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Commons Chamber

Volume 516: debated on Tuesday 12 October 2010

House of Commons

Tuesday 12 October 2010

The House met at half-past Two o’clock


[Mr Speaker in the Chair]


Electoral Commission

The Vice-Chamberlain of The Household reported to the House, That the Address of 15th September, praying that Her Majesty will appoint as Electoral Commissioners:

(1) Angela Frances, Baroness Browning, with effect from 1 October 2010 for the period ending on 30 September 2014;

(2) David Ross Howarth, with effect from 1 October 2010 for the period ending on 30 September 2014;

(3) Roy Francis, Lord Kennedy of Southwark, with effect from 1 October 2010 for the period ending on 30 September 2014; and

(4) Rt. Hon. George Newlands Reid, with effect from 1 October 2010 for the period ending on 30 September 2012,

was presented to Her Majesty, who was graciously pleased to comply with the request.

Oral Answers to Questions


The Chancellor of the Exchequer was asked—

Tax Compliance

The Chief Secretary to the Treasury announced £900 million of investment in Her Majesty’s Revenue and Customs to tackle avoidance, evasion and fraud, sending a clear signal that the spending review will be focused on both fairness and deficit reduction. It will include an increase in prosecutions and steps to tackle organised criminal excise smuggling. HMRC also recognises the importance of helping businesses to get their tax right and has launched additional education and guidance packages in order to do so.

Given the enormous importance of reducing the tax gap, and thereby reducing the deficit, what assurances can the Minister give that actually he will be taking on more tax officers and ensuring a good geographical spread to make sure we get in the maximum tax revenues possible?

As was made clear in the Chief Secretary to the Treasury’s statement, the Government are determined to reduce the tax gap. It currently stands at £42 billion. It is too high, but we are determined to take measures to address it and we have already announced proposals by which we can reduce the tax gap.

Budget (Regional Differences)

2. What representations he has received on variations between the English regions and constituent parts of the UK in respect of the effects of the measures in the June 2010 Budget. (16481)

3. What representations he has received on variations between the English regions and constituent parts of the UK in respect of the effects of the measures in the June 2010 Budget. (16482)

We received representations from many interested parties from all parts of the UK and at the time of the Budget we published details of the impact of the Budget on each English region and each devolved Administration.

Does not the Government’s proposed closure of the passport office in Newport show that, far from us all being in this together, these Budget cuts will fall disproportionately on the poorest parts of the UK? Is this closure inevitable?

I am grateful for the question, and I understand the sensitivity in the community about that decision. The spending review will, of course, result in some difficult decisions having to be made all over the country. I can however say to the hon. Gentleman that we are looking very closely at the regional and national impact of particular decisions. One of the reasons why the Deputy Prime Minister announced a regional growth fund for England is to deal with those issues, and I hope very much that the Welsh Assembly Government might follow suit.

Will the Chief Secretary acknowledge the analysis undertaken by the Institute for Fiscal Studies, whose head at that time now leads the Office for Budget Responsibility, that found that the measures in the emergency Budget will hit those on lowest incomes hardest and will have a disproportionate impact on constituencies in the north?

If anything demonstrates the independence of the OBR it is the appointment of the head of the IFS to be the head of the OBR, and I hope that will put an end to any such criticisms from the hon. Gentleman’s side of the House. The analysis was interesting, but the analysis we published at the time of the Budget was robust and soundly based. I have carefully studied the IFS’s additional analysis, and I think it makes some assumptions that push the boundaries. As a result it is not an analysis the Treasury would stand by. I would stand by the view that the measures we announced in the Budget were progressive and fair and hit the people on the highest incomes hardest.

Can the Chief Secretary tell the House the benefits that the regional growth fund will have for neglected regions, in particular coastal and seaside towns?

I fear that the hon. Gentleman will have to wait until a week tomorrow for the spending review announcement to hear details of that sort, but I can tell him that the purpose of the regional growth fund is precisely to ensure that areas hit hardest by public spending cuts or areas most dependent on the public sector have an opportunity to put forward proposals for measures that would support their economic growth. The regional growth fund has been established to meet those proposals.

This builds on what the Chief Secretary has just said. Does he agree that what we need with the regional growth fund is a much more focused regional policy, rather than the waste that came from the previous Government and their one-size-fits-all regional policy?

I would agree with that, although I am not going to go over the litany of spending by regional development agencies. Having a regional growth fund that is able to respond to bids from communities, along with a much more devolved set of arrangements, through local enterprise partnerships, which require local authorities and local businesses to work together on what is best for their areas, is a much more dynamic approach, and it is likely better to meet the needs of those areas.

What account will the Chief Secretary take of last week’s joint statement by the leaders of the devolved Administrations in Wales, Scotland and Northern Ireland? They said that the proposed cuts in the comprehensive spending review are

“too fast and too deep”,


“Front loading the cuts into the next two years is…the wrong approach”

and that a failure to promote growth will damage the private sector? Will he now listen to those voices, which do not just argue for the public sector, but argue that the cuts that he proposes will damage private sector growth and private sector industry?

First, may I welcome the right hon. Gentleman to his new role, congratulate him on his appointment and wish him luck with it? The question he asks is important: what is the impact on the devolved Administrations? As he knows, the budget for devolved Administrations is set by the Barnett formula, which reflects the decisions we make for Departments within the UK, and so it falls out as a consequence of the spending review decisions. Of course our decision to protect the national health service—something that the Labour party was not willing to do—will reflect well on the devolved Administrations’ settlement. If the right hon. Gentleman wishes to enter credibly into this debate, he and his colleagues should make some credible proposals of their own as to how they would tackle the deficit.

Deficit Reduction

The Government’s plan to tackle the record budget deficit they inherited has been supported by the CBI, the OECD and, now, the International Monetary Fund. We have received more than 60,000 representations from the public as to how to go about deficit reduction and many of their suggestions are being put into effect. To date, we have received no proposals and no suggestions from the official Opposition, who created the deficit in the first place.

