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Commons Chamber

Volume 504: debated on Monday 25 January 2010

House of Commons

Monday 25 January 2010

The House met at half-past Two o’clock


[Mr. Speaker in the Chair]

Oral Answers to Questions

Children, Schools and Families

The Secretary of State was asked—

GCSE Grades

1. Which five schools have shown the greatest increase in numbers of passes of GCSE grades A* to C since 1997. (312577)

We are unable to make a statistically valid comparison of results for all schools individually between 1997 and 2009. However, 45.1 per cent. of pupils achieved five or more good grades—A* to C— in 1997 and that rose to 70 per cent. in 2009.

I know that the figures are now normally given including English and Maths and so no straight comparison is possible with those from 1997. However, on the basis of the figures that are comparable—those for straight GCSE passes—is the Minister aware that the results of Battersea Park school in my constituency have improved by 66 percentage points, from between 4 and 5 per cent. in 1997 to 70 per cent. now? Does that not make it the most improved school over that period in the country?

It certainly makes it one of the most improved schools in the country over that period, and I congratulate all the staff, pupils and parents at Battersea Park school on all the work that they have done. My hon. Friend is right to draw attention to the improved results in obtaining five A* to C GCSE grades—as he says, the figure for his local school has risen from 5 per cent. in 1997 to 70 per cent. in 2009. He may be interested to learn that 11 per cent. of Battersea Park school’s pupils gained the benchmark of five A* to C GCSEs including English and Maths in 2005, whereas 36 per cent. of its pupils did so in 2009. However one measures it, Battersea Park school has made significant and substantial improvements, and should be congratulated on doing so.

I welcome any improved results, but does the Minister agree that the basic standards of literacy and numeracy in this country are nowhere near good enough for a country that is attempting to compete in a global economy?

I do not accept that numeracy and literacy standards are nowhere near where they should be—a significant rise has taken place in those standards. The number of primary school pupils gaining level 4, which is the benchmark that we use, has risen significantly. I mentioned the GCSE results at Battersea Park school, but the results of other secondary schools up and down the country also show a significant improvement. Are we satisfied with that and do we want to do more? Of course we want to do more, which is why we are introducing one-to-one tuition in primary schools. Such tuition will be carried on into secondary schools and will be backed up by the resources and investment needed.

Is my hon. Friend aware that the number of pupils obtaining five good GCSEs in Westminster has more than doubled since 1997? Will he join me in congratulating Martin Tissot and the teachers and pupils at St. George’s school? That school had a particularly troubled history and the fact that it has just been recognised as the most improved school in London shows what can be done with a combination of excellent leadership and resources.

Of course I join my hon. Friend in congratulating the school in her constituency and Martin Tissot on his work. It goes to show that schools that have good leadership, work with their communities and focus on teaching and learning can, even in the most difficult circumstances, raise standards and improve results. That is what has happened in the school that she mentions, and it is happening in schools up and down the country.

Is the Minister not concerned that nearly half of the 75,000 children on free school meals do not get a single GCSE above a grade D; that fewer than 4 per cent. of those 75,000 children are even entered for a GCSE in biology, physics or chemistry; that the independent sector now accounts for nearly half of all A* grades in GCSE French and achieves more A grades at A-level than all our comprehensive schools put together; and, most damning of all, that the achievement gap in GCSEs between the poorest areas of the country and the richest is widening—from 20 percentage points last year to a staggering 25 percentage points this year? Why, when pupils and teachers are working harder than ever, are this Government generating deeper and deeper inequalities?

The key stage 4 results for children on free school meals are rising faster than the average, and between 2002 and 2009 the number of pupils on free school meals achieving the equivalent of five A* to C grades at GCSE rose by 26 percentage points. It does not do the hon. Gentleman justice to keep pointing negatively at the achievements of those on free school meals. Significant improvement has been made in respect of those pupils, many of whose schools face the most difficult and challenging circumstances. Do we want to achieve more? Of course we do, which is why there has been a focus in those schools on standards and why, over time, we will also see an improvement in numeracy and literacy, particularly through the introduction of one-to-one tuition. As I say, there are things that we need to do and we need to do more, but more will not be achieved by simply decrying the achievements of schools that serve the most difficult areas.

Education Maintenance Allowance

2. What his policy is on the future of the education maintenance allowance; and if he will make a statement. (312578)

The pre-Budget report announced an investment of £8.2 billion in 2010-11 to fund 1.6 million places and meet our September guarantee to school leavers of a school, college or apprenticeship place. We expect to spend about £580 million on education maintenance allowances which will fund a further 80,000 places, and in 2011 we will remove the EMA bonus scheme to ensure that we can guarantee EMA payments to all students who need them.

Many young people in my constituency have benefited from what the Welsh Assembly Government have done in parallel with the Department. They use the money wisely to help young people stay in education beyond 16. Does the Secretary of State share my concern that some people are talking even about depriving young people of such things? For example, the nationalist Government in Scotland have decided to steal the money from the young people who need it most—those who are staying on in school and trying to do the best they can for their futures.

This is rightly a devolved matter, so it is for the Administrations in Wales and Scotland to decide, but the evidence shows that EMA payments increase participation in education beyond the age of 16 for children from poorer backgrounds. Any decision to scale back funding for EMA payments would be a very retrograde step.

My constituent, Mrs. Nicholas, is a widow with twin daughters, Emily and Sarah, who are clever enough to be studying for their A-levels a year ahead of their age cohort. As a result, they have been told that they do not qualify for the education maintenance allowance. Is that not an unfairness? Will the Secretary of State pledge to put it right?

I am happy to look at the details of the case raised by the hon. Lady. If she gives me those details, I shall write back to her. The purpose of the EMA is to ensure that finance is not a barrier to young people staying in school, college or an apprenticeship place after the age of 16 as they go into further study. There would be an even greater barrier if those places did not exist. At least with the Labour party, people know that there will be a school leavers’ guarantee this September.

Does my right hon. Friend agree not only that education maintenance allowances have been a success but that when they are clustered with what we have done in opening up diplomas, which are growing healthily, and with new apprenticeships, they give 14 to 19-year-olds a real alternative for the first time in the history of education in our country?

I am grateful to my hon. Friend for that question. The fact is that we have a higher number of young people staying on in education after 16 than we have ever had, and that is really good preparation for when education to 18 becomes the law in a few years’ time. Whether education takes place in school, in college or through an apprenticeship, it is vital to have qualifications that meet the needs of every student, whether they are more academic or want more vocational learning. It is also vital to ensure that they are not pushed down one route because their family says, “I’m really sorry, but you’ve got to go to work as we can’t afford full-time study.” That is what EMAs deal with. To propose that they should be scaled back or abolished would be a very retrograde step for social justice in our country.

Sex Education (Faith Schools)

3. What recent representations he has received on teaching about homosexual relationships in faith schools. (312579)

We are not aware of any specific representations from faith schools on teaching about homosexual relationships, although we are aware that it is of concern to some. We will be consulting on revised guidance to schools on sex and relationships education that makes it clear that schools have the flexibility to tailor their SRE provision to reflect the ethos of the school, but that teaching should be presented in a balanced way and should include other perspectives.

I am grateful to the Minister for that response. Do the Government agree with the leader of the Liberal party that schools should be forced to teach that homosexuality is normal and harmless?

Many faith schools are already teaching SRE very well. Schools have to teach within the context of their faith and their beliefs. They must present the accurate facts on homosexuality and do so fairly, and they can then, of course, talk about their faith, ethos and beliefs, too. They must also talk about tolerance, diversity and respect for all people who live in our communities and about the importance of rights and responsibilities.

Integrated Qualifications

Our 14 to 19 reforms are the most comprehensive changes to this part of education policy for more than half a century. They are designed to put in place high-quality qualifications that match a young person’s abilities, talents, interests and aspirations. There are four clear qualification routes: apprenticeships, the diploma, foundation learning or GCSEs and A-levels.

I welcome the Government’s effort to create a more integrated curriculum between the ages of 14 and 19. Does the Minister not agree that the shelf-life of the terms “vocational” and “academic” is coming to an end? The rigid segregation between what people perceive as vocational and academic is not helping to create parity. Do we need a new form of language to describe the curriculum?

I would go further than my hon. Friend. The fixation in certain quarters on categorising people at 11, 14, or 16 as academic or vocational and then labelling them as a success or failure accordingly has hindered our economic progress for more than a century. We need to focus on what is needed in the modern economy. What will success look like? Success will mean students learning to the best of their abilities and deploying transferable skills that can be applied in different settings. That is exactly what we want, and what the diplomas are providing. That is how our wider reform of 14 to 19 education is progressing.


Schools, head teachers’ representatives and directors of children’s services are in regular contact with Ministers and the Department about a range of matters, including Ofsted inspections.

Is the Secretary of State aware that Ofsted has changed the basis on which it inspects satisfactory schools but that that change does not appear on its website? Instead of a 20-day window for re-inspections of satisfactory schools, they are happening from one day to the next. Why is that not published on the website? Why is Ofsted acting as though it cannot trust any school or head teacher?

This is not a change in Ofsted’s powers, but it is a change in the framework for inspection. It started in September, after a long consultation. It is a deliberate raising of the bar to make our pursuit of high standards for all children in our schools even tougher and more demanding. A new framework always takes the first few months to bed down, and we shall see the details of that in a few weeks, when Ofsted does its report. However, I think that it is right that we are challenging all schools to ensure that all children succeed. That will be the basis for the new report card that we are introducing, and of the new Ofsted inspection framework, which I fully support.

Ofsted also has a responsibility to inspect serious case reviews and, when one takes place, to sign off the summary for the courts. I do not agree that we should publish the serious case review in full, but I have some concerns about the guidelines for the summary, which I believe should tell the story and not just present recommendations. Will my right hon. Friend meet me and others who want to express that point of view?

I would be happy to meet my right hon. Friend. She joins the widespread consensus when she says that she does not want the full review to be published, but she makes important points about the executive summary. In fact, over the past few months we have been consulting on revising the terms of reference for serious case reviews. That followed the report from Lord Laming earlier in the year, in which he said that we should continue not to publish the full review, but that we should put more information in the summaries. I agree, and that is what we intend to do, but I will have a meeting with my right hon. Friend and others to make sure that we proceed in the best possible way in the coming weeks.

I am glad that the Secretary of State seems to be changing his position on this matter. Most people in this House got the impression last week that the Prime Minister was arguing that the National Society for the Prevention of Cruelty to Children supported the Government’s existing position, which is to release only the serious case review summaries. Does the Secretary of State accept that the NSPCC changed its mind on this issue in November, and that it does not regard the existing position as sustainable? When, therefore, will we get some change in the arrangements?

The hon. Gentleman needs to get his facts right when he makes a point like that. In May 2009, the Government responded to the report from Lord Laming in which he said that we should revise the guidance to children’s departments on serious case reviews. We published a consultation in July, part of which said that we should have fuller executive summaries, and that is what we intend to do. We have had 146 responses to that consultation: while all but one of them supported withholding publication of the full report, they agreed that we should expand the amount of information in the executive summary. That is what we intend to do, and what we will do. It is also what the NSPCC said. In its statement after Prime Minister’s questions last week, the NSPCC made it clear—and I agree—that we need to have high-quality summaries that give a full, transparent and accurate picture of agency involvement, including errors or failings. However, it also said:

“Full reports should not be made public as sensitive information must be kept confidential to protect vulnerable children.”

I agree 100 per cent. with the NSPCC, and I hope that the hon. Member for Yeovil (Mr. Laws) does so. We know that the official Opposition do not.

I do not know what the Secretary of State is making so much fuss about. If all he is saying is that a few pieces of sensitive information and issues of anonymity need to be dealt with, both sides of the House will agree. That is not a reason to keep the vast majority of full serious case reviews secret, as has happened. If the right hon. Gentleman is softening his position, it is merely a question of the degree to which the full reviews can be published. Will he assure us that the Government will table an amendment to the Children, Schools and Families Bill in order to have far greater openness than is currently the case?

No, there is no need for an amendment because within the “Working together” guidance we are clear that although Ofsted expects those executive summaries to be full and comprehensive, and to have all the lessons that need to be learned, the full report should not be published for two reasons. The first is to keep the identity of all affected children anonymous and out of the public domain. The second, as the Association of Chief Police Officers said this afternoon, is to make sure that all lessons are properly learned, which would not happen before publication. That is what Lord Laming said; it is what I said in the summer and it is what we are doing. The NSPCC and 4Children agree with us. The only people who do not agree, I think, are the two Opposition parties, which surprises me. I do not see why they are taking that line.

I welcome the new draft minimum care standards for the inspection of children’s homes, particularly standard 21, which refers to the effective and efficient management of those homes. In the future, that should lead to a more robust inspection framework and stronger sanctions against homes that fail to manage the behaviour of the young people in their care, which can cause distress to the wider community and jeopardise their own safety. Can my right hon. Friend give the House any further information about when the response to the consultation on the draft standards will be issued?

I can. The consultation finished just before Christmas. I am grateful to my hon. Friend for her support for a very important set of changes that we are putting in place. We shall publish a full response on the guidelines in June, after we have discussed the findings of the consultation in further detail. Our aim will be to make sure that the guidelines are up and running in September and can be implemented in full from April next year, to coincide with Ofsted’s new inspection framework. It is right to take the time to get them right, and that is what we shall do.

As the Secretary of State knows, I wrote to him earlier today saying that I wanted to discuss the Edlington case with regard to this question. Ofsted says that the serious case review in the Edlington case is good. The Secretary of State has seen both the serious case review and the executive summary. Does he believe that the executive summary is a good piece of work?

The judgment is a matter for the independent inspector—Ofsted—which reports directly to Parliament. Ofsted reports that in its judgment it is a good report within the current terms of reference, which we are revising and which, as I have already said, will say in future that we should have a fuller statement of what happened, including the timeline of events and the actions to be taken. Ofsted said it was a good report. I have read both the executive summary and the full report. In both cases, it is patently clear that very substantial failings in Doncaster led to those outcomes, although none of those failings could excuse the terrible acts that were perpetrated by children against other children in that case.

I notice that the Secretary of State is hiding behind Ofsted’s judgment. When Ofsted said that child protection in Haringey was good after baby Peter’s death, the Secretary of State rightly ordered a joint area review, which came up with a very different judgment. Last year, the Secretary of State said that all future serious case review executive summaries should be fully comprehensive. Lord Laming called for a high-quality executive summary that accurately represents the full report, yet in this executive summary the history of what went wrong occupies only two and a half pages while the full serious case review is 150 pages. Will the Secretary of State now accept, as a variety of children’s charities and leading experts on child protection have pointed out, that we must go further? As the NSPCC has said:

“The case for greater accountability within the child protection system is a compelling one.”

In the case of the Haringey report last year into the death of baby Peter, which the hon. Gentleman read in full, Ofsted judged the review and the executive summary inadequate, and I asked for it to be done again. In this case, Ofsted has reached a different judgment—that it is a good report. That is Ofsted’s judgment; they are the people who are asked to make that judgment. In this case, the details are harrowing and awful. I have read the full report.

