they are now going further and further away and jobs are at risk. Is he certain that there will be no further drift in the carrier programme as far as the Government are concerned?

I do not know about “continuous” delays to the carrier programme. As the hon. Gentleman knows and as we have acknowledged, we delayed the programme, but there is not a continuous delay, and there will be no further delay as a result of my statement today. We are cutting steel now for the carriers, so work is progressing. We are still assessing the situation with regard to HMS Endurance.

As recently as 28 October, the Secretary of State came to the House under considerable pressure and claimed that he had attracted some additional ring-fenced money from the Treasury for Territorial Army training. Since then, we have heard of cuts and a lack of finance getting through to the Army Cadet Force, the officer training corps at universities and the TA itself. Will he look into that and confirm that there will be no cuts to the reserves’ training, as he articulated as recently as October?

Will the Secretary of State think again about withdrawing the minehunter from the Gulf? Does he remember the signals that were sent out and what happened when the survey ship Endurance was removed from the south Atlantic?

Of course, I will bear in mind the points made by the hon. Gentleman and the hon. Member for Woodspring (Dr. Fox). However, the hon. Member for South Staffordshire (Sir Patrick Cormack) should not exaggerate the situation. We have minehunters active in the Gulf area, as we have had for a considerable time. They are very valuable assets that a lot of nations appreciate.

The need for this statement and the shambles around the TA statement in October are signs that the management of defence is in the most desperate straits. The price of that is being paid by service personnel as well as by the equipment and training budget. Will the Secretary of State give more details about the reductions in service personnel numbers? The statement says that that will involve “releasing some personnel”, but how many is “some”?

The details are still being worked on, but I find it hard to square the hon. Gentleman’s allegation with an announcement that pushes another £900 million in the direction of our forces deployed in Afghanistan. How on earth can he square what he says with that?

I thank the Secretary of State for an advance copy of his statement. He describes helicopters and the strategic air bridge as key capabilities. Can he outline what beneficial difference there will be to troops on the ground within the next two to three years before the first Chinook arrives?

We continue to deploy the Merlin fleet and I believe that there are now five or six Merlin in theatre. They have given us a considerable uplift—we have more than doubled helicopter hours. We will continue to try to be as efficient, and to get as many of our existing helicopters into theatre and as much use from them as we can. Of course, the Chinook will provide yet more in-theatre lift, which will be very valuable. As I have said, we will get 10 of them in the financial year 2012-13. The additional C-17—the seventh—will be a real boon to the strategic airlift, which is so important to getting troops and supplies in and out of theatre.

Nobody is fooled. This announcement is about very serious and possibly savage cuts in our overall defence capabilities, and indeed downgrading our armed forces. That is a direct result of the antipathy towards defence funding and the appalling economic stewardship of the Prime Minister when he was Chancellor of the Exchequer. When the Secretary of State read the National Audit Office report today that talks about a possible defence deficit of £36 billion in this decade, who did he blame?

There has been a 10 per cent. real-terms increase in the core defence budget since 1997 supplemented by £14 billion for our operations in Iraq and Afghanistan from the Treasury reserve. Not a single penny has been cut in the defence budget this year, but we are dealing with the pressures that exist and redirecting money towards current operations.

My constituents at RAF Lyneham will no doubt welcome the extra defensive aids suites for their C130Js, and indeed the extra C-17, but it is very hard to imagine how, when they are fully stretched, as they are at the moment, they can possibly get any more out of the very limited C130J fleet. Is it not time that the Secretary of State cancelled the A400M and the ridiculous closure of RAF Lyneham?

I am told that we can get more out of them. Of course, if we have a greater proportion of them fully fitted with defensive aids capability, they will be more deployable. I think we can get more use and more deployability out of the Hercules fleet.

Given the Secretary of State’s answer to an earlier question, how exactly are the Merlin and Hercules going to cover the gap caused by the withdrawal of Nimrod, given the pressure on resources?

The sea rescue capability can be provided, as it has been in the past, by platforms other than the Nimrod. I am told that that can happen and that we can meet all our obligations through the use of other platforms.

Will the new vehicles being deployed to Afghanistan include tracked versions of the Mastiff family of vehicles to provide greater flexibility and manoeuvrability, not least because the Mastiff has saved the lives of hundreds of British service personnel?