I thank my right hon. Friend for his response. With the country set to pay £43 billion in interest in 2010-11, I am reassured that the general public have been willing to contribute to the tough decisions required of this Government to turn our economy around. Has he received any helpful advice from the Labour party, past or present, other than that from Tony Blair?

My hon. Friend is absolutely right about debt interest; this country is now paying £120 million a day in debt interest. Debt interest under the previous Government was forecast to rise to £60 billion a year, making it one of the largest items of Government expenditure. He talks about suggestions from Members of Parliament. The new leader of the Labour party said:

“I think whoever is the Labour leader will, by the time of the spending review, have to show that they have an alternative plan”.

So the clock is ticking.

The Chancellor attended the IMF conference at the weekend. Can he share with us what our international partners are saying about the coalition Government’s efforts to deal with the deficit?

As I am sure my hon. Friend is aware, the IMF’s article IV study of the United Kingdom said:

“The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability.”

That is in marked contrast to last year’s IMF report on the UK. At the IMF annual meetings, which I attended last weekend, it was made clear that concerns about sovereign debt issues in Europe were one of the greatest threats to the world recovery. Of course, the decisions that we have taken in this House have moved Britain out of the financial danger zone and helped to deal with that potential threat.

On reducing the budget deficit and the issue of fairness, how does the Chancellor square the fact that his local authority has had a cut of only £600,000 to its education budget with the fact that Halton, the 30th most deprived authority, has had a cut of more than £1.2 million? How is that fair?

Decisions on local government allocations are properly a matter for the Secretary of State for Communities and Local Government, but I make the observation that we face a series of tough decisions because of the economic mess that the Labour party left us. To date, it is living in complete denial: there is not one single suggestion from one single Labour Member on how to reduce the budget deficit, or even achieve the £44 billion of cuts on which Labour fought the last election.

Can the Chancellor confirm or deny reports in the weekend press that he has given the Governor of the Bank of England the green light to increase quantitative easing, to deal with the policy that the Chancellor is pursuing on the deficit?

What I said at the weekend was that I would follow the exact same procedure that my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), pursued when he was Chancellor of the Exchequer. The fact that that is regarded as something of a surprise by the Labour party shows how far it has departed from the centre ground of British politics.

Our net contribution to the EU is, amazingly, projected to double in this Parliament from £4.7 billion to £9.5 billion a year. Does my right hon. Friend agree with me and many of my Bury St Edmunds constituents that if we are to cut the deficit, we need to cut our spending on the EU?

It is good to see my hon. Friend. I make the observation that the situation is, unfortunately, yet another legacy of the previous Government. [Interruption.] Well, Labour Members obviously do not know the history: Tony Blair gave away our Budget rebate in return for the French reforming the common agricultural policy. So far as I have noticed, that deal has not held, and our contributions are rapidly rising. We have made strong arguments at the European level for similar budget restraints in the EU to those that member states are having to impose domestically. Of course, that will be our negotiating stance as we go into the new budget review period.

Will the timing of the spending cuts that are to be announced next week be exactly as laid out in June’s emergency Budget, and will the Chancellor confirm that the aim continues to be that the deficit will be eliminated by 2015?

First, I should welcome the right hon. Gentleman to his new role on behalf of all Government Members. I did the job for five years, and I hope that he does it for even longer than I did. The answer to his question is yes.

Well, the reason I ask is that there was some speculation at the weekend, when the Energy Secretary suggested, in a rather unfortunate yachting analogy, that he would not be “lashed to the mast” with a particular set of spending numbers. That is important, because from my vast experience in this job I am absolutely clear about this: the Chancellor says that the deficit was wrong and that his emergency Budget measures were unavoidable, but I believe that it is the other way round. The deficit was unavoidable if we were to avoid financial meltdown, and his Budget proposals were entirely wrong—wrong because they would, according to the Institute for Fiscal Studies, have two and a half times the adverse effect on the poorest as on the richest in our society, and wrong because he is seeking to cut public spending before there is any momentum for private sector spending in our economy.

Quite frankly, being in opposition involves choices, just as being in government does. The right hon. Gentleman talks about the Budget; there is a simple choice before the House today, which is whether we proceed with a graduate tax. Lord Browne’s report says that such a tax would add £3 billion to the deficit and would not produce savings until 2041. That is a real choice on the deficit before us today. The right hon. Gentleman is the shadow Chancellor and opposes a graduate tax; is he going to assert his authority over Opposition tax policy?

Debt Management (Bank of England)

5. Whether he has assessed the merits of returning responsibility for debt management to the Bank of England. (16484)

The current institutional framework separates operational responsibility for debt and monetary policy by the establishment of a debt management agency. This properly reflects the importance that we attach to having a clear institutional divide between responsibility for setting interest rates and for issuing Government debt. The Government have no plans to return responsibility for debt management to the Bank of England.

With the return of banking supervision to the Bank of England, I wonder whether it is worth considering giving the Bank of England its debt management responsibilities back. An active participant in markets may well prove to be a better regulator than one that approaches regulation from a more intellectual sense.

The Bank of England engages in market activities on a day-to-day basis, but before 1997 the same institutional separation existed, with the Chancellor setting interest rates and the Bank responsible for debt management. The separation of responsibilities improves transparency and confidence in debt management and helps to keep the cost of Government debt as low as possible. My hon. Friend will appreciate how important that is, given the size of the deficit that we inherited from Labour.

But is it not clear that, as my hon. Friend the Member for Edmonton (Mr Love) was saying, the raising of the spectre of a return to quantitative easing signalled by the Chancellor last week to the Bank of England is a clear sign that the anti-growth strategy pursued by the Government risks a major slow-down in our economy? Will the Minister take responsibility and stop playing ideological games with fiscal policy in the hope that monetary policy will miraculously pick up all the pieces?

I welcome the hon. Gentleman to his new position. He has been out of Parliament for the past five years and he should perhaps take this opportunity to reflect on the record of his predecessors and the deficit that they racked up in Government. Is he departing from the practice that the previous Chancellor of the Exchequer followed when it came to quantitative easing?