The issue about more information in the executive summary is important, and we discussed that a moment ago. The issue today, however, which the hon. Gentleman wrote to me about over the weekend and on which I have replied, is whether the full serious case review should be published. I have read the full report, as he read the full Haringey report. The reason why I will not publish the full report is that, in my judgment and those of the experts, and as he will know from the Haringey case, it contains details of the abuse suffered both by other children in the family and the victims themselves—detail which would either reveal their identities to other children in Doncaster or, for those who know that, would show that very clearly.

I have to say to the hon. Gentleman that a judgment that such detailed, harrowing, personal information should be put in the public domain would be wholly wrong and damaging to the children’s interests. That is why ACPO, the NSPCC and all the experts agree with me and disagree with him. I know why he is saying these things—

Order. I am extraordinarily grateful to the Secretary of State. This is an immensely important and sensitive matter, but we have a lot of other important matters that I want to get to, so this last exchange must be substantially pithier.

Professor Eileen Monroe, Britain’s leading academic expert on child protection, Anne Longfield of 4Children, Dr. Michelle Elliott of Kidscape and Community Care, the premier social work journal, are all calling for reform. Eileen Monroe stresses the case for full publication. The Secretary of State receives a copy of every SCR report fully anonymised, and so does Ofsted. Why cannot we have publication? After an aviation disaster, all of us know what went wrong, and the black box detail is published so that we can all keep children safer. Why is he standing in the way of keeping children safer?

Anne Longfield of 4Children made it clear to me over the weekend that she does not support full publication, and nor do ACPO and the NSPCC. I know the hon. Gentleman’s motives, but they are not putting the interests of children first. It would not be possible, even with a redacted version, to stop detailed information about the safety of these children and the abuse that they suffered from going into the public domain. It would be quite wrong if that happened. I understand what is being done here, and I think that the hon. Gentleman should reflect on his judgments and think about whether he is actually being responsible. What he proposes is not supported by pretty much anyone because it would be deeply irresponsible and would put children at risk in our country.

Christian Worship

6. If he will bring forward proposals to restrict the circumstances under which schools may apply for an exemption from the requirement to hold a regular act of worship of a broadly Christian character; and if he will make a statement. (312582)

Schools can apply to their local standing advisory council on religious education for a determination under which their daily act of collective worship need not be of a broadly Christian character. We have no plans to change that arrangement which, while still requiring such an act, allows the backgrounds of pupils to be taken into account.

What precisely are the criteria used by local authorities when deciding to grant a determination?

I think that the criteria are fairly obvious. For example, if a school was virtually 100 per cent. Muslim or Hindu, notwithstanding the fact that we are a Christian country, the school’s head teacher, with the governing body, may think it appropriate to say to the standing advisory council on religious education that the school wished to have an act of daily worship, but that it would be more appropriate if that took account of the background, culture and religion of its pupils. I think that most people in this country would think that that was eminently sensible.

Badman Report

Graham Badman’s review of home education collected a limited amount of qualitative and quantitative evidence from local authorities about home-educated children in their area. The data were used to produce an estimate of the population of home educators known to local authorities of about 20,000, which is consistent with estimates produced in an earlier report by York Consulting entitled “The Prevalence of Home Education in England”.

I thank the Minister for that reply, but does she acknowledge that my constituents and many others feel that the data that were pulled together meant that Badman got this badly wrong, particularly when he said that children who were home educated were twice as likely to go on the at-risk register? They believe that that information means that they, as parents, are being scapegoated and that a bad decision might be made. May we have a reassurance that that will not happen?

May I first pay tribute to my hon. Friend for the keen interest that he has been taking in home education and make it clear once again that Graham Badman’s report is about home education?

On the safeguarding data, Graham Badman asked for information from local authorities about child protection plans, because they are the only evidence of rigorous multi-agency processes that show no bias or subjectivity in relation to safeguarding. Seventy-four of 152 local authorities responded, which covers over 55 per cent. of the local authorities in the country, and Graham Badman found a higher incidence of home-educated children in those child protection plans. I reiterate that there are safeguarding provisions in place generally in our law. The report is predominantly about education.

Permanent Exclusion

There were 12,480 permanent exclusions in 1995-96 and 9,330 permanent exclusions in 2005-06. The latest available figures, for 2007-08, show that there were 8,130 permanent exclusions. The reduction in exclusion shows that schools have become more effective at managing behaviour. We have given teachers the powers they asked for to tackle poor behaviour and those figures are an indication of how well schools have responded.

I am grateful for that response, and we all acknowledge that we have to help difficult youngsters in every way we can, but when we put them in special schools we must ensure that we site those schools carefully and sensitively. Does the Minister share my delight that Essex county council now accepts that it sited one of those schools completely incorrectly in my constituency and is prepared to move it? Will he ask the council to get on with the job?

I pay tribute to the hon. Gentleman’s considerable ingenuity in getting Essex county council into a question about permanent exclusions. I am happy to look into the matter on his behalf and to meet him to discuss it further if he so wishes, but he will appreciate that local authorities are in the driving seat on a range of education matters, and can commission and locate services where they think it necessary.

My hon. Friend says that there has been a reduction in permanent exclusions—I have no doubt that that is due to the spread of inclusion units within schools, which in my constituency have worked extremely well—but is he assured that there are enough places for those who are permanently excluded and have serious behavioural problems to ensure that their difficulties can be dealt with properly?

My hon. Friend has considerable expertise in a range of education matters and he makes a valuable point. Our guidance clearly shows that permanent exclusion, where necessary, should be the last resort for pupils with behavioural problems, and the Department is keen to work with local authorities, schools and others to ensure that behavioural problems can be identified early and that preventive measures can be put in place.

The Minister knows that over the past six years the number of children suspended from school more than four times in a year has gone up from 9,000 to more than 14,000. Is not the real problem the fact that the Government’s target to reduce permanent exclusions has simply pushed head teachers repeatedly to suspend persistently disruptive pupils, who then do not get the specialist assistance they need to help to tackle their behavioural problems and break this destructive cycle?

Is the hon. Lady seriously suggesting that we do not give head teachers considerable powers for their schools? I talk to parents, as I am sure she does, and all the evidence suggests that parents want their children to be educated safely in orderly schools where behaviour is considered important. Head teachers have the powers that they need to drive forward good behaviour. Sir Alan Steer, when he reported on this in September, demonstrated and confirmed that. I am surprised that she does not agree.

Special Educational Needs

10. What steps he plans to take to improve educational outcomes for children with special educational needs. (312587)

In addition to launching the Achievement for All project to improve educational outcomes for pupils with special educational needs, we have commissioned a number of independent reviews: the Bercow review on speech, language and communication needs; the Lamb inquiry on parental confidence in the system; the Ofsted review of SEN; and the Rose review on dyslexia and literacy difficulties. We have already begun responding to all those reviews.

I am grateful to my right hon. Friend for her response, but I am concerned that in many mainstream primary schools, the special educational needs co-ordinator is often overburdened with other teaching responsibilities, and staff assigned specifically to support statemented children are diverted to other tasks, which is not right. Will she agree to meet me to discuss the matter and look into it urgently?

I am happy to meet my hon. Friend on that matter. As he knows, the Government have done two things in particular. First, we have issued guidance for SEN on tasks and responsibilities and, secondly, we have increased the status of the SENCO through the development of the work force by insisting that they be a qualified teacher. Thirdly, we have made sure that, for the first time, everyone who takes up the role has special training, which is required as part of their development. If he thinks that there is more that we can do as central Government, I will be happy to discuss that.

One of the least attractive aspects of SEN is the fact that parents have to battle for appropriate statements to secure better educational outcomes for their children, which often ends up with stressful, costly and adversarial tribunals. Witnesses who have given evidence to the Committee considering the Children, Schools and Families Bill have pointed to a missed opportunity which Brian Lamb’s report could have addressed. Will the Government now offer parents a decent mediation system, rather than complex tribunals, so that all families stand a decent chance at appeal for their children?

I agree that parents should not have the task of battling through the system. As the hon. Gentleman knows, we commissioned the Lamb review, which made specific announcements on redress for parents, support to be given to them, new rights of appeal, duties for Ofsted, and the question of proper consultation and other routes. The Government will issue a full implementation plan next month, and I am sure that the hon. Gentleman will let us know if he thinks that there is anything missing from it.

Last week, I was privileged to see at first hand the work of the ELCISS—enhancing language and communication in secondary schools—project in Dagenham schools, where speech and language therapy is provided and training given to school staff, resulting in enhanced educational attainment and improved behaviour. Will my right hon. Friend assure me that the outcome of that project will be examined, so that it can be rolled out in other areas?

As my hon. Friend knows, following the Bercow report, the Government have pursued the issue of speech development. I am more than happy to look at the project to which he has directed my attention, to make sure that all the lessons are learned and acted on, and that good practice is shared across the system.

Secondary Head Teachers

11. What his policy is on the appointment of a single head teacher to take responsibility for two or more secondary schools. (312588)

The Department’s mission is for all children to achieve their full potential. To deliver that, our policy is to make the best use of the very best head teachers. Where and when appropriate, this can and should mean the best heads running more than one school in either or both the secondary and primary phases.

I am grateful for that response. For those who doubt whether one person can run more than one school—that used to be my view—may I invite them to come to my constituency and see the inspirational leadership of one head teacher, Mr. Jonathan Tippett, who has turned around three schools? He continues to turn them around, but regrettably—I invite the Minister to come to see this for himself—two of those schools have been badly let down by the Tory-run Essex county council, which plans to close Thomas Lord Audley and Alderman Blaxill schools.

I am perfectly happy, if it can be arranged, to go to Colchester again to see what is happening.

My right hon. Friend says that I should, so it looks like I am going.

I am happy to meet the hon. Gentleman again on that particular issue. He is right to point out the serious point that good teachers can spread best practice, and can help to improve other schools as well as their own, which is why we are trying to develop the executive head model. With respect to Colchester, as he will know, the crucial issue, with which school reorganisation is trying to deal, is not only school improvement but surplus places.

My hon. Friend will know that, in Leicestershire, the county council proposes to close two out of three secondary schools. Does he agree that closing an outstanding secondary school would be a big mistake, and that, in trying to ensure that that is possible to deliver in a town the size of Loughborough, greater collaboration—not necessarily the removal of heads— and the sharing of best practice by schools is the best way to deliver education for 11 to 14-year-olds?

As my hon. Friend knows, school organisation and the commissioning of school places is a matter for the local authority. It is a matter of great concern to hear that in Loughborough one of the proposals is the closure of an outstanding school. That would require detailed attention. He will need to work, as he is no doubt doing, with the local authority and the local community to see what can be done about it.

Lyndale School

12. What his policy is on the future of the Lyndale School in Wirral; and if he will make a statement. (312589)

Decisions about school organisation are taken by local authorities and are not matters for the Secretary of State. However, I understand that Wirral local authority has recently consulted on reorganising its special educational needs provision, but that no decisions have yet been made regarding the future of the Lyndale school.

Does the Minister agree that children with profound and multiple learning difficulties require tailor-made education in an age range from three to 19, and that an excellent school such as Lyndale, which the Secretary of State visited in 2008, would make a super nucleus for such education?

I know that the Secretary of State visited the Lyndale school and saw for himself the excellent educational provision there. [Interruption.] It is interesting that the shadow Minister, the hon. Member for East Worthing and Shoreham (Tim Loughton), says that I should go and visit that school. That is what the Secretary of State has just said to me as well, so it looks as though I am going to the Wirral. The serious point is that it is important that children, particularly those with special needs, receive the educational entitlement that they deserve. I am sure that those who follow these debates will have read what my hon. Friend said about the Lyndale school and will have taken note of the fact that the Secretary of State has been there and commented on how outstanding it is. Hopefully, all those remarks will be taken into account when decisions are made about the future of special educational needs and school organisation in the Wirral.

Educational Psychologists

13. What steps he is taking to ensure that there are sufficient numbers of (a) trained and (b) employed educational psychologists. (312590)

Educational psychologists are local authority employees. It is for individual authorities to determine the number required and their input in terms of training costs. To support local authorities, the Children’s Workforce Development Council administers a scheme based on employer contributions which funds the training of educational psychologists. The Children’s Workforce Development Council has also developed a work force development model to support future planning.

The funding crisis in training is exacerbated by the lack of guidance as to the number of educational psychologists who are needed to support and improve outcomes for vulnerable children and young people. By what date does the Minister expect the Children’s Workforce Development Council at long last to decide the role of educational psychologists and therefore the ratio needed per child and young person? Will she encourage the Children’s Workforce Development Council to hurry up?

There was a meeting on 26 October with the then general secretary of the Association of Educational Psychologists and the CWDC, which my hon. Friend attended with my hon. Friend the Member for Weaver Vale (Mr. Hall). The Under-Secretary of State for Children, Schools and Families, my hon. Friend the Member for Kingston upon Hull, North (Ms Johnson), has written to local authorities with regard to the funding issue. She has a follow-up meeting with the CWDC on the very points that my hon. Friend makes about providing dates, and with Kate Fallon, the new general secretary of the Association of Educational Psychologists. I am sure that the Under-Secretary will keep him informed.

Severe Weather

15. What guidance he issues to schools on the steps they should take in response to severe weather conditions. (312592)

The Department has guidance on its teachernet website. The guidance had been revised after the heavy snow in February 2009. We sent a message to schools on 8 January this year, stressing the importance of trying to open for exams. We encourage schools to remain open when it is safe to do so, but the decision on whether to close has to be taken locally, by those who know the local conditions.

There are a number of schools in my patch where the teachers were able to get in and wanted to open, but did not do so because there was ice on the path on the way in or in the car park, and they were concerned about the prospect of being successfully sued for any incidents that occurred. Can the Minister give schools some assurance that, if teachers get in and want to open, they ought to do so and that the Government will protect them from such action?

I know that the hon. Gentleman has raised the topic of snow and the need for grit in previous questions. In a statement earlier this year, my right hon. Friend the Minister of State, Department for Transport said that we all need to take a common-sense approach. It is ridiculous to suggest that people cannot clear roads and pathways because of the threat of being sued. It is a ridiculous notion, it is not something that we encourage, and it certainly is not legal.

Children’s Centres

We are on track to meet our target of at least 3,500 Sure Start children’s centres by March 2010. By the end of December 2009, there were 3,381 designated centres.

That is excellent news, and this is one occasion when I have no hesitation in asking for further spending on children’s centres. The evidence is there; parents and children need them; and we need to get on with the programme, which is so greatly welcomed in our communities.

The evidence from the outcomes for the national evaluation of Sure Start shows that children behave better and are more independent and ready to learn, and that awareness of children’s centres and support from parents are at their very highest. The Government are committed to their funding of Sure Start children’s centres, unlike the Opposition, who want to cut them.

Topical Questions

In our Children, Schools and Families Bill, we are legislating to ensure that all children and young people receive personal, social and health education, including sex and relationship education, and we are lowering the parental opt-out to 15 years of age. We will consult on the detailed content of the new PSHE curriculum after the Bill has gained Royal Assent. In the meantime, we are publishing today updated guidance for schools on sex and relationship education. It has been produced following consultation last year with parents, teachers, faith groups, young people and health professionals, and it sets out, among other things, the importance of marriage and of strong and stable relationships for bringing up children.

Returning to the dreadful Doncaster case, I note that one reason that the Secretary of State and Lord Laming used for not publishing the full case review was that professionals in future would not co-operate with such investigations. Will the Secretary of State accept what the National Society for the Prevention of Cruelty to Children says—that that is quite wrong, that professionals must be forced to co-operate and that that is not a suitable excuse for not publishing the full review?

I am sorry to go over the same ground, but the NSPCC says, and has said since last Wednesday, that we should not publish the full review. That is also the view of 4Children and many other organisations. The reason is to ensure that the identities of innocent children who have been abused, and whose details are set out in such reports, are not put into the public domain. I would have thought that anybody who had ever read one of those reviews would know that there are very strong reasons for keeping such reports out of the public domain. That is what I have said, and that is exactly the approach that we will continue to take.

T2. It is unfair that Ofsted marks down any school where a high proportion of parents choose to send their children with unhealthy packed lunches, despite the school’s efforts to educate parents about healthy eating. Will the Government order Ofsted to desist, and if not, why not? (312603)

I have not heard about that before, but I am certainly happy to raise the matter with the chief inspector and ask for a response. The majority of parents provide a balanced packed lunch, and packed lunches are the responsibility of parents, not of schools.

T3. Can the Secretary of State estimate how many pages of guidance his Department has issued to teachers in the past 10 years and tell the House whether he considers it sufficient? (312604)

I think that the answer to that is no—I have never sat down and counted all the pages of guidance. What I have done is reform the national curriculum to reduce the burdens on teachers and give them more discretion over the primary and secondary curriculums. It is a great pity that, rather than support the national curriculum, the Opposition propose to abolish it.

One of my constituents who works with young people is increasingly concerned because, she tells me, more and more schools are engaged in what she calls soft exclusions. They do not formally exclude children; they say, “Stay away for a day”, “two days”, “a week” or “two weeks”. I believe that that practice is illegal. Will my hon. Friend the Minister undertake to look into that and, if it is illegal, put a stop to it?

I certainly will look into that. The situation may be different in Wales, but I will check, and I will be happy to meet my right hon. Friend to discuss specific cases. To generalise, I can certainly say that soft exclusions are illegal, but I will look into the matter and report back to him.

T4. Faith schools are being harassed by a party leader who seeks to tell them what to teach and by the European Union, which tells them who they can employ. Is not the very raison d’être of faith schools to sustain a distinct religious identity? Will the Secretary of State safeguard faith schools? (312605)

Absolutely. Faith schools were in existence providing free education to often the most deprived children before the state started to do the same. I fully support faith schools. They have to abide by the law on fair admissions. I think that agreeing to calls for the admissions code to be dropped to allow faith schools to pick by interviewing parents would be the wrong thing to do. I also think it is right that faith schools promote community cohesion. Both the Church of England and the Catholic Education Service are supporting our changes to the rules on sex and relationships education. I have very strong and good relationships with the faith organisations, which are supporting the direction that we taking and are not supporting the proposal by the hon. Member for Surrey Heath (Michael Gove) to keep the opt-out age at 19.

Is my hon. Friend aware of recent research among young people in my constituency that found that they greatly valued the education maintenance allowance but wanted it to be based on current parental income rather than the previous year’s income so that it could provide more effective support for children whose parents become unemployed? Would he be prepared to look at such proposals?

I get a lot of correspondence with regard to that. I have considerable sympathy when there have been in-year changes in circumstances. The full year’s income assessment that we provide is the best general barometer of what parental income is. There are considerable flexibilities within the benefits system to allow other help and assistance to be given. In addition, we have increased help for discretionary learner support funds to schools and colleges. I keep a close eye on this matter.

T5. I have a lot of respect for the Schools Minister, and I thank him for agreeing to visit my constituency. He referred to the importance of removing surplus places from secondary education. My constituent, Mr. Joe Slatter, has proved conclusively that Essex county council’s arguments for closing the two schools that I mentioned are false. Will the Minister therefore join me in a meeting with people from Building Schools for the Future to prove that what Essex county council says about an investment of £130 million is not correct? (312606)

Nobody could describe the hon. Gentleman as being a slacker when it comes to these issues. The Schools Minister has already confirmed, and I can confirm it on his behalf, that he will be having another meeting. If the hon. Gentleman would like to bring people from Building Schools for the Future, that would be fine by us. If he wants to bring people from Essex county council, that will also be fine, although I am not sure that his relationship with them would allow for that. If he would like the Schools Minister to have more than one meeting, I am sure that my hon. Friend would, within reason, be happy to oblige.

This Government can be justifiably proud of the massive increase in the number of after-school clubs since 1997. In my constituency, however, several after-school clubs are facing closure owing to a withdrawal of funding by the Scottish National party-led local council. Will my right hon. Friend use his good offices to convince his counterpart in Holyrood that such clubs are a lifeline for working families and that their funding should continue?

I understand the point that my hon. Friend makes. The devolved Administration in Scotland have also been withdrawing, or reducing, support for education maintenance allowances. The National Union of Students estimates that as a result 7,000 fewer students will be able to stay on in education after the age of 16. I fear that the SNP Administration in Scotland have been paying far too much attention to the policies of the main Opposition party in Westminster, rather than the policies of the Government.

T7. Will the Minister for Schools and Learners consider the merits of replacing the traditional three-term structure with five fixed terms of eight weeks each to provide for better attendance, families taking their holidays during holiday time, and the reduction of skill fade over the very long summer recess? (312608)

I thank the hon. Gentleman for giving me notice of his question. For local authority-funded schools, that is a matter for the governing body and the local authority to decide and to determine. They must consult parents at least one term in advance if they wish to change the way in which terms are allocated, including by writing to parents and holding a meeting with them. Furthermore, the Local Government Association works very closely with local authorities to try to align term dates across local authority boundaries. I hope that that reply is helpful to the hon. Gentleman.

Is my right hon. Friend aware that on the measure of five GCSE passes at grade A* to C, last year Coventry city had its best ever results? [Interruption.] I do not see what there is to laugh at there. They have increased by 15 per cent., which is a significant achievement and shows that the Government’s policies for improvement in secondary education are working. Results continue to improve year by year.

My hon. Friend is right. As he will know, the improvements of the past decade have come after what was, in Coventry and around the country, a decade or more of stagnation in exam results. That has happened because we have the best generation of teachers that we have ever had and because we have been increasing investment in our schools year on year. We should not resort to policies of running down the achievements of teachers or cutting spending in the coming year, because that would set back the achievements of children in Coventry and around the country. It is not something that this Government will do in the coming year.

T8. Dr. Elliott, the founder of Kidscape, has asked of the Edlington case:“How could you have a report on something as critical as this without naming”the professionals at fault “individually? By failing to release the… full report, it feels like an institutional cover-up”.Why is the Secretary of State a party to that institutional cover-up? (312609)

It would be very easy indeed for me to publish the full report and to bow to political pressure and pressure from some newspapers. The reason that I am not going to do so is that it would put into the public domain the details of abuse suffered by vulnerable children in the family concerned and more widely in Doncaster and set back our ability to ensure that it did not happen again. Sometimes in government, the easy thing to do is not the right thing to do. I am going to do my best to protect children in our country, not play the games that we are seeing from Opposition Members.

The latest GCSE results have been put on the Department’s computer and show figures on a ward-by-ward basis. By a long margin, the biggest improvement in York has been in the poorest wards of the city. What will the Government do to continue to provide additional help for children from poor families, so that educational opportunity is there for everybody, not just the richer and the better-off?

As my hon. Friend knows, I was in York recently and visited an excellent school with him. I congratulate all the schools in York that are making improvements. He asks what more we will do to ensure that we tackle educational disadvantage in some of the poorest areas. We will of course continue the investment that we have made over the past few years, but just as importantly we will try to ensure that we do not just leave it to schools to tackle deprivation but that they work more closely with children’s services, social services, health services, the police and other partners, including parents, to raise the achievement in those areas as we all want.

T9. Earlier today I had the pleasure of welcoming pupils and staff from Offerton high school in my constituency to the House. They enjoyed their visit very much but are dismayed that Stockport’s bid for BSF funding was turned down by the Secretary of State, leaving them stranded in a crumbling building on a split site. What hope can he give that there will be resources to put right the deficit in school building in Stockport? (312610)

Given that the Conservative party is committed to a £4.5 billion cut in Building Schools for the Future, the best hope that the hon. Gentleman can possibly have in his constituency is the re-election of a Labour Government.

In Chester, parents greatly value and appreciate our four excellent children’s centres. Will my right hon. Friend reassure me that those centres will continue to provide universal access to all parents, irrespective of their background and circumstances?

I can reassure my hon. Friend that the Government’s commitment is to universal service through children’s centres—unlike the Conservative party, which wants to close one in four.

There is fierce competition for school places in south-west London. Will the Secretary of State and Ministers therefore consider reviewing the rules that govern the allocation of capital resources for providing school places, so that the popular schools in the London borough of Sutton can meet the demand of children living in that borough to go to those schools?

The hon. Gentleman was present at an Adjournment debate in Westminster Hall last week when the issue was raised. As I pointed out then, considerable powers are already in place for local authorities to be in the driving seat to ensure that demand for places is met. Provisions will be extended in the Children, Schools and Families Bill that is currently in Committee, but, as I suggested in the Adjournment debate—and now suggest again—the hon. Gentleman should have a word with the Lib Dem-led London borough of Sutton, and perhaps some sort of arrangement can be reached.

I am sure that Ministers will admit that we made a slow start in trying to tackle the disaster that was school sport in the 1990s. We did not make significant progress until 2002 to 2004. Despite the fact that we are now nearly up to 90 per cent. participation, what extra measures can my hon. Friend take to ensure that those who are still not getting at least two hours get them, and that, where there is a drop-off with the school club link, particularly for girls, action is taken so that everybody gets the chance to take part in sport?

I appreciate my hon. Friend’s question and pay tribute to his fantastic work. He has just mentioned the 90 per cent. of young people who now do two and a half hours’ sport. We want to take that further. Last year’s schools White Paper and the Children, Schools and Families Bill include a commitment to increase that, as far as possible, to five hours, thereby ensuring that sport is an integral part of young people’s learning experience.

T10. The Secretary of State has been talking about children’s best interests. As a married man, he knows that all research shows that children’s best interests are served by being brought up by their mother and father in a stable relationship, preferably a marriage. Why, therefore, does he patronise those from less privileged backgrounds than him by suggesting that they should not aspire to bring up their children in a married, stable relationship? (312611)

I do not remember ever patronising those people. As the hon. Gentleman knows, I am married and very much support the institution of marriage. I am currently married to the Secretary of State for Work and Pensions.

I support marriage, but I do not support a tax allowance that would disadvantage the widow and the woman who has to leave an abusive relationship, and go 13 times more to people on the highest incomes, yet give no help to any family where both parents are working. That would be not only patronising but deeply unfair.

Order. I am trying to help hon. Members by including as many as possible, but I need hon. Members to help me to help them.

Does the Schools Minister, following his visit to The Duchess’s community high school in Alnwick, agree that it desperately needs replacing? Will the subsequent visit arranged by his officials clear some of barriers to getting that done?

As the right hon. Gentleman knows, I visited Alnwick recently and looked at the school. It clearly needs to be rebuilt as soon as possible. I hope that the subsequent visit by officials, which has taken place, will help with that process.

I have not seen any such evidence, nor have any of the bodies that advise us. A consistent battle seems to take place in this country when GCSE and A-level results improve, and people want to criticise rather than celebrate young people’s genuine improvements.

Returning to the subject of publishing serious case reviews, why is it not possible to go beyond a summary and start with publication with appropriate redaction?

I understand the hon. Lady’s point, although, as I have said, people who have read a full serious case review know that the degree of detail included about innocent children in the family and more widely means that redaction is not at all sufficient. As Lord Laming said—and as the Association of Chief Police Officers said this afternoon—to publish the full report and therefore have less co-operation from police officers, social workers and health professionals, means that the lessons would not be learned. Those are not my views, but those of the NSPCC, police officers, directors of children’s services and the Government’s chief adviser on the safety of children. It is not a cover-up, but a Government putting the needs of children first. I urge the hon. Lady not to join in the politics being played by Conservative Front Benchers, but to join me in doing the best by children in our country.

Order. I am extremely grateful to the Secretary of State, who has dealt with these matters very comprehensively, whether Members agree with the answers or not.

Does the Secretary of State share my dismay at the proposals from the usually excellent hon. Member for Sutton and Cheam (Mr. Burstow) in his fair access to school admissions Bill, which would have the effect of reversing the Greenwich judgment, and mean that an artificial Berlin wall would be created between Croydon and Sutton, stopping Croydon parents and students from exercising their choice to go to very good Sutton schools?

Rather than being drawn into the details, I think that that is really a matter that requires a meeting with the Minister for Schools and Learners.

Points of Order

On a point of order, Mr. Speaker. In an effort to ensure that debate on the Edlington case was carried out in a considered fashion, I wrote to the Secretary of State over the course of the weekend to outline some specific concerns, and I wrote to him this morning to say that I would raise the matter today. In his response, the Secretary of State mentioned a letter that he had sent to me to deal with some of those issues, but that letter was sent from his private office only at 2.31 pm, after questions had started. May I ask you, Mr. Speaker, to ensure that in future, private offices guarantee that letters, correspondence or written ministerial statements that bear on subsequent debates are published in good time, so that Members have a chance to read them before asking questions?

I am grateful to the hon. Gentleman for his point of order, but I would say to him that I think the House would expect normal courtesies to be observed and maintained in such matters. I hope that he, and the House as a whole, accept that it is not a matter for me to specify precisely when a letter should or should not be sent, but he has made his point very explicitly and it is on the record. I have a sense that the Secretary of State wishes to respond to it.

Further to that point of order, Mr. Speaker. I was grateful to receive the letter from the shadow Secretary of State over the weekend. I was anxious to give him a full reply and I wanted to make sure I knew the views of the Association of Chief Police Officers, which I received in my office only at 2.15 pm today. I was grateful to the hon. Gentleman for giving me notice that he would ask about the matter at question 5, and I therefore signed the letter and asked for it to be sent over to him as soon as possible and in advance of questions. There is nothing in the letter that I have not said in the House this afternoon in answer to his questions. Although I would rather have sent it earlier, my office has done its best to ensure that all the detail was with him before he asked his question this afternoon.

I am grateful to the shadow Secretary of State and the Secretary of State. It is fair to say that the hon. Gentleman’s grievance and the Secretary of State’s response to it have now been fully aired.