I am a strong supporter of quantitative easing as a form of management of the economy, but are Treasury Ministers aware that some hedge funds are making large profits by arbitraging between short and long interest rates when central banks give advance notice of their intention to intervene in foreign markets?

As my hon. Friend will be aware, the implementation of any policy on quantitative easing is the responsibility of the Bank of England, and it will take into account those factors.

Does the Minister welcome the fact that the efforts of the Debt Management Office mean that the average duration of debt in the UK is around 13 years, several years longer than any other country in Europe? It is one of the many reasons why the UK is not in the position of Ireland or Greece.

The hon. Lady, who follows these matters quite carefully, will reflect that before the election long-term yields on Government debt in the UK were moved in line with those in countries such as Portugal, Greece and Spain. After the election, the margin between UK gilts and the German Bund has narrowed rather than widened, as has been the case with other European bond rates.

Office for Budget Responsibility

The independence of the Office for Budget Responsibility is central to its credibility. With the approval of the Treasury Committee, I have appointed Mr Robert Chote to be its new chair. Today I am also appointing the distinguished economist Stephen Nickell and the experienced forecaster Graham Parker to serve alongside Mr Chote as permanent members of the budget responsibility committee. I am also publishing new terms of reference that safeguard the independence of the OBR, and copies are available in the Vote Office. I have asked the OBR to publish its autumn forecasts on the economy and the public finances on Monday 29 November.

I thank my right hon. Friend for his answer. I warmly welcome the creation of the OBR, at last, as an independent economic forecaster. I know that the Treasury Committee has raised a number of concerns, including the location of the OBR and whether the veto over the chairmanship of the Select Committee will be in the Bill.

The short answer to my hon. Friend’s questions is yes. The OBR will move out of the Treasury—in the period immediately after the general election, that was the quickest way to establish it—to a permanent home. The choice of location will be for the permanent chair of the OBR who, I believe, will make a statement on that later today. I think the veto given to the Treasury Committee is the first of its kind in this Parliament, and will be enshrined in legislation.

The Chancellor has announced two new appointments to the budget responsibility committee today. In line with the Treasury Committee’s recommendation, will he extend its veto to those two appointments, as well as to the position of the chair? Will he invite the OBR to comment, as the Select Committee envisages, on the fiscal mandate?

My answer to the right hon. Gentleman is yes and no—yes to the first part of the question. I listened very carefully to what the Treasury Committee said about the two other members of the budget responsibility committee, and I propose that it should indeed have a veto over those two appointments, which were made on the recommendation of a panel that included Robert Chote. I made the suggested appointments, but it will be for the Treasury Committee presumably to hold hearings and hopefully give its approval.

I do not propose to follow the second path that the right hon. Gentleman suggested. If the OBR begins commenting on the fiscal mandate, it intrudes on what is a legitimate matter of debate in the House between elected representatives who have strong views on this. I want to do everything I can to preserve the independence of the OBR, not just for this Government but for future Governments as well.

Would the Chancellor just confirm that the veto on the other two members of the OBR will function in exactly the same way as it would for the chairman? Would he also confirm that, in line with our recommendations, the OBR will be permitted at the request of Opposition parties at election time to examine their fiscal policies as well?

What I would say to my hon. Friend in response to his first point is yes, the procedure that I propose is exactly the same, unless he wants to volunteer some alternative method. On his second point, this is genuinely a matter that should be debated in the House in a non-partisan way, because it does not affect just this Parliament. There is a question of whether we want the OBR to be able to cost Opposition policies at the time of a general election. I propose to have discussions with Opposition party leaders about whether that is the appropriate thing to do, and it would be a legitimate matter for the House to debate and decide.

Departmental Spending Challenge

Many, many people have got involved with the spending challenge review, and on the spending challenge website we received more than 100,000 suggestions from members of the public, including more than 60,000 from public sector workers. We also had correspondence across government, including 10,000 e-mails and letters to the Treasury alone. I know that many other Departments received similar correspondence. Finally, Ministers have been out and about across the country, and have had meetings in their Ministries with a range of stakeholders to make sure that we make the right decisions.

Is there still time for new members of the shadow Cabinet to contribute to the spending challenge, given that they should have £44 billion of ideas to hand?

No, it is not too late for members of the shadow Cabinet to get involved with this process. They had an opportunity last night, as you remember Mr Speaker, on the Finance (No. 2) Bill, but they failed to take it. I think that that may be because they do not have the capacity or the courage to come up with their own suggestions.

Can the Minister confirm well-sourced reports that she has received Treasury advice to delay some of next year’s proposed spending cuts? How, if that is true, does it square with the harsh cuts rhetoric that we have heard from Treasury Ministers since the election? Will she take this opportunity to confirm that it is her decision, and that of the Front Benchers, to stick with the £23 billion of cuts that we know they are planning for next year?

We are clear about what we need to do to sort out the last Labour Government’s terrible legacy—a Government, incidentally, who left unemployment higher than when they took office. We will stick to our economic plan, which, as we have heard, the IMF and the OECD think is the right one, and it is the plan that stands alone, because the Labour party simply has no alternative.

Among her responses to the spending challenge, will the Minister bring into line the Local Government (Early Termination of Employment) (Discretionary Compensation) Regulations 2006, which have enabled four former Wiltshire council bosses to share remuneration of almost £2 million in their final 12 months in office?

We are looking at a range of ways we can ensure that we get the most value from every pound of taxpayers’ money, and we will stop at nothing to make sure that we get there in the end. We are going through a difficult process with many difficult decisions, but we aim to ensure that all of them are tough, but still fair.

Does the Minister agree with her very good friend Sir Philip Green that one of the ways of spending money effectively would be for the Government to delay their payments to small business?

Sir Philip Green is one of those people I was talking about in my first answer: somebody who has got involved trying to come up with constructive suggestions on how we can tackle the fiscal deficit left by the hon. Gentleman’s party. The bottom line is that we want to ensure that we support business. His party was against the package of corporation tax reductions that we brought forward in the Budget, which will support companies across this country. We also got rid of his party’s job tax.