On a point of order, Mr. Speaker. In light of the appalling violence, and religious and racial hatred from the so-called English Defence League in Stoke-on-Trent on Saturday, and despite the excellent work of the police in responding to it, have you, Mr. Speaker, heard any indication at all from the Home Secretary that he intends to make a statement to the House about violent right-wing extremists and the fear that they strike into the hearts of law-abiding citizens?

I must confess that I have not had any indication from the Home Secretary of an intention to make a statement on the matter, but the very real concern that the hon. Gentleman feels on behalf of his constituents has been voiced forcefully and is on the record for others to witness.

Financial Services Bill

Consideration of Bill, as amended in Public Bill Committee

[Relevant documents: Third Report from the Joint Committee on Human Rights, on Legislative Scrutiny: Financial Services Bill and the Pre-Budget Report, HC 184.]

New Clause 1

No credit agreement to be enforceable if its total cost exceeds the statutory limit

‘(1) No agreement regulated by the Consumer Credit Act 1974 shall be enforceable if the total cost of credit charged under that agreement or the cost of transactions linked to that agreement exceed the relevant limits set by the OFT pursuant to sections [Quanta of statutory limits] and [Limits on costs of transactions linked to credit agreements].

(2) Where a consumer credit agreement is found to be unlawful by virtue of subsection (1) that agreement and any linked agreement shall be unenforceable and the lender and any agent acting on its behalf shall be liable to:

(a) a fine determined by the OFT in accordance with section [Level of fines]; and

(b) the revocation of the lender’s Consumer Credit Licence.’.—(Rob Marris.)

Brought up, and read the First time.

With this it will be convenient to discuss the following: new clause 2—OFT’s power to set statutory limit—

‘(1) Where the OFT is satisfied that insufficient price competition in a defined credit market is causing or may cause a detriment to consumers the OFT shall set a reasonable limit on the total cost chargeable for credit by lenders in that market.

(2) In setting the limit referred to in subsection (1) the OFT shall consider evidence of:

(a) the degree of price competition in the credit market; and

(b) the level of consumer detriment caused by any identified lack of price competition.

(3) The OFT shall within three months of the date on which this Act or any Part thereof comes into force and thereafter on each anniversary thereof decide whether or not to set a limit on the total cost of credit for any consumer credit market and shall publish that decision and the reasons for it.’.

New clause 3—Quanta of statutory limits—

‘(1) The OFT shall set statutory limits which reasonably reflect the cost of providing credit in a properly functioning competitive credit market.

(2) To reflect variations in the amount of reasonable costs incurred by lenders different statutory limits may be set for loans of different amounts and of different durations.

(3) The OFT may on not less than 14 days’ published notice vary any statutory limits to reflect wider macroeconomic conditions including but not limited to changes in the Bank of England’s base lending rate.’.

New clause 4—Limits on cost of transactions linked to credit agreements—

‘(1) Where the OFT sets a statutory limit for a credit market it may also set limits on cost of transactions linked to such credit agreements which costs are not included in the total charge for credit.

(2) Limits on the cost of transactions linked to credit agreements include:

(a) the cash price of goods which are being offered for sale on credit terms; and

(b) the costs of any related insurance or collection services.

(3) The OFT may set reasonable limits on the cost of transactions linked to credit agreements if it finds evidence that:

(a) the statutory limit is likely to be avoided; or

(b) there is likely to be a consumer detriment which is more than de minimis.’.

New clause 5—Publication of limits—

‘When it sets a statutory limit or sets a limit on the cost of transactions linked to credit agreements the OFT shall take reasonable steps to ensure that such limits are timeously:

(a) published in the London Gazette;

(b) publicised throughout the credit industry;

(c) notified to relevant consumer groups; and

(d) notified to relevant advice agencies.’.

New clause 6—Level of fines—

‘(1) The OFT may impose a fine on any lender who exceeds a statutory limit or a limit on the cost of transactions linked to credit agreements.

(2) A fine imposed by virtue of subsection (1) shall not exceed 5 per cent. of that lender’s annual turnover.

(3) When setting a fine the OFT shall have regard to:

(a) the length of time that the lender has been operating in the market;

(b) the lender’s previous record regarding statutory limits;

(c) the lender’s previous record regarding the cost of transactions linked to credit agreements; and

(d) the annual turnover of the lender in its most recent annual accounts.

(4) A lender upon whom a fine is imposed by the OFT pursuant to this section has the right to appeal to the Secretary of State for Business, Innovation and Skills within 28 days after being notified by the OFT of that fine.’.

New clause 7—Definitions—

‘(1) In the sections [No credit limit to be enforceable if its total cost exceeds the statutory limit], [OFT’s power to set statutory limit], [Quanta of statutory limits], [Limits on cost of transactions linked to credit agreements], [Publication of limits] and [Level of fines] “OFT” means the Office for Fair Trading.

(2) In sections [Quanta of statutory limits] and [Publication of limits] the “statutory limit” means the limit referred to in subsection (1) of section [OFT’s power to set statutory limit].

(3) In sections [Publication of limits] and [Level of fines] “limits on the cost of transactions linked to credit agreements” means the limits referred to in subsection (1) of section [Limits on cost of transactions linked to credit agreements].’.

New clause 14—Store cards and consumer credit agreements—

‘(1) The Consumer Credit Act 1974 shall be amended as follows.

(2) After section 60, insert—

“60A Form and content of retail credit-token agreements

(1) The Secretary of State may make regulations as to the form and content of documents embodying retail credit-token agreements, and the regulations shall contain such provisions as appear to him appropriate including requirements to ensure that—

(a) the rate of interest on the credit to be provided under the agreement for credit (or all the rates on a per annum basis where there is more than one rate of interest) does not prejudice the interests of debtors; or

(b) the agreement for credit includes a seven day cooling off period during which credit would not be available to the debtor.

(2) ‘Retail credit-token’ means a credit-token (which has the meaning given by section 14(1)) which results in the provision of credit under a credit-token agreement provided by a retailer or group of retailers which can only be used for purchases from the retailers concerned.

(3) A ‘retailer’ means a person or business providing goods and services to an individual.

(4) Accordingly, a ‘retail credit-token agreement’ is a regulated agreement.”.

(3) For section 67, substitute—

“67 Cancellable Agreements

(1) A regulated agreement that is not a retail credit-token agreement may be cancelled by the debtor or hirer in accordance with this Part if the antecedent negotiations included oral representations made when in the presence of the debtor or hirer by an individual acting as, or on behalf of the negotiator, unless—

(a) the agreement is secured on land, or is a restricted-use credit agreement to finance the purchase of land or is an agreement for a bridging loan in connection with the purchase of land, or

(b) the unexecuted agreement is signed by the debtor or hirer at premises at which any of the following is carrying on any business (whether on a permanent or temporary basis)—

(i) the creditor or owner;

(ii) any party to a linked transaction (other than the debtor or hirer or a relative of his);

(iii) the negotiator in any in any antecedent negotiations.

(2) A retail credit-token agreement may be cancelled by the debtor in accordance with this Part.”.

(4) For section 68, substitute—

“68 Cooling-off period

The debtor or hirer may serve notice of cancellation of a cancellable agreement between his signing of the unexecuted agreement and—

(a) the end of the fifth day following the day on which he received a copy under section 63(2) or a notice under section 64(1)(b), or

(b) if (by virtue of regulations made under section 64(4)) section 64(1)(b) does not apply, the end of the fourteenth day following the day on which he signed the unexecuted agreement, or

(c) if the cancellable agreement is a retail credit-token agreement, the end of the seventh day following the day on which he signed the unexecuted agreement.”.’.

First, on a personal note, may I express my sadness that the Economic Secretary to the Treasury, my hon. Friend the Member for Dudley, South (Ian Pearson) has announced his intention not to stand in the next general election? That is a particular sadness to me, because he has been a personal friend of mine for 25 years. He will recall that I and many others worked on his successful by-election in what was then Dudley, West in 1994. He has been an outstanding Member of the House and will be sadly missed. The Financial Services Bill is a tribute to his work as a Member of Parliament and as a Minister.

Overall it is a good Bill. It has many good bits, such as those relating to the remuneration of executives, recovery and resolution plans, collective proceedings and the Financial Services Compensation Scheme, but it also has some gaps, which new clauses 1 to 7 seek to address. Nor does it grapple with the concept that some banks are too big to fail, and when we discussed that in Committee the Minister understandably said that he was looking for international agreement. Since then, President Obama has said that the US will go down that route, and I hope that the Government will look at the issue again, because there is still time to add it to the Bill. The Bill also does not address the issue of overdraft costs following the Office of Fair Trading’s unsuccessful court claim, and that should be looked at again.

Nor does the Bill address the repossession of properties that were owned by buy-to-let landlords when the tenants had no idea that the landlord was in difficulty with his or her mortgage. Happily, the issue will—I hope—be resolved by the private Member’s Bill tabled by my hon. Friend the Member for Bolton, South-East (Dr. Iddon).

The fourth gap in the Bill is the question of doorstep lending and the extortionate credit rates that doorstep lenders charge, although they are not entirely alone in doing so. I am grateful to the Centre for Responsible Credit and their excellent officer Damon Gibbons for his assistance on this issue. The problem with doorstep lenders is the huge cost. The debate in this country has become clouded by core considerations about the existence of competitive markets and how those would be affected by the restrictions that would be enabled, although not necessarily introduced, by the new clauses. The concern is that price caps, which the new clauses would allow, could have adverse effects on the credit market. However, we have to consider whether doorstep lending credit markets are competitive. The concern is that they are not competitive and that prices for doorstep lending and other fringe, albeit legitimate, lending are artificially high, allowing those few lenders in the market, who are, of course, taking greater risks, to charge considerably more than would be the case if the market were competitive.

For example, the Centre for Responsible Credit has estimated that Provident Financial has 70 per cent. of the market. Provident Financial disputes that figure, but it is fair to say that it is a dominant player in the market, and the concern is that its dominance has led to an abuse of market position. Under the law at present, Provident Financial and other similar lenders are operating legitimately, but there are grave causes for concern. The cost of doorstep lending from a company such as Provident has gone up as interest rates have come down. That may be because risks have gone up—I understand that—but the Competition Commission has reported that a Provident loan of £100 repaid in 55 weekly instalments carried a total cost in credit of £65 and an annual percentage rate of 177 per cent. in 2006. Today, the same loan would have a cost in credit of £82 and a massive APR of 272.2 per cent. That is an extraordinarily high amount to charge for such a loan, even bearing in mind the additional risks and collection costs that a company such as Provident incurs.

I congratulate my hon. Friend on tabling his new clauses. Does he accept that one of the problems is that people live in complete ignorance of the levels at which they pay for credit? In other parts of the credit industry, we have got much better at demanding that those who sell credit have to explain what the repayment terms are and what problems could arise if someone does not pay the money back. That does not seem to happen in that end of the market to which he refers. Does he accept that?

I agree with my hon. Friend. Often it is a combination of ignorance and desperation, and that is an explosive combination when people want to get money. As the Crowther committee on consumer credit reported in 1971, there is a level of cost for the total package of credit at which it becomes socially harmful to permit such lending to take place. I agree with that assessment from 40 years ago, because genuine social harm is done in extending credit at such high prices to people who, frankly, one would think perhaps ought not to get credit. One really wonders whether people should get credit at 272.2 per cent., even if—I stress this point—it is quite legitimate. My new clauses are an attempt to address that point.

One alternative method of assisting people with bad credit ratings who need credit—I know that this proposal will appeal to my hon. Friend the Member for Stroud (Mr. Drew) and others—is to boost credit unions’ share of the market, which is significantly underdeveloped in the United Kingdom, compared with other countries such as Ireland and Canada. However, it has been suggested by the financial inclusion taskforce that at the current rate of growth, alternative lenders such as credit unions would take 10 years or so to fill the gap that is currently being filled by the doorstep lenders who charge such large amounts of money. Not surprisingly, Provident Financial is a little concerned about the new clauses.

Is the hon. Gentleman proposing that credit unions offer a home credit service to people who are currently serviced by Provident Financial? The Joseph Rowntree Foundation has suggested that the cost of such a service on a not-for-profit basis would lead to an APR of about 120 per cent.

I am well aware of the Rowntree research. The figure is indeed very high—from memory, I think that it is 123 per cent.—because there is a collection issue, which I will come to in a moment.

There are seven new clauses and they come as a package.

The hon. Gentleman did not answer my question. Does he expect credit unions to replicate the service currently offered by Provident Financial?

I am not sure about the word “replicate”. What credit unions do in my constituency, for example, is make themselves available in places such as pubs for people to come and pay the loan, and so on, so there is not necessarily someone visiting them at home, but there is a less formal atmosphere than in a bank. Credit unions could move into doorstep collection as well. For some credit unions, if they replicated the model used by some of the mainstream fringe lenders, if I can put it that way, it is likely that their costs would be lower, because in many cases not only do credit unions have paid staff, but they have volunteers—the credit union to which I belong in Wolverhampton is one of those—which lowers their costs. That is a social input by volunteers to produce what they regard as a better social output—I agree with them on that—namely, lower costs of lending for people who might otherwise have difficulty borrowing money.

To canter through the seven new clauses briefly, new clause 1 would mean that a credit agreement was not enforceable if it breached a cap on the cost of credit. New clause 2 is permissive and would allow a cap to be set on the cost of credit if there were insufficient competition in that market. New clause 3 recognises that there are different fragments of the credit market and would allow different caps to be set for different markets.

New clause 4 would address linked transactions, which is where a lender might issue, say, a token, so that the headline rate of credit might be lower than any cap that had been set, but the borrower has to buy a particular item—for example, a television—from a particular supplier at a particular price, which would circumvent that cap. New clause 4 is intended to prevent such circumvention, by including the cost of any such retail goods in the calculation of the credit price in a linked transaction.

New clause 5 would provide for publicity for any caps that were set. That addresses the issue raised by my hon. Friend the Member for Stroud, which is partly about the ignorance of some borrowers. If the new clauses were accepted by the Government and passed into law, and caps were set because it was found that parts of the market were not competitive, it would still remain a challenge for prospective borrowers to find out whether a cap existed. We as a society find it difficult to reach certain people through the instruments of the state—and often through political parties, I have to say—although loan sharks and legitimate fringe lenders do not seem to have any problem doing so. We need to be inventive about publicising any restrictions on excessive credit costs. New clause 6 would establish a scheme to impose penalties for breaching any caps, and new clause 7 is simply a definitions clause.

Provident Financial has e-mailed several parliamentarians, and that e-mail has been passed to me. Provident did not e-mail me personally. The e-mail states:

“Home credit is the provision of small unsecured loans (typically £100—£500) with manageable, flexible repayments. Repayments are collected each week from the customer’s home by an agent, most of whom are female and live in the communities they serve. Provident Financial agents visit one in twenty homes in the UK each week.”