Whips Offices

10. What recent discussions he has had with the Minister for the Cabinet Office on the cost to the public purse of the Government Whips Office and the Opposition Whips Office. (16489)

I have had discussions with my right hon. Friend on the overall Budget for the Cabinet Office as part of the spending review. As my hon. Friends might expect, I am keen to ensure maximum value for money from the Government Whips Office. When it comes to the Opposition Whips Office, that is an area of public spending where I am prepared to tolerate inefficiency and poor leadership.

My right hon. Friend will be aware that during this Parliament, the additional salaries paid to Whips will be more than £6 million. As we now have a Backbench Business Committee and will soon have a House Committee, would that not be an area for cutting? After all, we are all in it together.

Unfortunately, the Parliamentary Secretary to the Treasury, the Government Chief Whip, is not here to listen to that question, but as Ministers in the Government Whips have already taken a 5% pay cut and had their salaries frozen during the Parliament, so they have already shown some restraint. If my hon. Friend wants to catch the ear of the Chief Whip in the Aye Lobby tonight, he can do so.

Has the Government Whips Office had cause to contact the Secretary of State for Energy and Climate Change, following his comments last week? Has having the Liberal Democrats as part of the Government increased the costs of the Government Whips Office?

The presence of the Liberal Democrats in the coalition means that two parties are working together to sort out a problem that one party created.

Tax System

The Government are committed to simplifying the tax system. To help to achieve that, the Government have established the independent Office of Tax Simplification. Business and tax professionals have also consistently pointed to the way in which tax policy is developed, legislated and implemented as a contributing factor to overall complexity. We published a discussion document alongside the June Budget setting out proposals for a new approach to tax policy making.

Will the Minister advise on the progress of the interim reports for the Office of Tax Simplification, specifically on IR35 and tax reliefs?

The OTS is looking at two areas. One is reliefs and exemptions, and although the timing of the publication is to be finalised and that is a matter for the OTS, there will be an interim report, I believe in November, on this area. With regard to the reform of small businesses, including IR35, the OTS intends to report in time for the Chancellor to take into account its views in preparation for the Budget.

Tax System

The Government believe that the tax system should give more support to those on low to middle incomes and reward the efforts of those who choose to work. At the June Budget, we announced a £1,000 increase in the personal allowance for 2011-12, which will remove 880,000 of the lowest-income taxpayers from tax altogether. Our longer-term goal is to raise the allowance to £10,000, with real-terms steps in that direction every year.

I am grateful for that answer. May I ask my hon. Friend what the coalition Government can do for my constituent Kath Hemmings and many like her? Kath is a single mum who has raised her daughter Victoria with no support and has at the same time worked hard and built her career. She is on the higher rate of tax by just a few pounds. Many children in Victoria’s class have two parents who earn under the top rate and have kept their benefit. What can we do to make things fairer for Kath, Victoria and many like them?

I understand the concern that my hon. Friend raises. The situation that we face is that there will be difficult decisions to get the deficit down—a point that Government Members appreciate. The difficulty is that looking at the issue on a household basis would mean creating a complex and large bureaucracy. We have come up with a proposal that will ensure that the poorest households are protected and will continue to receive child benefit.

I welcome the Chief Secretary to the Treasury’s weekend announcement about a rural fuel derogation, which will make the tax system infinitely fairer in the islands and is a victory for common sense. I first raised the issue a few years ago. Does the hon. Gentleman feel that time was wasted by the previous Labour Government, who sat on their hands and did nothing for the islands?

When will the fuel derogation come into being? Will the Minister acknowledge that, despite that welcome step, we in the islands will still be paying more tax per litre than those on the mainland?

Was time wasted by the previous Government? Yes. What will the timing be? Negotiations need to be had with Europe, and there will be further announcements in due course.

VAT (Small Businesses)

13. What recent representations he has received on the time taken by Her Majesty’s Revenue and Customs to provide VAT numbers to new small businesses. (16492)

Treasury Ministers receive representations on a range of subjects from organisations and individuals about aspects of service delivery.

I thank the Minister. A number of businesses in Brighton have waited a very long time to receive their VAT numbers. Does the Minister agree that the prevention of fraud is as important as providing a prompt service?

My hon. Friend is right. There is a need to balance the desire for a quick service with ensuring that we do not allow fraudulent registrations. Between April and September this year, 57.4% of applications were processed within the target 10 calendar days. There was an improvement in the rate during August and September, when 71.4% and 79.7% of applications were processed within the 10 days.

Economic Growth

14. What assessment he has made of the effect on GDP of proposals to increase the level of economic growth in the June 2010 Budget. (16493)

A key part of the emergency Budget was to make sure that we rebalanced our economy on to a more sustainable, private-led footing with economic growth taking place. As I said, we introduced a range of measures to support business, but we did not stop at that; we now have a second Finance Bill that brings forward further measures. The Office for Budget Responsibility’s analysis following the emergency Budget showed that it is forecasting a sustained recovery in economic output, with employment growing year on year and unemployment falling year on year.

What would have happened in smaller, mixed-economy areas such as my constituency of Redditch if the Government had refused to take the challenge as they have and face up to the difficult decisions?

Such areas would have faced a jobs tax with higher national insurance, higher corporation tax rates, lower economic confidence and, quite possibly, higher interest rates.

Child Benefit

15. What representations he has received on the new arrangements for child benefit which will apply to one and two-parent families. (16494)

The Chancellor has received a number of representations on the planned changes to child benefit. It is not the Government’s practice to provide details of all such representations.

Does the Minister agree with my constituent Christopher Sumpton, who points out that it is grossly unfair for a single mother earning £44,000 a year and supporting three children to lose her child benefit, given that the next-door neighbours earning £80,000 will not? Will Treasury Benchers explain why the Government are attacking women in this savage way?

As I said earlier, we do not currently have the capability to examine the situation on a household basis, but we do need to make difficult decisions. If the Opposition want to oppose each and every cut, including in the child benefit that is given to some of the wealthiest in society, they can take that position, but we are prepared to take those tough decisions.

Does my hon. Friend think that the Opposition believe it would be fairer to tax the lower-paid and give the tax revenue to the higher-paid?