That bears on the point raised by the hon. Member for Fareham (Mr. Hoban) about replicating the costs. Of course, these collections have to take place, which can increase costs and lead to rates of up to 123 per cent. APR, as the Joseph Rowntree Foundation pointed out. Provident’s e-mail goes on to talk about home credit APRs being higher than for some other products, as we would expect, because smaller sums are lent over a shorter period compared with those of other financial services providers. The cost of weekly home collection is a factor, but the e-mail goes on to say that

“there are no default or extra interest charges”.

In response to concerns about the activities of Provident Financial, my right hon. Friend the Member for Makerfield (Mr. McCartney) tabled early-day motion 379. When I looked this morning, there were 65 signatories to the motion, which expresses concern about the activities of lenders such as Provident Financial. It names Provident, and asks for the Office of Fair Trading to be given a power to cap prices. That is what the new clauses would do. It would be a permissive power; the proposals do not say that a cap must be introduced.

I am not surprised that Provident did not send me a copy of the circular that it sent to some parliamentarians, because, when I looked at it, I found that it appeared to be full of contradictions. Because Provident has got my back up by not contacting me, I am going to go through some of those contradictions. Provident states:

“The cost of credit has risen in all sectors of financial services (including fees and charges for secured and unsecured personal loans, mortgages and credit card lending). Demand for credit is weak. Consumers are being cautious about taking on debt and lenders, in turn, are exercising greater scrutiny over their lending decisions.”

It is almost 40 years since I did my economics A-level, but I would have thought that if the demand for credit was weak, the cost of credit might actually come down. But Provident states:

“Demand for credit is weak”,

as well as saying that the

“cost of credit has risen”.

That seems contradictory, unless there are unwarranted and undesirable frictions on the operation of the credit market.

Provident understandably goes on to quote three conclusions from Professor Elaine Kempson, whom it calls

“the leading UK academic on credit and debt”.

It cites her as concluding in a report in 2005 that:

“An interest rate ceiling could do nothing to reduce high costs associated with lending to people on low incomes who have a high risk of default. Instead, the APR would be reduced by displacing these costs elsewhere, for example in the form of charges for default—the last thing that low-income borrowers would want.”

It surprised me that Provident cited that quote in support of its claims since, in the earlier quote that I read out, it said that

“there are no default or extra interest charges”.

So its professor, as it were, is understandably, properly and credibly saying, “You’ve got to be careful if you bring in a cap, because people might find a way round it by jacking up the price of default,” but Provident quotes her and then says, “We do not have any default or extra interest charges.”

The good Professor Kempson goes on to say:

“It is also likely that more credit would become tied to the purchase of goods and consumers would be faced with high price mark-ups as retailers seek to recover the costs of supplying credit.”

I have referred to my hope that new clause 4 would address that, in terms of linked transactions.

The third of Professor Kempson’s conclusions cited by Provident is that

“there is a danger that lenders would move out of this market altogether, leaving poor people even more prey to unlicensed lenders.”

That is a significant concern of many organisations, commentators, academics and so on. However, Provident, which has been somewhat even-handed, although contradictory, about this, cites recent research by the Financial Inclusion Centre as finding that the use of loan sharks is on the increase, with over 200,000 people taking on illegal credit annually—an increase of 22 per cent. since 2006. This is a sort of parallel universe scenario: one does not necessarily know how many more or how many fewer people would have turned to illegal loan sharks if the situation were different and companies such as Provident did not exist or were restricted by caps on interest rates on their activities. However, there is no cap, very high interests are being charged and an increasing number of people are turning to loan sharks, and that does not suggest a system that is working very well.

Provident also cites a report produced for the Department of Trade and Industry, as it then was, by Policis in August 2004. It stated that the “credit impaired” in France and Germany, where caps are in place, appear more likely to use illegal lenders than in the UK where there are legal credit options for such borrowers. Yet, as I have said, even-handed as ever, Provident also cites research by the Financial Inclusion Centre about the use of loan sharks increasing.

I thought to myself that if Provident can quote a professor, so can I—my guy is German. In 2005, Professor Udo Reifner from the Hamburg Institute for Financial Services published a response to the findings on the effects of the German rate cap—the cap referred to by Policis in its August 2004 report for the DTI. Professor Reifner said:

“In total, at least 9 million people cannot access credit from mainstream banks”

in the United Kingdom

“as opposed to approximately 2.5 million in Germany and between 2.5 million and 4.1 million in France”.

Of course, Germany has a significantly larger population than the UK and France has a population that is almost the same as the UK. On the face of it, their caps have resulted in, or certainly exist in, a system where fewer people have difficulty getting access to mainstream credit.

Provident goes on to say:

“Published figures from Provident Financial’s statutory financial returns show that there has been a steady erosion of margins over the past three years. Profit per customer reduced by 15 per cent. in the three years to December 2008 when Provident’s most recent full year results were announced.”

That seems strange, because when Provident went to the market in October 2009 and issued a bond to raise £250 million of investment to expand its operations—interestingly, the rate it managed to obtain was 8 per cent. rather than 173 per cent.—it told prospective investors:

“The competitive position in the £3bn home credit segment of the market has not changed materially since the Competition Commission concluded its review of the home credit market at the end of 2006.”

So for the purposes of lobbying on prospective legislation such as this Provident says that there has been a steady erosion of margins, but when it goes to the market to get money it says that the market has not changed materially since 2006. There is a bit of a contradiction there.

Overall, there is a long background of concerns about extortionate, as I would call them, or high, as others would call them, interest rates, going back to the Crowther report in 1971. In 1991, the Office of Fair Trading identified the extortionate credit provisions of the Consumer Credit Act 1974, following on from the Crowther report, and said that they were not working. Nothing happened. In 1999, the DTI commissioned research into what improvements could be made, but that report was not published for another three years, until 2002. In 2003, we had a consultation from the DTI on a new unjust credit test and three years after that, in the Consumer Credit Act 2006, we saw the introduction of the unfair credit relationship test as a replacement for the extortionate credit provisions of the 1974 Act.

I hope that the Minister can clarify whether his Department, or any other Department, is monitoring whether the unfair credit relationship provisions introduced in the 2006 Act are working. It has been suggested to me that no such monitoring is taking place. We have a continuing situation in which more financially excluded people are having difficulty getting access to credit in this country than those in France, Germany or parts of the United States of America where they have anti-usury laws. People are paying very high interest rates and we have a market in which demand for credit has fallen but the cost thereof has risen, suggesting that there is not a competitive market for credit for such borrowers. Against that I would contrast the new clauses that I propose, which are permissive and would enable caps to be introduced if it were found that part of a credit market was not working competitively. I urge the Government to take this issue seriously.

Consumer credit is a feature of everyday life. Our society has become increasingly dependent on credit, as we saw in the run-up to the recent financial crisis. The hon. Member for Wolverhampton, South-West (Rob Marris) talked about the credit position in France and Germany, but it is worth pointing out that the UK had higher consumer debt than France and Germany combined. We have seen a cultural change, too. No longer do consumers have to save for new purchases; they can take out a credit card, a store card or a personal loan, or they can withdraw equity from their house. For many people, rising levels of debt were seen as manageable, so long as the economy motored along with low unemployment and rising levels of income. That optimistic outlook, however, was predicated on an end to boom and bust and we can see the cost of that assumption today.

The change to the cultural norm on debt was driven partly by a society that takes on much more debt through home ownership, going to university and so on and partly by the marketing of credit. The Bill tackles that, in part, through banning unsolicited credit card cheques. Those cheques were an indefensible practice that even people in the industry found rather hard to defend.

My new clause 14 considers another aspect of the marketing and availability of credit—store cards. It seeks to address two issues: the rates at which store card debt can be charged and the sales practice surrounding them. We need to distinguish between a store card and a credit card. Store cards are offered for exclusive use in the shops of a particular retailer, whereas a credit card can be used at a wider range of outlets. Of course, some retailers, such as John Lewis and Marks & Spencer, have a credit card rather than just a store card. If one shops at a major department store, one is likely to be offered the chance to take out such a card at the checkout, often in combination with an attractive offer, such as a 10 per cent. discount on that day’s purchases.

It sounds quite attractive, until one looks at the rates charged by store cards. A survey last year by Which? highlighted the high cost of some of the store cards that are available. Argos charged an annual percentage rate of 27.9 per cent., and New Look charged 28.9 per cent., whereas cards issued by retailers such as Ikea, River Island and Topman all cost about 19.9 per cent. According to Which?, the average APR of store cards is about 25.2 per cent., compared with an average for credit cards of about 16.8 per cent. That shows that store cards tend to be relatively more expensive, compared with reasonable alternatives. Even cards at the bottom end of the scale, such as those issued by Ikea and River Island, still charge a higher APR than the average for credit cards.

High rates in conjunction with low minimum payments mean that it can take some time to pay off relatively small amounts charged to a card. For instance, it would take six years to pay off a balance of £100 on an Argos store card, for which the minimum monthly repayment is either £2 or 4 per cent. At the other end of the scale, it would take two years and 10 months to pay off the same balance on the River Island store card, which has a lower interest rate and a higher minimum repayment. It appears, therefore, that high rates of interest make store cards a poor way to borrow, yet there are more than 14.6 million of them in circulation.

In 2006, the Competition Commission, recognising the high cost of credit, announced that any providers offering a card with a rate above 25 per cent. should issue a wealth warning telling customers that there are cheaper ways to borrow. Despite that, however, store cards remain in wide circulation.

We might assume that, on seeing the wealth warning, a rational consumer might decide to shop around for another form of credit before taking out a store card—that such a person would leave his or her goods in the shop and pop down to the bank, or go home and search online for a form of cheaper credit. However, the evidence suggests that things do not always happen that way, as the rational consumer will see the opportunity to reduce the cost of shopping offered by the day-one discount. He or she will take advantage of that discount and then repay the balance straight away, thus avoiding the interest cost.

Of course, if consumers were always that rational, there would be no store card business, because people would simply take advantage of the discount, pay off the balance and walk away. However, despite people’s best intentions, the reality is that the desire for short-term gratification overcomes the rational response. If it did not, retailers would not offer these deals.

My new clause 14 therefore contains two provisions. First, it would give the Office of Fair Trading the power to cap excessive interest rates, where they are not in the interests of the consumer or the debtor. In a way, that mirrors some of the suggestions made by the hon. Member for Wolverhampton, South-West, and I shall return to some of the differences when I address his proposals directly. The new clause would place no obligation on the OFT to use those powers, but it would provide some tools for going beyond the wealth warning approach announced in 2006.

The second element of new clause 14 is the provision that would enable the decision to take out a store card to be decoupled from any requirement to buy from that shop on that day. It would mean that people taking out a store card would have a seven-day cooling off period in which they could not use it. That would enable consumers to shop around for a better rate, and it would also tackle one of the sales practices that incentivises the take-up of cards.

It is worth thinking about what happens when a store card is taken out in a shop. There was an article on store cards in Which? Money magazine last month, for which a researcher went to open a number of store card accounts. In the course of a couple of days, he managed to rack up nearly £3,000 worth of credit, even though his income for that year was about £1,000. The article says that half the companies that he approached rejected his application, so I suppose that we should take some reassurance from that.

Actually what happened is quite instructive. The article states that

“none of the stores we visited verbally warned James about the high interest rates and the low minimum payments on the card and none of them told him that they were unsuitable for borrowing. This could only be found in the smallprint of the terms and conditions given to James…waiting in a queue in a busy shop is not the ideal place in which to read the small print on an application.”

My new clause would give the purchaser, or the person taking out a retail credit-token agreement—as it is described in the new clause—the opportunity to go home and think carefully about whether they want to use the card. It would not close off the provision of credit to those customers, but would give the person taking out the card the opportunity to think carefully about whether they want to pursue that route.

One might ask why I have focused on store cards and not on the personal loans offered by some retailers at the point of sale. That is a valid question and it is worth exploring. There is a difference between a loan and a store card, which is a form of revolving credit, whereby a person enters an arrangement with a retailer that enables them to spend up to a certain amount. There is no fixed repayment schedule and there can be relatively low minimum repayments. In the Which? sample, repayments ranged from 2.5 per cent. or £5 for British Home Stores to 4 per cent. or £4 for companies such as Topman or River Island.

It is possible to take on additional commitments without deliberate thought. Many store cards adopt the low and grow approach to credit—a subject we touched on in our debates in Committee, and which was initiated by the hon. Member for South-East Cornwall (Mr. Breed). People start with a relatively low credit limit and it is then increased.

A personal loan is different. There is a fixed repayment period for a fixed amount, so when a person takes out a loan they make a commitment. They know the repayment level and they know how long the loan will last. It is a well determined, well defined commitment, unlike a store card, for which the agreement is open-ended and there is no fixed repayment period and no fixed amount of borrowing because the credit limit can be increased. The argument that applies to store cards is very different from that which applies to the loans offered by our major retailers. That is why new clause 14 is linked to store cards. The measures set out in my new clause are proportionate and reasonable. They reflect our party’s policy, and it has been our party’s policy since well before the economic crisis.

I am not entirely sure what the new clauses tabled by the hon. Member for Wolverhampton, South-West represent. The hon. Gentleman is, I think, a Parliamentary Private Secretary; he is part of the payroll vote and he is here to support the Government in debates. He should be a loyal supporter, yet it appears to me that his new clauses question settled Government policy, unless they are a teaser—opening the way for the Minister to accept new clauses 1 to 7. Is this a sign of independence of mind finally breaking out? In Committee, when my hon. Friend the Member for Chichester (Mr. Tyrie) tabled a new clause about competition, the Minister thought the proposal should be part of the regulatory objectives of the FSA, but recognised that Government policy was rather different. Perhaps he opened the floodgates for the hon. Member for Wolverhampton, South-West to table all sorts of amendments.

May I come to the defence of my hon. Friend the Member for Wolverhampton, South-West (Rob Marris)? He is always independent-minded, even though he may happen to have a job that some of us would love but never seem to curry favour for. I have always seen him as an independent, forward-thinking and—dare I say it?—concerned Member on the Government side.

There we have it: the hon. Gentleman is queuing up to replace the hon. Member for Wolverhampton, South-West as a PPS, if the latter feels he ought to fall on his sword after moving his new clause.

I have been independent-minded on certain things for a long time and I quite frequently question Government policy—sometimes successfully. Even though I say it myself, I think that a measure of my independent-mindedness, which seems to surprise the hon. Gentleman, is the fact that I was voted Back Bencher of the year in 2008, and someone is not voted Back Bencher of the year by Members of all parties if they are a complete lickspittle.

Although it is good that we have with us a Back Bencher of some independence, surely the hon. Member for Wolverhampton, South-West (Rob Marris) is one thing or another. He is either part of the Government and acting under collective responsibility, or he is an independent Back Bencher—he cannot be both things at the same time. Will my hon. Friend the Member for Fareham (Mr. Hoban) put it to the hon. Gentleman that if he truly wants to be independent, he should leave the Government and make such comments from the Back Benches?

Order. Before the hon. Member for Fareham (Mr. Hoban) responds to the hon. Member for Rochford and Southend, East (James Duddridge), may I simply remind him that, although I appreciate the importance and good nature of these exchanges, we are discussing new clauses relating to the regulation of credit?

Thank you for that guidance, Mr. Speaker. Perhaps I should table a new clause to the Constitutional Reform and Governance Bill setting out the statutory duties of PPSs, rather than considering them in the context of this debate. As ever, I am grateful to you for putting me back on the straight and narrow.

I have some sympathy with new clauses 1 to 7. Those of us who are in comfortable, well-paid jobs, with easy access to credit, will frankly be shocked by the APRs charged on home credit products. The hon. Member for Wolverhampton, South-West cited illustrative examples of the rates, which are indeed high. We could shine a light on other areas that involve high rates, such as pay-day cheques and lending, which involve high rates as a consequence of the relatively short duration of the loans. Such rates are eye-watering when compared with those for store cards, so we need to reflect on that too.

There is a real challenge here, however, because we need to ask whether a price cap would work and what its impact would be. The hon. Gentleman picked apart the briefing that Provident circulated among hon. Members, but it included legitimate concerns, especially those raised by independent bodies. For example, when Policis examined the home credit market in 2004, it looked at the experience of countries in which caps had been imposed. Among its findings was that where there were rate ceilings, the cost of credit became less transparent and there was less latitude for consumers. It also found that the cost of such products switched from the interest rates charged to default rates, which was a point raised by the hon. Gentleman in connection with the comments by Elaine Kempson cited in the Provident briefing.

It might be the case that default charges are not levied by home credit companies when a consumer decides that they are not in a position to pay for a certain week. Indeed, I think that the model followed by several companies assumes that there will be some weeks when people do not pay. However, in other parts of the financial services sector, competition on rates has led to other products being sold to make up the margin. For example, it is argued that a driver of lenders selling payment protection insurance has been that competition on loan rates has led them to try to recover their margin by selling that insurance, which has a relatively high margin.

My fear in such a situation would be companies, were they subject to a rate cap, starting to charge consumers an additional cost for that default. In the same way, some would argue, as the hon. Member for Edmonton (Mr. Love) might when we consider other amendments, that one reason why the penalty charges for unauthorised overdrafts are so high is that they create a form of indirect cross-subsidisation from those who go overdrawn. They subsidise so-called free banking for the rest of us.

The hon. Member for Wolverhampton, South-West was quite critical of the words of Elaine Kempson, but there is some truth in what she says and we need to bear it in mind.

But surely my hon. Friend the Member for Wolverhampton, South-West was saying that there is no competition. It is not that people are queuing up; they are offered loans on the doorstep by others from their community who, supposedly, are genuinely lending money, but there is no educative process and no ability to rationalise and go out to other lenders. The lenders are preying on the most vulnerable. Is it not about time that we in this place tried to do something about it? We have had debates on whether there should be maximum repayment terms, but apparently we got nowhere with that. My hon. Friend is simply trying to put some structure in an operation that is letting people down. What is wrong with that?

The problem is what would the consequences of that structure would be. I do not doubt that the new clauses have been tabled with the best of intentions, reflecting some of the concerns that have been raised, but we need to think carefully about the unforeseen consequences. For example, there may be a switch from high rates to low rates with additional charges. I am not sure that the demand for credit would necessarily be extinguished as a consequence of the proposals. We may not think it is right, but people would still need credit to deal with unexpected variations in income or expenditure, and where would they go if that money was not available from Provident? I will return to that point.

The Policis report suggests that rate caps ended up in a rather odd situation whereby lenders felt it was uneconomic to advance relatively small loans, so either no money was lent to customers or they would be lent a higher amount than was strictly necessary. In Committee, we talked briefly about ending unsolicited increases in credit limits. We need to think about what amounts people would lend. The hon. Member for Wolverhampton, South-West questioned the merits of this argument, but in France and Germany rate caps meant that more people used illegal lenders. That is the evidence from the Policis study.

The hon. Gentleman also implied that the only opponents of rate caps were home credit companies, but let us not forget that in 2005 a coalition including Citizens Advice, AdviceUK, the National Consumer Council, Which? and ABCUL—the Association of British Credit Unions Ltd—all urged the House of Lords to oppose a rate cap. There is a coalition here: it is not just people in the home credit market but a wide range of people with a close interest in this area who are concerned about the impact of a rate cap.

I shall not repeat in full the words of Elaine Kempson—the hon. Member for Wolverhampton, South-West cited them at length—but let us turn to the alternative and what would happen if the rate cap were applied. Elaine Kempson said:

“Finally, there is a danger that lenders would move out of this market altogether, leaving poor people even more prey to unlicensed lenders.”

The hon. Gentleman suggested that credit unions might fill that gap. I am a great supporter of credit unions, which do an excellent job, and I agree that it would be good to see them grow so that they supplied a share of the market comparable with what they are able to supply elsewhere. However, even credit unions have to turn people down. Many people are concerned about the fact that credit unions want a cap on the rates that they charge. Credit unions will not supply the whole demand, and others will move into that space, which I am concerned will be filled by illegal money lenders and loan sharks. As I said in my intervention on the hon. Member for Wolverhampton, South-West, there has been a great deal of discussion about whether there is a sustainable model for not-for-profit home credit. The Joseph Rowntree Foundation suggested that the APR would probably be 123 per cent., so it is an expensive operation.

I agree with much of what the hon. Gentleman has said. Something he has not touched on is the role of the social fund in providing support for people who have difficulty obtaining credit, and who will fall into the hands of the illegal credit sector if we restrict the provision by capping interest rates.

The hon. Gentleman makes an important point. I have not touched on it, nor was I intending to do so. However, a significant increase in the social fund would be required if it were to replace the home credit market. I cannot remember whether the hon. Member for Wolverhampton, South-West cited the amount that Provident Financial raised in its bonds.

If we are going to get the social fund to fill the gap, we are starting to talk about a significant commitment to additional Government spending.

There are alternatives, but I am not sure that they will plug the gap if the people in the home credit market choose to withdraw. It is an expensive business to collect money door to door from consumers on low incomes who want flexibility. Many organisations would not want the reputational risk of working in that arena and charging high rates. I am not persuaded by the arguments of the hon. Member for Wolverhampton, South-West, although I understand where he is coming from. Members on both sides of the House would want a cheaper alternative to home credit, but we have yet to see evidence that one exists. If the home credit people withdrew from the market, some individuals would be picked up by credit unions, community development finance institutions and similar bodies, but many of them would go to loan sharks, and we know the personal costs that can result from their doing so.

The credit market is difficult to get right, and there are real challenges in how we deal with high rates and marketing. We welcome the measures in the Bill, but new clause 14 is a sensible and proportionate solution to the problem of store cards so, with your agreement, Mr. Speaker, I should like to press it to a vote at the appropriate time.

All of us would have a great deal of sympathy with what has been said over the past hour or so, because the provision of small, unsecured loans to vulnerable people or people on very low incomes has been a problem for an extremely long time. It is difficult to see how we can legislate totally for the sort of things that people sometimes knowingly get into when they have no alternative or choice. The truth is that interest rates are often not a particularly good guide to the way in which we try to control the costs. A relatively small amount of money paid back over a relatively short period of time with what appears to be a reasonable fee for doing so translates into an extraordinarily high APR. If someone repays £50 within three months and pays £10 of £15 for the privilege of doing so—perhaps £5 a month—that does not seem very much, but when we do the maths, it translates into a large APR. Rate caps have been under consideration for a long time but are not the only measure by which we can try to control that practice. Administration, door-to-door collection, the lack of security and the potential for default all add to the cost of providing low-level loans.

There may not seem to be many defaults, because the debt is often rolled forward. When somebody is about to default, the existing amount is rolled into another credit agreement. That is the slippery slope that gets people into difficult situations. Perhaps we ought to be more insistent about restricting such roll-overs.

There is not much competition because not many people want to get into the business in a formal, legitimate sense. Much has been said about Provident. In my neck of the woods, I have had no complaints about Provident. Some people swear by the firm; because they have acted sensibly, Provident has been only too pleased to do business with them. Unfortunately, its major competitor, Cattles, failed a year or so ago. It is regrettable that the business was not picked up by another firm, to provide some measure of competition. There was clear evidence that Cattles was doing good business, but the way in which it managed that brought about its failure.

Those whom I have come across who desperately want some emergency money are, in many cases, people whose benefit has not turned up although they were promised it, or who have been denied the opportunity of accessing the social fund. They may talk to their friends and neighbours and get into some arrangement that they did not intend. Credit unions could well provide greater opportunity to access money, but more credit unions are needed, their rules should be more relaxed, and there should be greater depth of business in the communities that they would want to serve. There are not enough credit unions in many parts of the country and the way to access them is not as well known as it should be.

Although I agree that this area needs to be examined, I am deeply concerned that in an effort to protect the relatively small number of people who take on difficult contracts or resort to loan sharks, we might cut off some of the low-level unsecured lending that is well understood by a very large number of people who use it properly and do not default.

We should not forget the growth that has taken place in other types of credit. An early-day motion has been tabled about log book loans, for example. That is an informal sort of credit that needs to be knocked out. We know that pawnbroking has changed, and that household items are now being pawned for small amounts of money. We have heard recently about advertisements which say, “Send us your bits of gold,” for which very poor prices are paid, and about people being desperate enough to sell even family jewellery for relatively small sums. The practice of people accessing small amounts of money when they are in difficulty must be considered holistically, but the proposals we are considering concentrate on one area and may have the unintended consequence of reducing the provision of low-level credit for those who require it and are able to use it successfully.

Turning to store cards, I must say that I hate the things—they should be banned—but I recognise that people ought to have a choice. None the less, the atmosphere in which people make an informed choice is entirely inappropriate. Some large stores almost seem more interested in selling people a store card than in selling them the thing that they went in for, and that is because the card makes the store more money. There is no doubt about that. The 10 per cent. that the business can give away on a purchase is small compared with what it will potentially get from the future use of the card. Putting some control on the use of such cards and fettering it a bit, so that people had cooling-off periods in which to reflect, would help. Perhaps our new financial education body will prompt those issues in people’s minds before they sign up, willy-nilly, to such cards. That would help.

If we are to go down the avenue of choice, so that people are able to exercise it if they wish to, we must make certain that it is an informed choice. Information must be provided prior to signing up, making certain that people understand exactly what they are signing up to, and after signing up, so that people not only have the information that enables them to repay at a rate with which they are comfortable, but understand the underlying costs of their decision to pay a certain rate. For example, they should know that it will take years to pay off the debt through minimum payments or that, despite the small amount of money that they have borrowed, ultimately, they will pay a multiple of that, having chosen a given store card,. There is a lot of merit in restricting such credit, in providing people with information and a cooling-off period for reflection, and in ensuring that they receive some real information about the exact costs of their choice.

This is an interesting area of finance, and the Financial Services Authority and, perhaps, the Office of Fair Trading will have to continue to bear down upon it, because people are finding ever more ingenious ways to provide low amounts of credit. Undoubtedly, there are some unscrupulous firms. I certainly do not put Provident or, indeed, some others in that category, but some unscrupulous individuals deliberately target people who get into difficulty—often, for all the right reasons when they need emergency purchases, not luxuries. Sometimes their purchases are school uniforms, or something for the family, but people often fall foul of such unscrupulous individuals, and we need to try to protect them. However, to deny such credit services to those who use them satisfactorily would be a retrograde step, so I cannot support the new clause tabled by the hon. Member for Wolverhampton, South-West (Rob Marris). If the proposed restrictions on store cards were subject to a vote, I would support them because, although they do not go as far as I would like, they are a step in the right direction.

The proposed changes do not touch upon the widespread practice by store card and, indeed, other credit card organisations of ensuring that the part of the credit with the lowest interest rate is paid off first and the highest interest part is left until last. That practice should be much more widely publicised, and action should be taken against it.

I agree entirely. The segmentation of balances and their treatment for interest and repayment purposes is not well understood. In fact, anybody who is even reasonably financially educated would find it difficult to make a precise distinction between them.

A hard-nosed approach must be taken to the repayment of high-cost credit. I would like the minimum repayment rates to be increased, as well as a clear indication given on the statement of precisely how the amount added as interest is calculated—that could be done easily. The interest element could be made up of two or three different parts so that the card owner would be able to understand how the charge had been calculated and therefore better able to understand how they could manage it in the most effective and economic way. I agree with the hon. Member for Wolverhampton, South-West that a lot more information could be provided on all credit cards and store cards. The new clause is a step in the right direction, although I would prefer it to go a little further.

Let me begin by thanking my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) for his kind comments at the beginning of his speech. His new clauses 1 to 7 would give the Office of Fair Trading the power to set a statutory limit on the total cost chargeable for credit in a particular credit market where it is satisfied that consumers are, or may be, suffering detriment through insufficient price competition. He outlined the purposes of the new clauses very well, as he always does.

I want to say at the outset that the Government share his concerns about low-income and financially vulnerable consumers, who can struggle to obtain cheaper credit from high street banks and building societies. That is why we welcome the review that the OFT is conducting into the high-cost consumer credit sector, which has a particular focus on whether competition in the high-cost credit market is effective in current conditions. The review will examine, among other things, the experience of other countries that have introduced a cap on the cost of credit, which should help to establish the effectiveness of such tools as a form of consumer protection.

My hon. Friend will be aware that this issue has been previously considered, and it has been concluded that such measures could be detrimental to consumers—a view shared by leading consumer groups, as the hon. Member for Fareham (Mr. Hoban) said. My hon. Friend is of independent mind on these matters, and it is always right to take a fresh look at them. I stress to him the independence of the consultants who were commissioned by those at the then Department of Trade and Industry who considered these issues. I would not want there to be any confusion about the role of Elaine Kempson, to whom my hon. Friend referred several times. She is very much an independent person, as Professor of Personal Finance and Social Policy Research at the university of Bristol, and she is a member of the Government’s financial inclusion taskforce. She is an expert on these matters, and it is right that her views are carefully considered.

Government intervention in pricing clearly has the potential to create distortions such as cross-subsidy in related sectors. It could constrain supply and ultimately lead to higher prices for consumers, and damage industry by distorting markets. That is why venturing into this area requires very careful consideration. It is certainly our view that the review will provide important information that we will all want to look at—Government, consumer groups and others.

My hon. Friend has elegantly framed his new clauses so that the price control measures would take effect only when the OFT is satisfied that there is insufficient price competition in the market—perhaps when one supplier is dominant in a number of localities or when all lenders offer much the same product and do not compete on price. However, in such circumstances, the proper solution would usually be to look for measures to increase competition rather than to substitute the judgment of the OFT as to a reasonable price for that of the market.

New clause 2 would require the OFT to assess at annual intervals the adequacy of price competition in defined markets. In competition law, it is notoriously difficult to identify where the boundary lies between competitive and non-competitive pricing, as my hon. Friend well knows, so that would be a complex judgment requiring something akin to an economic market study every year in order to withstand challenge from lenders and other interested parties.