That appears to be their solution given that, as I understand it, they still advocate the increase in the national insurance contributions that we are going to counter by raising thresholds. If the Opposition wish to take that position, so be it.

I am afraid that the answers that the Minister is giving are simply not good enough. Can he explain the logic behind the child benefit proposal, if there is any? Why is the assessment not being made on household income rather than just on the highest earner’s income? Will it apply to a cohabiting high earner or just to married couples, and why will there be a phenomenally high marginal deduction rate? Is it not true that this is just another “back of a fag packet” policy that the Government have not thought through at all?

I congratulate the hon. Lady on her appointment to her shadow ministerial position, but I point out what her former colleague Alan Milburn has said:

“In times of plenty, giving child benefit to high earners is a luxury the country can afford; in times of want I don’t think it is. We would be wrong to oppose it. I can’t see it having an adverse impact on social mobility.”

I know Alan Milburn belongs to the centre ground, but the Opposition really should not abandon it.

Tax Take (East Midlands)

16. What recent estimate he has made of the proportion of the central Government tax take from residents of the east midlands which is spent on that region. (16495)

We cannot accurately disaggregate tax revenue by individual regions, but we publish regionally disaggregated public spending tables each year. Total identifiable expenditure in the east midlands was £35.4 billion in 2009-10.

I thank the Minister for that answer, but as he is well aware, Leicestershire is historically one of the lowest-funded parts of the UK for education, the police and the fire services. Can he assure me that that historically low funding settlement will be taken into account in the comprehensive spending review?

The hon. Gentleman will have to wait until the statement on 20 October to hear the details of our spending decisions, but as I have made clear in answer to earlier questions, of course we consider it important to understand and manage the regional impact of spending cuts. We have established a regional growth fund, the details of which will be in the spending review statement, which will enable areas such as his to win support for projects that help economic growth in difficult times.

Economic Growth

17. What assessment he has made of the effect on GDP of proposals to increase the level of economic growth in the June 2010 Budget. (16496)

As we discussed earlier, the emergency Budget supported businesses in a variety of ways. We know that we have to rebalance our economy by getting an unwieldy public sector back into a sustainable, private sector-led economy that generates the tax revenues needed to fund our public services sustainably. We will never go back to the profligacy of the Labour party.

Businesses in West Worcestershire welcome the cuts in corporation tax that were announced in the June 2010 Budget. Does the Minister agree that the most basic economics primer would say that, if they are possible, lower tax rates for business can lead to higher tax revenues from business?

My hon. Friend is right, and I know that she had wide experience in business before entering the House. Opposition Front Benchers really ought to listen to the CBI, the Institute of Directors, the Federation of Small Businesses, the British Chambers of Commerce and a range of other representatives from across industry who welcome the measures that the Government have brought forward to support business. As long as the Opposition put their head in the sand they will remain what they are right now, which is incredible.

Tax Collection

18. How much tax revenue each enforcement and compliance officer in Her Majesty’s Revenue and Customs collected on average in the last financial year. (16497)

HMRC’s enforcement and compliance officers engage in a wide range of activities, from dealing with relatively low-value errors made by small businesses and individuals to addressing significant risks among the largest corporate bodies, as well as countering criminal attacks on the tax and duty system. For that reason, HMRC does not collect statistics on the average revenue collected by an enforcement or compliance officer. Results of HMRC’s compliance activity were published in its 2009 autumn performance report.

Given that we have already lost more than 9,000 enforcement and compliance officers, and I am told that each officer raises more than £600,000 after their salary, does the Exchequer Secretary not think that he should get those statistics and start recruiting people rather than sacking them?

As I said earlier, my right hon. Friend the Chief Secretary made an announcement a couple of weeks or so ago of about £900 million-worth of investment in HMRC over the spending review period. It is important to tackle compliance, and the Government, perhaps more than our predecessors, will be determined to do that.

Economic Growth

19. What assessment he has made of the effect on GDP of proposals to increase the level of economic growth in the June 2010 Budget. (16498)

The Government are continuing to do whatever they can to support business. As I said in answer to previous questions, Richard Lambert from the Confederation of British Industry described our emergency Budget as a

“first important step on the long journey back to economic health.”

It is a step that the Labour party unfortunately does not want to take with us.

How do we ensure that everyone benefits from economic growth, particularly pensioners? With interest rates so low, many pensioners in Beckenham are rapidly eating into their life savings.

My hon. Friend raises an important point. Although the emergency Budget was very much about supporting business and creating again the conditions for employment, he is right to mention pensions. That is why another key part of it, which perhaps got less attention than it otherwise would, was our managing to re-establish the earnings link with the state pension. The Labour party failed to do that in 13 years—it promised but, as ever, failed to deliver.

Topical Questions

The core purpose of the Treasury is to ensure economic stability, promote growth and employment, reform the banking system and restore some sanity to the public finances.

What message does my right hon. Friend think the national insurance holiday and the abolition of Labour’s jobs tax sends to those thinking of setting up their own firm in God’s own county?

It will be my great good fortune to visit Yorkshire later this week to hand out the Yorkshire Post awards in Leeds. My hon. Friend makes a good point. We have introduced a regional tax cut for the first time in British history, which means that businesses that are set up outside the south-east of England will benefit from a national insurance holiday on the first few employees that they bring on board. We have also got rid of Labour’s job-destroying jobs tax, which, as we now read in the memoirs of various senior members of the Labour Government, they tried to dissuade the previous Prime Minister from introducing.

T3. As confirmed by the OBR and Treasury officials to the Treasury Committee, the Budget is predicated on having in this Parliament an extra 700,000 EU migrants net living in this country. Where will they live and work? How will they be spread across the United Kingdom? (16507)

The Office for Budget Responsibility is using the statistics from the Office for National Statistics. Of course, one of the decisions that the previous Government made was to allow countries to join the European Union without any transitional controls whatsoever on their citizens’ movement to the United Kingdom. We are living with the consequence of that decision.