New clause 3 would require the OFT to set limits on the total cost chargeable for credit, which must reasonably reflect the cost of providing credit in a properly functioning market. Again, however, that would be an extremely difficult task given the differing terms on which consumer credit is offered—some lenders offer much more flexibility than others—and the different risk profiles of each lender’s customer base. There is also a real risk that those proposed powers for the OFT could stifle the competition in the credit market and the diversity of products that my hon. Friend wants to see.

There is evidence from countries that have adopted some form of ceiling on the cost of credit that such restrictions can be circumvented through the charging of fees or insurance costs not covered by the regulated amount, and that they can force vulnerable consumers to take up less flexible, less transparent, more expensive or unregulated forms of credit with high charges for missed payments, including from illegal money lenders. I recognise that new clause 4 is intended to reduce the scope for such circumvention, but there are practical difficulties with the approach proposed as it would potentially involve the OFT continuously monitoring the price of thousands of products offered by a number of individual companies.

Doubts about the workability of regulating the price of credit and concerns about the consequences for consumers are the main reasons why the Government have been very cautious about any measures such as those proposed by my hon. Friend. However, I appreciate that he is motivated by the desire to protect vulnerable consumers, and members of all parties recognise the importance of that. Such consumers face restricted choices in accessing credit and sometimes borrow more than they can afford to repay. We have to consider whether there are sensible steps that we can take, which is why we have considered his new clauses carefully.

We share my hon. Friend’s concern, which is why we have already taken a number of measures to give consumers a more informed choice and encourage responsible lending, including greater OFT oversight of high-cost credit lenders and new mandatory OFT guidance on responsible lending. We will introduce a new requirement this year for lenders to provide adequate explanations to borrowers and assess their creditworthiness, and we are also conducting a review of credit and store cards. The consultation on so-called risk-based re-pricing of existing debt, the level of minimum payments, the allocation of payments, the need for further information and unsolicited credit limit increases closed last Tuesday, 19 January.

I have referred to the review that the OFT is currently undertaking of the market for high-cost credit, which is specifically considering competition issues and the effects of introducing restrictions on the cost of credit. We do not believe that it would be appropriate to anticipate the OFT’s conclusions on the working of the market or any recommendations that it may make for further protections for consumers. However, I assure my hon. Friend that we are of course taking a close interest in the review and will want to respond quickly following its completion.

I turn to new clause 14, which also deals with interest rate caps but is focused on store cards and similar retail credit tokens. I appreciate the distinction that the hon. Member for Fareham made between store cards and loans from retailers, about which he made some very interesting points. The power suggested in the new clause is very broad and does not define the circumstances in which an interest rate may be thought to prejudice the interest of debtors.

Many of the concerns that I have described about new clauses 1 to 7 also attach to new clause 14. Constraining interest rates on store cards in this way carries a strong risk that pricing structures will simply be re-engineered to circumvent a cap, meaning that the costs of borrowing become less transparent for consumers, often hidden in contingent charges, which disproportionately fall on the least capable and most vulnerable. As I have said, caps can distort proper competition in the market. The hon. Member for Fareham made many of those points when he referred to new clauses 1 to 7. Similar concerns apply to new clause 14.

That said, the Government recognise that, in the past, competition has not always been effective in the store-card market. That was the conclusion of the Competition Commission’s market investigation, which ended in 2006 and resulted in the introduction of several measures to stimulate competition and ensure transparency for consumers about the costs of store-card borrowing and ancillary products, such as payment protection insurance. As the hon. Member for Fareham knows, those measures came into force in May 2007.

New clause 14 also proposes a seven-day cooling off period for new store-card agreements, whereby consumers could not spend on their card for a week after taking it out. The hon. Member for South-East Cornwall (Mr. Breed) referred to that and said that it ought to be a 14-day period, which Consumer Focus recommends in its response to the consultation that has just closed. The Government recognise the sentiment behind the proposal. We are clear that responsible consumers should make a purchase on credit only after careful consideration, rather than focusing on a promotional offer, which might seem attractive when someone is in the store and not really thinking about the debt that will have to be repaid in future.

However, a cooling-off period could have far-reaching consequences for both store-card providers and retailers, as it risks reducing the utility of the product and increasing point-of-sale costs to such a point that it might render it unviable. That may result in the withdrawal of a valued source of credit for some consumers and damaging consequences for retailers. Arguments need to be carefully weighed in the balance before a judgment is made.

We conducted a consultation exercise, which ended only last Tuesday. Let us look at the evidence and make a judgment on that basis. If it points to the need for a cooling-off period, we would want to introduce it. We are concerned for consumers to take out store cards—or any credit—with their eyes open, and we need to ensure that we are taking appropriate action in all the circumstances. Through the implementation of the consumer credit directive and the OFT’s irresponsible lending guidance, we are introducing new responsible lending requirements to ensure that all regulated credit agreements are responsibly promoted, lending decisions are taken on an informed basis, and consumers are given a proper explanation of the key features of the product and the risks associated with it. Those provisions will bite particularly on store-card providers, who will need to ensure that, when they promote their products at point of sale, their staff are sufficiently well trained and the environment is properly conducive to meeting the new standards. The directive will also provide a new right to withdraw from any regulated credit agreement in the first 14 days.

The Government have received several responses to our consultation on credit and store cards. As I said, the closing date was only last Tuesday. I therefore think it right that we consider all the evidence carefully, issue our response and examine the case for legislation on the basis of it. It would be precipitate to rush to legislate now before we have considered all the submissions that have been made to us.

Although the hon. Member for Fareham suggested, before he heard my response, that he would press new clause 14, I urge him to think again. That seems sensible, given where we are.

Given what I have said—my sympathy for the new clauses that my hon. Friend the Member for Wolverhampton, South-West tabled, but our genuine concerns and the fact that a review is currently under way into competition in the market—I invite him to withdraw the motion.

I thank hon. Members for some thoughtful speeches this afternoon. I am quite happy to take some ribbing from the hon. Member for Fareham (Mr. Hoban) on this topic, because, of course, the Labour party is not as monolithic as he might think. I have been propounding such measures for the two and half years that I have been a Parliamentary Private Secretary. I have never, ever been criticised by a Whip or Minister, and I have won some battles with the Government. He may get a shock, because the prospective Conservative parliamentary candidate for Wolverhampton North-East wants to introduce restrictions—I note that that came about after I tabled the new clause—so both parties are divided on the matter.

The concerns expressed today have been on the workability of any cap. There is an understandable fear that were caps to be introduced, fringe borrowers who currently use legitimate fringe lenders would turn to loan sharks. However, we must be clear that we are talking about a social ill and that some people simply should not be borrowing money. We should bear that in mind. That is what the Crowther committee was referring to in 1971.

It is paradoxical that all three Front Benchers made thoughtful speeches against the new clauses and on the unworkability of caps and so on, but that we already have caps on things such as utilities. We also have a cap on mobile phone roaming rates, for example, which perforce, and by definition, is for some of the more privileged members of our society, namely those who are wealthy and prosperous enough to go abroad on holiday with a mobile phone and make telephone calls. The idea of caps exists in our society, legislation and economy.

However, I take heart from what my hon. Friend the Economic Secretary said about the OFT bringing out guidance later this year on adequate information for borrowers—that key point was raised by my hon. Friend the Member for Stroud (Mr. Drew) in an intervention. I note that the high-cost credit review, which I believe is due to report in spring, will be looked at carefully by the Government. I hope they reconsider caps on the kind of lending arrangements to which new clauses 1 to 7 refer if the evidence indicates that there are significant problems because of the lack of competition in such markets, which I believe there are, and that the fears that caps will lead people to turn to loan sharks are overblown, as I believe they are. On that basis, with those reassurances from the Government, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 8

Short selling

‘(1) The Financial Services Authority (“the Authority”) must make rules prohibiting persons from engaging in short selling of shares except in one of the following circumstances—

(a) the share price at the time of the transaction was higher than it was at the close of the previous trading day of the market on which the share was listed; or

(b) the short selling was by a person who borrowed the shares, and the beneficial owners of the shares had given prior permission at an annual general meeting for the shares to be lent.

(2) Any person who engages in short selling under the provisions of paragraph 1(a) or (b) must make a declaration of the sale to the Authority on the day of the transaction.

(3) The Authority may set requirements as to the form and content of declarations made under section (2), but the Authority must require that such declarations state—

(a) the number of shares sold;

(b) the price for which they were sold;

(c) any features of the transaction which would confer a financial advantage on the seller in the event of a decrease in the price of the shares; and

(d) the person to whom they were sold.

(4) The Authority must publish on its website all declarations under subsection (2) as soon as possible after they are received, and in any case not more than 24 hours after receipt.

(5) If the Authority is satisfied that a person has contravened the provisions of subsections (1) or (2), it may impose a penalty of such amount as it considers appropriate on—

(a) the person who contravened the provision or requirement, in which case the penalty must not be less than the profit made by the person in question; or

(b) any person who was knowingly concerned in the contravention.

(6) Rules under this section may apply to short selling wholly outside the United Kingdom by persons outside the United Kingdom, but only in so far as the rules relate to shares admitted to trading on a market within the United Kingdom.

(7) For the purposes of this section the cases where a person engages in short selling in relation to shares include any case where—

(a) the person enters into a transaction which relates to shares; and

(b) the effect (or one of the effects) of the transaction is to confer a financial advantage on the person in the event of a decrease in the price or value of the shares.’.—(Mr. Frank Field.)

Brought up, and read the First time.

As you would expect, Madam Deputy Speaker, so as not to detain the House too long, I have sought an answer to the question whether there is widespread support for new clause 8, as drafted, and in particular whether the Liberal Democrats support it. It now appears that they do not, so I will use the new clause as a probing proposal. Lord Vinson is also working on this matter, and when we have listened to the debate, we might come back with a much more narrowly defined proposal when the Bill reaches the other place.

My starting point is those hectic days before the bank collapses, when we saw people piling in, trying to destroy the value of the share capital of some of the best-known company names in the country. We learned that some of those individuals—perhaps many of them—were doing that not with their own shares, but with shares that they were borrowing. They were forcing down the price of the shares, then handing them back when they were much reduced in value to the people who owned them. I was puzzled by that. How could anybody in their right mind lend shares to what appeared to be, if we were to believe the media, financial sharks, only to get the shares back at the end of the day much reduced in value?

The next stage in my enlightenment on this topic was when a pension fund chairman—it is not a large fund, but it is certainly a substantial one—wrote to me to say that he, too, was puzzled by this practice. He had inquired of the custodian of his company’s series of pension funds whether the shares of those funds were being lent out. After an uneasy negotiation with the custodian, he found that they were being lent out without his permission, without the trustees’ permission and certainly without the knowledge of people who thought that their pension savings were safe.

The custodian’s role is key. I have been a Member of Parliament for some time—I was here when Robert Maxwell lifted the shares of many of the pension funds that he felt he owned. We were lax in those days and he found it possible to bully the chairman and trustees to lend him—to put it euphemistically—those shares.

I am glad that my hon. Friend—I shall call him that—mentioned that point. He has managed to put that on the record without my needing to do so, because—as we all know—Robert Maxwell is not now present to answer those charges. At least, we do not think that he is present.

The House took those matters seriously and two things happened. The then Government asked Sir John Cuckney—later Lord Cuckney—to trace the funds that had been lent out and recover them. Sir John went about the task with the diligence one would expect from someone with his rich career. He was so open-minded on the issue that he adopted the American practice of calling in a judge to mediate with those who claimed that they had taken shares in good faith and should not have to pay back any money. After about five months, Sir John’s patience ran out and he called the main recipients of the shares to his office. He said that he would provide lunch, and he effectively locked them up for the day so that they would come up with the funds that the pension funds said that they needed to recover their lost assets. Anyone who knows anything about Sir John’s career will know that he knew where the bodies were buried and, by the end of the day, hundreds of millions of pounds were produced.

The second measure taken—apart from the approval of Sir John Cuckney’s work—was a major pension fund review. The Select Committee was involved—indeed, one of the Clerks at the Table was the Clerk to the inquiry. We proposed many reforms, and the Government accepted many of them. One of them was to establish the position of custodian, so we could not again have a situation in which a forceful character such as Robert Maxwell could bully the chairmen and trustees of company pension schemes to hand over the assets of the pension funds. So the custodian—we thought—would play a key role in ensuring the safety of pension funds.

Once I learned that the horrors of short selling were way beyond what I had imagined them to be, I approached the pensions regulator. Quite a lot of our time in this place is naturally spent picking fights with public and private officials whom we do not think adequately fulfil their role and, sometimes, nowhere near earn the salaries that they are paid. I want to put it on record that I found dealing with the pensions regulator to be a most reassuring task—indeed, so much so that, having conducted a review, the pensions regulator has laid guidance to trustees saying that they now have a duty to ensure that they know about it, if their funds are being lent. That suggests that the single case that I took to the pensions regulator was not a one-off job, but that what had happened was more common than we had dared to imagine.

Worse still, the custodian was a bank. Although the chairman saw after probing that other assets were being given back to the pension fund for the shares and gilts that the custodian bank was borrowing, without the knowledge of the chairman, trustees or members of the fund, the collateral in no way matched the value of what was being taken. For example, taking Government gilts, which, despite all our problems with public debt, are still one of the most pukka gilts in the world, and substituting gilts of equal value from fourth-world countries is not, in my view, an adequate recompense. The same goes for the shares that were borrowed in order to be used in short selling. Although those substitute shares were of the same nominal value, nobody in their right mind would think that the risks attached to them were the same as those attached to the shares that had been lent.

I therefore conclude that the Government’s success in rescuing the banks was much greater than that to which we have paid tribute in this House, in that if the banks had gone under, which was a genuine worry, and the practice that I am describing had been more widespread than a single pension fund—that is, if there had been many more pension funds whose assets had been lent out by a custodian that happened to be a bank—not only would the chaos of not having an acceptable medium of exchange have followed, but the whole house would have come tumbling down.

I also wrote to the Financial Services Authority, which was not quite as anxious to deal with the issue as the pensions regulator. I asked the FSA whether, in doing spot checks, it looked at banks’ balance sheets and at the array of gilts and other assets that it wishes banks to have so that they behave prudently and, should anything untoward happen, so that they have some genuine assets that they can draw on for their depositors, but to my mind a satisfactory conclusion was not reached. The worst scenario, therefore, was where a pension fund was having its shares lent without its knowledge by the custodian—part of one of our major high street banks—and where it was open to the other banks to borrow those assets and perhaps put them on their balance sheets in order to convince the FSA that they were in a healthier condition than they perhaps were. That was the worst scenario, unless one considers that practice to be acceptable; I think that it is not.

I have asked my colleagues for their views on new clause 8, and they feel that it is too restrictive. When I first started out, I thought that short selling itself was wrong and that we should ban it. Perhaps there is a bit of that flavour in new clause 8. I am very interested in the House’s view, albeit not on the details of how one might police short selling. I am obviously interested to hear people’s views on how we can make that method safer. For example, it might be perfectly proper to short sell, if the share price is rising rather than falling. Those are the kinds of locking mechanisms that I hope we can establish.