T2. Many small businesses in Staffordshire Moorlands tell me that they have enough to deal with without the intricacies and complications of the tax system. Will the Minister provide more information to the House about how the work of the Office of Tax Simplification will help those small businesses? (16506)

My hon. Friend is right to raise the concerns of business. We have a complicated tax system and the longest tax code in the world. The Office of Tax Simplification will make a very useful contribution to assisting the Government to identify unnecessary complexity and finding areas of reform.

T4. Many pensioners in my constituency are concerned about the indexation of pensions changing from the retail prices index to the consumer prices index. A pensioner who currently receives a pension of £10,000 will be more than £800 worse off by 2016. Does the Minister think that it is fair for pensioners to be hit in that way? (16508)

The Government have introduced a triple lock on the basic state pension, which means that it rises by earnings, or by CPI or RPI—whichever is higher. The previous Government had 13 years to do that, and they did not.

T5. In my constituency, more than 7,000 jobs are directly linked to east midlands airport. I believe that it has been shown that there would be no environmental or fiscal gain from the introduction of a per plane tax, as flights would simply divert to other European hubs. Is the Economic Secretary willing to reconsider any plans for a per plane tax, and will she meet me as a matter of urgency to discuss that? (16509)

I will be very happy to meet my hon. Friend. The coalition agreement mentions the desire to reform air passenger duty and move towards a per plane duty. In the intervening period, I have had a range of meetings, including with airport owners, and I would be happy to add him to my list of people with whom I have discussed that policy.

T8. The Chancellor was a millionaire the day he was born, so he has not got a clue what it is like to try to raise a family on £40,000 a year—[Interruption.] Do you mind? He cannot hear me. People who earn that much are not the super-rich; they are hard-working people who are getting by and getting on. The cuts to child benefit will take about 10% of the income of some of them. By what definition of fairness does he think robbing 10% from hard-working people is a fair deal for such families? (16512)

I will make one observation if the hon. Gentleman wants to lay into my background: I went to the same school as the deputy leader of the Labour party.

On child benefit, we have had to take some difficult decisions. It is quite extraordinary that the Labour party finds itself opposing our decision. Yes, it was a tough decision, but it was fair in the context of the decisions that we must take. The fact that Alan Milburn today warned Labour Members not to oppose the measure—[Interruption.] Of course, the sensible part of the Labour party is no longer on the Front Bench. The fact that Alan Milburn, whom Labour appointed as its social mobility tsar, is warning them is something to which Labour Members should pay attention.

T6. Although my constituents accept the need to tackle Labour’s legacy, many of them have large families and are concerned about the changes in child benefit. Will the Minister consider transitional arrangements to help families to adjust? (16510)

We do have to take tough decisions. The full implementation proposals will be announced next week, but this is one of those occasions when we must make tough decisions, because we must face up to the enormous deficit. The Government are prepared to deal with it.

T9. Will the Chief Secretary to the Treasury welcome the backing given by Olympic champion Jessica Ennis to the U-mix centre, which is a sports and leisure facility in Sheffield designed by Urban Mixtures, an inspiring group of young people who represent the real big society at work? Funding has been allocated for the project under the myplace programme, but has been frozen pending the comprehensive spending review. Will he share my hope that that funding will be unfrozen and allocated shortly? (16513)

I am grateful to the hon. Gentleman for raising that point, and as usual he puts the case for his constituency very eloquently. Decisions on spending matters, including spending that was frozen under the project re-approvals process, will be announced on or after the date of the spending review.

T7. In the Budget statement, the Chancellor of the Exchequer mentioned the need to rebalance the economy towards export-led growth, which is particularly important for constituencies such as mine in the north-west. Will he update the House on the Government’s progress in that respect? (16511)

I have seen at BAe Warton in my hon. Friend’s constituency a very good example of high-skilled manufacturing. Everything the Government do is designed to support a private sector recovery and to rebalance our economy, so that not all the growth that takes place does so in only one corner of the country.

After the row at the International Monetary Fund summit at the weekend, has the Chancellor concluded that the renminbi is undervalued, or that the US is under-focused on consumption-led domestic growth?

I have concluded that it is very sensible for the serving Chancellor of the Exchequer of the day not to comment on the value of currencies.

T10. When the Chancellor and the Chief Secretary consider how to address the huge budget deficit they inherited from Labour, will they not lose sight of the importance of investing in affordable housing, specifically to ensure that homes meet the decent homes standard? (16514)

My hon. Friend makes a very important point. We will make decisions on spending and announce them on 20 October in the spending review statement. The point he makes is important, and I very much take it to heart.

During a visit by the Deputy Prime Minister to Northern Ireland last week, he stated, “I will go away with colleagues in the coalition Government to look at the possible impact of the deficit reduction plan on capital expenditure in Northern Ireland.” Can the Chancellor confirm that that has been done and what steps will be taken in response?

As the hon. Gentleman may know, I have met the First Minister and Deputy First Minister of Northern Ireland and I am looking at the points that they raised with me. If he will forgive me, I will make an announcement on 20 October.

Does the Minister think that we will stand a greater chance of having fairer taxation now that Finance Bills are published and properly consulted on, and will that stop appallingly unfair policies such as the abolition of the 10p tax rate ever being introduced again?

We set out in June our plans for making tax policy and ensuring greater consultation, so that there is a clearer process when we develop policies. That has been widely welcomed by business and the tax professions, and we hope to build on the progress that we have made so far.

With all this talk of fairness, why is it that no one has mentioned VAT? A 14.5% increase in real terms in the VAT rate has been attacked by what I thought were Conservative-voting business people and families in my constituency, and will punish those at the lower end of the income spectrum. Why is such a high rate of VAT being pursued by this Government?

We are having to take decisions to close the highest budget deficit in the G20. I listened to what the previous Chancellor of the Exchequer said recently on “The Andrew Marr Show”. He was asked:

“we now read from Peter Mandelson’s book that you were quite keen on the idea of VAT going up”.

Alistair Darling replied:

“Well yeah, obviously…It would have allowed you to have done you know a lot more to take down the deficit…and would have…ameliorated some of the worst effects of reductions”.

For once, the previous Chancellor of the Exchequer had the right idea—[Interruption.] That is because he was overruled by the then Prime Minister.

May I bring to the Minister’s attention the case of my constituent, Mr Peter Gorse? Mr Gorse ran a healthy small business until the Royal Bank of Scotland forced him into bankruptcy so that it could repossess his assets. Will the Minister agree to meet me and my constituent so that his case can be heard fairly by that taxpayer-owned bank and to ensure that cases such as his are fairly considered as we reform the banking system?

The responsibility for operational matters at RBS rests with its board. The Treasury’s engagement with RBS is through United Kingdom Financial Investments Ltd, which acts as a shareholder. My hon. Friend will be aware that in July we published a Green Paper setting out some approaches to improving the access that small and other businesses have to finance, and we will make further announcements on that shortly.

What representations have Treasury Ministers had from advice organisations such as citizens advice bureaux which fear that their budgets from local government will be cut at a time when they will be advising the most vulnerable people on their finances and welfare benefits? Will the Treasury team join me in paying tribute to the citizens advice bureaux for the work that they do, and commit to giving them extra funding for that purpose?

I join the hon. Gentleman in paying tribute to the work of the citizens advice bureaux. In constituencies across the country they play an invaluable role in advising people and helping them through difficult times. We will make spending announcements on 20 October, but I have had conversations with the citizens advice bureaux about some of the issues affecting them. Those issues will also affect other organisations in the community and voluntary sector, and the Government take that very seriously.

Does the Chancellor share my view that an economic policy that does not engage with cutting the deficit at all, and which has £30 billion of additional spending requirements, is no economic policy?

I agree with my hon. Friend. As we are just a couple of minutes from the statement on higher education, it would be interesting to hear from the Opposition about whether they really will pursue this graduate tax, which the shadow Chancellor has passionately opposed, including in the open letter he wrote to his party leader just a couple of weeks ago.

The Government failed to conduct an equality impact assessment on the June 2010 Budget. Can the Chief Secretary reassure me that they will not make the same mistake again, and will the Government ensure that they assess the—probably disproportionate—impact on women of the comprehensive spending review?

The answer is yes. Departments will be carrying out these assessments on their spending decisions, and I myself held a round-table meeting in the Treasury with a number of different organisations involved in the equalities area to ensure that we were considering all the relevant issues in the run-up to publishing the spending review.

Order. There is quite a lot of chuntering from sedentary positions, but I want to hear both the questions and the answers.

Since the formation of a Government who are determined to deal with the deficit, market interest rates have in some cases halved. What impact does the Chancellor think that has had on both our GDP growth and the interest payments that we have to make on Government debt?

First, the fall has helped to reduce interest payments, and secondly it has helped many companies during the recovery. It is striking how our market interest rates have fallen since taking the steps that we announced in the Budget. That is not the case in some other countries in Europe that had similar market interest rates to ours at the time of the general election.

Does the Chancellor agree that market interest rates were falling before the election? The fall is not due to the Government’s policies—they were falling before.

I advise the hon. Lady to look at the market interest rates of Spain and the United Kingdom, which were the same at the time of the general election. In Spain, they have hardly fallen at all, but they are 1% lower in the United Kingdom. That is a real boost to businesses.

Is the Chancellor aware that the Treasury is the only large Department that does not have a chief scientific adviser? Does that say anything about its interest in and understanding of science, and will he appoint a chief scientific adviser?

I assure my hon. Friend that I have received plenty of advice—public and private—from the nation’s scientists.

Higher Education and Student Finance

Order. There is a great deal of interest in the Secretary of State’s statement, and I appeal to Members leaving the Chamber to do so quickly and quietly, because I want to hear the Secretary of State—[Interruption.] I am always grateful to you, Mr Pound, for your attempted assistance.

With permission, Mr Speaker, I would like to make a statement on the future funding of higher education and student finance, in the light of the report published today by Lord Browne’s independent inquiry.

Lord Browne was asked to undertake his review in November last year. The review was set up by the Labour Government on a cross-party basis, and that is how we wish to proceed. I and the Minister for Universities and Science, the right hon. Member for Havant (Mr Willetts), thank Lord Browne and his review panel. The Government endorse the main thrust of the report, but we are open to suggestions from inside and outside the House over the next few weeks before making specific recommendations to Parliament, with a view to implementing the changes for students entering higher education in autumn 2012. More detail will be contained in next week’s spending review on the funding implications, but as a strategic direction the Government believe that the report is on the right lines.

Browne acknowledges that

“the current funding and finance systems for higher education are unsustainable and need urgent reform”.

The issue is how, and it has to be framed in terms of how the higher education sector contributes to the deficit reduction programme. There is also, I think, consensus that there should be no up-front tuition fees for students, which would seriously deter students from low and middle-income families, and this Government strongly oppose up-front tuition fees. Indeed, we share Lord Browne’s conclusion that we should extend exemption from up-front tuition fees to part-time students—currently 40% of the student population—who have been unfairly discriminated against hitherto.

The question, then, is how much the graduate contributions for tuition should be. We are considering a level of £7,000. Many universities and colleges may well decide to charge less, because there is clearly scope for greater efficiency and innovation in how universities operate—two-year ordinary degrees are one approach. Exceptionally, Lord Browne suggests that there should be circumstances under which universities can price their courses above this point, but he suggests that this would be conditional on demonstrating that funds would be invested in securing a good social mix with fair access for students from less-privileged backgrounds, and in raising the quality of teaching and learning. We will consider this proposal carefully.

We believe it essential that if the graduate contribution is to rise, it should be linked to graduates’ ability to pay. On average, graduates earn comfortably more than £100,000 over their lifetimes compared with non-graduates, but not all graduates benefit in this way. Some choose socially useful but modestly paid or unpaid work, which may include time spent bringing up a family. At present, the graduate contribution acts too much like a poll tax, and is not fair.