I want the House specifically to address the question whether we need to consider further—perhaps not here today, but in another place—how we can better protect our constituents’ assets that are wound up in company pension schemes. I have given the House one example. If that were the only example, it would still be worrying, because it relates to a medium-sized fund. However, my guess is that it does not stand alone, and that other funds have had their shares and assets lent without their permission, risking the life savings of the company concerned and the members of that company’s pension scheme.

I wonder whether we need to consider putting a lock on what custodians can do in that regard. The House will see that, among the many measures in the new clause, one of the safeguards is that no pension fund assets can be borrowed unless the chairman and trustees know about it and unless they have consulted the membership—that is, us—if need be. I tried to table some questions to find out what was happening to the House of Commons MPs’ pension fund, but, for some reason, I did not get very far towards getting an answer—I did not get an answer saying that the funds were not being lent, so perhaps that practice extends to our pension funds, just as it does to those of constituents.

I ask these questions in the spirit of inquiring into what the House thinks. Perhaps we can regroup with a much more targeted amendment in the other place, but I urge hon. Members to support the new clause.

I generally agree with the right hon. Member for Birkenhead (Mr. Field); I certainly agree with him far more than I disagree with him. I sometimes wonder whether either of us is sitting on the right side of the House, although I have made up my mind that I prefer to be on the side that I am on.

I prefer to be on this side, but that does not mean that I do not try to find ways of getting agreement across the House.

I completely agree with the right hon. Gentleman, as I often seek to do. I want to agree with him on his new clause, but I do not think that I shall be able to, because it is misguided—it misunderstands the problem and the solution. He gave a hint of that in his speech when he talked a great deal about pension funds. The solution to ensuring that pension funds are properly regulated is to look at pension fund law, not at general provisions on short selling or on market making.

I thank the hon. Gentleman. Given that we have this opportunity to improve the safety of pension funds—perhaps not today, given the way in which the new clause has been drafted, but possibly in another place—is it not appropriate for us to use it?

There might be a suitable peg somewhere in the Bill for such a measure—I have not looked carefully enough to find one—but the new clause uses a machine gun to try to hit one very specific target. It is inappropriate and would cause a lot of collateral damage, as machine guns tend to do when trying to hit only one target.

I shall take a brief look at the new clause—after all, that is what we are discussing. It begins by proposing to prohibit the short selling of shares. Why stop at shares? If one is trying to address the issue of pension fund assets, what about the bond market, what about corporate bonds and what about that range of financial instruments that runs all the way from poor-grade equity to top-tier sovereign risk? Once one has decided that short selling is a “bad thing”, there is no logic to limiting this provision to shares.

When I looked at the new clause a bit more carefully, I noticed that proposed new subsection (1)(a) bans short selling except under certain conditions—for example, in a rising market. That is a curious one-way ticket, and such an approach can only be distortive in any market—if one bans something in one direction and not in another, one will do a lot of damage to the process of trying to find a true price.

Proposed new subsection (1)(b) is even more bizarre, because it says that the only circumstances in which short selling are permitted are where

“the beneficial owners of the shares had given prior permission at an annual general meeting for the shares to be lent.”

That is such a restrictive condition that it would suck all liquidity out of the forward markets, which would be the end of forward markets. Forward markets have been around a good while. There was an effective forward market in rice in ancient Japan, and it is said that there was one in China, so they have been with us for as long as there have been markets.

When examining the clause, one must ask a more basic question: do we want derivatives markets or not? If we decide that we need them, it is logical to try to maximise their liquidity, as that will lead to higher levels of capital formation and more efficient risk allocation, to the benefit of us all. Short selling strengthens the long market; it provides strategic investors with an opportunity to hedge their positions and gives them confidence to take those long positions. An investor will be much more reluctant to buy if the would-be short sellers’ views are not expressed in the market and are distorted by restrictions.

The key question is always that of investor confidence. I took a look at a number of things on the web about what various people have had to say on this matter recently. Troy Paredes, a commissioner on the Securities and Exchange Commission, recently gave an interesting lecture to the Harvard law school forum on corporate governance in which he came to a pretty clear view. In line with what I have just implied, he said:

“Short tied to investor confidence. Investor confidence depends on investors’ faith in the integrity of markets. Investors expect that securities prices are meaningful in that they reflect the market’s overall assessment of what a company is ‘worth’ by aggregating into a single number the different views of market participants…in promoting market efficiency, short selling can foster investor confidence, as investors can be confident that securities prices reflect both optimistic and contrarian views.”

I could not have put it better—in fact, I could not have put it remotely as well. That is a clear expression of the need to retain short selling.

The risks usually attributed to short selling—the right hon. Member for Birkenhead followed that approach—generally turn out to be something else. They turn out either to be the risk of share price manipulation, which he did not discuss very much, or to be fraud, which he discussed quite a bit, which is why I intervened on him to clarify what was going on in the Maxwell custodial case. Those are, quite rightly, already offences under existing law, and if the law needs tightening in that field—the right hon. Gentleman has suggested that it does—we should pay particular regard to that. We should look carefully to see what further steps should be taken to make share price manipulation and fraud more difficult.

As this clause is about short selling, we are concentrating on practices that take place with respect to shorting the market. The long share market, however, is just as vulnerable to fraud and manipulation. One such practice, which good quality regulation seems substantially to have reduced, at least, was known as “ramping the stock”—talking it up while taking a holding and then selling up, leaving the poor souls who had taken the advice to take the fall in the market afterwards.

The hon. Gentleman has talked about shorting the market, which is one of those expressions that everybody thinks that they know the meaning of. Is not the fundamental problem with this new clause the fact that it would outlaw any selling when the price is falling, assuming that that is short selling?

I think that that is more or less correct. I am not absolutely sure what the effects of the new clause would be, to be frank—I am not absolutely sure that its authors are sure what its effects would be—but I am pretty confident that they would be disastrous. Even as a probing new clause, I do not think that it is near the target that the right hon. Member for Birkenhead mentioned as justification for it.

There is a second, more general justification for the introduction of measures to restrict short selling, which is that it can encourage panics and irrational behaviour. Of course, as I have pointed out, that is just as true in a long market. Is that not what we have always seen in the long markets? These are the booms before the busts—the Mississippi scheme in France in the early 18th century, the South sea bubble, the bubble in share stocks in the interwar years and the bubbles that we have had more recently. To stop the bust, one must find a way of stopping the boom. Stopping the boom is an extremely difficult task, too. In other words, creating market stability is, in my view, probably a very difficult, if not impossible, task that Governments should address with very great care. After all, was it not this Prime Minister who told us about 160 times in this place alone that he had put an end to boom and bust? He gave us the most spectacular boom followed by the most spectacular bust in living memory—at least, apart from in the memory of those who are old enough to remember the late 1920s and early 1930s.

The problem with booms and busts is that they are monetary phenomena. They are normally driven partly by loose monetary conditions, in one way or another. Although this more general issue goes well beyond the remit of the new clause, it is worth pointing out that the Government are trying to do something about it through counter-cyclical capital requirements, for example, and a number of other measures. They are considering the development of macro-prudential tools that are designed to attenuate the virulence of the cycle. That is a very difficult task, however, and they are realising just how difficult it is as they take their ideas forward, not least because the law of unintended consequences usually applies.

There is legislation to bear down on disorderly markets, but of course that is not a ban on short selling, but a ban on all selling and buying. The most common measure—although, again, it has been rarely used—is to close a market temporarily, when it is felt that a meaningful price cannot be established. One of the problems is that it is increasingly difficult to achieve that in a globalised world in which grey markets operate.

There is one last argument for action on short selling for which I have a good deal of conceptual sympathy, but I am afraid that the new clause goes way beyond what is required. In any case, I think that the necessary legislation for emergency action is already on the statute book. I am talking about circumstances in which a disorderly market can trigger a sharp increase in systemic risk and risk a breakdown of the whole economic system. I think that the recent temporary ban on short selling was imposed to prevent that from happening. It was based on the argument that the protection of the wider public good is an objective that overrides all others for a period of time, but was it of any use? With the benefit of hindsight, can we say that we got anything back in return?

The chairman of the Federal Reserve has already said on the record that he would not impose the temporary ban again. The FSA and the Government have been much more circumspect about saying that it did not work, and I shall be interested to hear what the Minister has to say about that in a moment. However, the prevailing view among a good number of insiders—I know a few of them—is that more harm than good was probably done.

In that respect, it is worth looking again at what was said in the lecture to which I referred a moment ago. Troy Paredes covered his back a little, but he is one of the world’s leading experts on this subject and, before new clause 8 is considered seriously for the statute book, we need to consider what such people are saying. He said:

“With the benefit of more but still imperfect information, the decision was made to terminate the ban a few weeks after its implementation. Speaking personally”—

this is him covering his back—

“it became apparent that the ban did not stabilize the markets but did result in inefficiencies and other market dislocations and disruptions. In short, the benefits of the ban did not materialize but the costs clearly did.”

I have not looked in great depth at the specific issue that Dr. Paredes addressed, but it would not surprise me if, having done the cost-benefit analysis for ourselves, we were to reach a very similar conclusion.

The SEC has retained rules that penalise so-called “naked” short selling—that is, when the short seller does not deliver the securities within a short period after the sale transaction date. However, it is worth reminding ourselves that most forward positions in the spot market are covered, and that they are not so-called “naked” short or long positions.

The plain fact is that we have all benefited enormously from the development of forward markets and financial innovation over the past quarter century. That is not a popular view to articulate at the moment, because we have just suffered from a spectacular failure in the markets, part of which is attributable to the derivatives market. If new clause 8 were implemented, the inevitable consequence would be that we would lose the long-term liquidity and benefits that come with these markets. The idea that we could do without those things is not one that we should seriously entertain.

I very much hope that the Government do not support new clause 8, and that the Minister is courageous enough when he replies to explain the merits of short selling, as well as the disadvantages.

As the right hon. Member for Birkenhead (Mr. Field) suggested, we found ourselves in agreement on some of the sentiments. Some of what has gone on over recent years has highlighted a number of practices that may not have been well known or well understood, and he gave the example of the pension fund chairman. As the hon. Member for Chichester (Mr. Tyrie) said, short selling has been part of the functioning market for some time, and it is part of how investors have confidence in the market. The loaning of pension fund shares might be looked at under pension fund administration arrangements. The rules could clearly be tightened up. I suspect people would not necessarily demur from that within the totality of their involvement in the market.

We discussed the merits of the restrictions in clause 13, which would give the FSA powers to prohibit or require disclosure, very much along existing lines—formalising what the FSA did a little while ago. It addresses perceived market abuse, usually a one-off emergency situation and alongside a disclosure regime. It is probably about as far as we would wish to go at any particular time.

Throughout our consideration of the Bill, we have been concerned not to take it that market abuses and other problems were everyday events and that we had to produce reams of draconian legislation. We wanted to ensure that the rules were proportionate and would address certain situations that may arise in the future. The hon. Gentleman said that the alternative would be to close the market in certain things altogether, but if we were for ever doing that it would destroy the whole function of what we are trying to set up.

Although I can understand why the new clause was proposed, and there may be opportunities to reconsider it in another place, at the moment it is too restrictive for us. It could have many dire unintended consequences, so at this stage we cannot support it.

When the right hon. Member for Birkenhead (Mr. Field) introduced new clause 8, I was intrigued by his arguments for its rationale. As he developed his argument from Maxwell and Sir John Cuckney to the role exercised by trustees in determining investment strategy and the use to which investments should be put, he made a strong case for improving the Government’s arrangements for pension funds. However, if the purpose of his new clause was to prevent shares owned by pension funds from being used as a cover for short selling, he should perhaps have tabled a new clause in favour of naked short selling rather than one that restricted covered short selling to certain areas.

If the hon. Gentleman looks at the new clause, he will see that that is what I am advocating. Members should know that their shares are being sold in that way.

But in a way there are two types of short selling. There is naked short selling, when someone does not hold the shares, or has no coverage for selling the shares in the market, and the situation when someone borrows shares and there is some cover to minimise settlement risk. The right hon. Gentleman’s argument was about the governance of pension funds rather than the merits or otherwise of short-selling strategies in the market, and I thought it did not quite get to the point.

As a consequence of interest in short selling, quite a lot of work has been done on the possible impact of various short-selling strategies on the underlying markets, and on whether short selling itself is a legitimate strategy for investment managers. On a couple of occasions during Treasury questions, the Minister has defended short selling as a means of improving liquidity in the market, reducing transaction costs and making markets function more effectively. A number of pension funds benefit from the strategy because they have investments in hedge funds that engage in such activities. At the peak of trading in 2008, pension funds apparently earned about £600,000 a day from the fees that they received in return for lending their stock.

May I give an example about the fees? The pension fund that I mentioned was paid £900 for every £1 million of its stock, which was being lent without its knowledge.

No one is saying that the fees are especially generous, but the funds charge a fee for lending their stock, and that fee is of course used to augment the returns of the underlying pension fund. There is a need to think about the cost-benefit analysis.

Is not the key issue that that situation represents a failure in the corporate governance of the pension fund itself? The responsibility for that inadequate charge, given the risk involved in the transaction, lies squarely with the directors of the pension fund.

My hon. Friend is absolutely right. The argument made by the right hon. Member for Birkenhead seemedto be more about how we improve the governance of pension funds than about the merits or otherwise of short selling. The fact that the trustees did not know what was happening suggests that more due diligence should have been carried out in respect of the nature of their agreement with their investment manager and the custodian.

It is clear that a number of debates are going on. In the contribution made by a very distinguished apostle of short selling, we heard that, in all possible worlds, it is an extraordinary activity that benefits market liquidity and that it should therefore be ungoverned. In the specific case that I have cited, the chairman of the pension fund undertook inquiries before he heard about the introduction of my Bill to ban short selling. There was no failure there, although a general failure might have arisen because the House made such a fuss about the role of the custodian, who was the person who put the lock on any use of assets without the knowledge of the pension fund. There is of course an issue surrounding corporate governance, as the hon. Member for Chichester (Mr. Tyrie) suggested, but the problem is wider than that. I approach this matter with the view that short selling—gambling with people’s futures—is not necessarily a good activity, even if that activity is draped under the guise of liquidity.

I am now a bit more confused about the right hon. Gentleman’s position. Does he wish to improve the corporate governance of pension schemes by ensuring that there are proper arrangements among trustees, custodians and investment managers, or is he opposed to short selling as a matter of principle? His new clause would allow short selling in two cases: if there were improved governance arrangements and if

“the share price at the time of the transaction was higher than it was at the close of the previous trading day”.

I am not entirely clear whether shares could be lent if the short selling was on an uptick even if the custodians had not been given permission. There is confusion even in new clause 8(1)(a) and (b). Would the custodian always need permission to lend, or would that permission be necessary only in certain circumstances? Perhaps the right hon. Gentleman will deal with that point in his winding-up speech.