I therefore asked Lord Browne specifically to look at progressive solutions to the problem, and he has come up with persuasive proposals to deal with it. He suggests a £21,000 graduate income threshold before any payment is made—as against £15,000 at present—and that it be linked to average earnings. He also suggests that a real rate of interest should be paid, but only over that threshold. The effect is striking: 30% of graduates would pay less from their lifetime earnings than they do under the existing system. The top third of graduate earners would pay more than twice as much as the lowest third. That is fair and progressive. The Government broadly endorse that approach, and we will examine the details of implementation. The principle of needs-blind admission to universities must remain central.

The cost of university education to individuals and the state reflects living costs as well as tuition costs. The Browne report makes some constructive suggestions. We will make detailed proposals that will not only make it attractive for students from families of modest means to go to university, but be fair and affordable, including by exempting the poorest students from graduate contributions for some or all of their studies.

Lord Browne considers alternatives, including a graduate tax, which I believe the new leader of the Labour party favours. [Interruption.] I have consistently argued for a progressive contribution, which we are now delivering. Some key features of a progressive graduate contribution would incorporate the best features of a graduate tax. It would be collected through the pay packet at a rate of 9p in the pound above the £21,000 threshold and, combined with a real interest rate, as Browne recommends, it would be progressive and related to ability to pay. However, Browne identifies serious problems with what he calls a “pure” graduate tax. He concludes that the proposal is simply unworkable.

If there are any lingering doubts among those on the Opposition Benches, I strongly recommend that they read the open letter from the new shadow Chancellor to the new Labour leader three weeks ago, which reads:

“Oh, and for goodness’ sake, don’t pursue a graduate tax. We should be proud of our brave and correct decision to introduce tuition fees. Students don’t pay them, graduates do, when they’re earning more than £15,000 a year, at very low rates, stopped from their pay just like”—[Interruption.]

Order. I apologise for interrupting the Secretary of State, but I want to hear every word of his statement, and every Member should want to do the same.

I do believe, moreover, that we need to look beyond the graduate population. Some 55% of young people do not go to university. We must not perpetuate the idea, encouraged by the pursuit of a misguided 50% participation target, that the only valued option for an 18-year-old is a three-year academic course at university. Vocational training, including apprenticeships, can be just as valuable as a degree, if not more so.

Finally, there is a challenge to us all to promote a long-term sustainable future for higher education. This has been a difficult issue for all parties in the House. Those on the Opposition Benches have ranged between early advocates of a graduate contribution, such as the right hon. Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) and the new shadow Chancellor, through to those implacably opposed to change and to the current Labour leadership, who have apparently embraced a graduate tax. The Conservatives initially campaigned against graduate contributions, but reversed their position. My own party consistently opposed graduate contributions, but in the current economic climate we accept that the policy is simply no longer feasible. That is why I intend, on behalf of the coalition, to put specific proposals to the House to implement radical and progressive reforms of higher education along the lines of the Browne report.

May I thank the Business Secretary for his statement and for giving me advance notice of it? Is it not the truth that the coalition has decided to put the responsibility for reducing the deficit on to the personal bank accounts of this country’s most ambitious and able young people, saddling them with debts that many will never pay off, when the Government should be opening doors for them to make the most of their ability?

Labour Members believe that higher education is important not just for individual graduates but for growth, prosperity, job creation and our ability to succeed in a competitive world. That is why, a few years ago, we took the tough decision to introduce fees, and it is why we invited Lord Browne to undertake his inquiry. We should thank him for his work. I welcome the raising of the threshold, the equitable treatment of part-time students and the emphasis on better guidance in schools and improved information on quality. Those were issues on which we asked Lord Browne to advise, to build on work that we had already begun. The £350 increase in the maintenance grant will of course be offset by the abolition of the £329 bursary for poorest students. In the spirit of cross-party co-operation, will the Business Secretary promise today to make available to the House and the wider public the economic models used by Lord Browne?

It is clear that Lord Browne’s report has been crucially shaped by the assumptions that he has had to make about coalition policy. Will the Secretary of State confirm that Lord Browne’s report assumes that the teaching grant for higher education will be cut by 80%? That would effectively end the public funding of most courses, and place the responsibility for paying for higher education on to students alone. Will he also confirm that some universities could lose more than 90% of their public funding? Is not the row within the coalition conveniently obscuring the biggest cuts to a publicly funded university system that we have ever seen? Tough decisions have to be made to cut the deficit, but even in its plans for reckless, deep and rapid cuts the coalition is planning cuts of only 25%, so why is it singling out higher education for such a massive and disproportionate cut? Our competitors around the world are investing in higher education because universities are a key driver of growth and new jobs. Why is the coalition turning its back on growth?

The Business Secretary says that some universities might charge less than £7,000. Does he accept that an average fee of £6,000 would cut university funding by £300 million? He says that he is considering a £7,000 basic fee. On 28 April this year, the leader of the Liberal Democrats—now the Deputy Prime Minister—said:

“If fees rise to £7,000 a year…within five years some students will be leaving university up to £44,000 in debt. That would be a disaster. If we have learnt one thing from the economic crisis, it is that you can’t build a future on debt.”

So what exactly is the difference—[Interruption.] That was the Deputy Prime Minister’s conclusion. What exactly is the difference between the £7,000 a year fees that he believed would be a disaster and the £7,000 a year fees that his Business Secretary now proposes? Promises were made by the Business Secretary and the Deputy Prime Minister at the last election that should not be lightly thrown away. The trust of politicians is a matter not just for the Liberal Democrats but of the integrity of this House as a whole.

Is it not true that Lord Browne’s report makes proposals that would leave many graduates paying off their debts when their own children start university? Is it not true that, while the average graduate today pays off their loan in 11 years, under these proposals the majority of students would not throw off the burden of debt for 30 years? Is it not true that the middle-income graduates—the teachers, police officers, engineers and middle managers, who are often the same people losing their child benefit—will pay more than their fair share? They will pay longer and pay more interest than the higher earners, who can pay off their loans more quickly. Is it not true that women will be in debt longer than men and pay more interest on their loans?

Will the Business Secretary be more explicit? Does he support the ending of the fee cap? A student taking a course costing £12,000 per annum will leave with a total debt, including maintenance, of £47,250, compared with the £32,000 debt that the Business Secretary says is the basic one. Can we not all recognise that, in the real world, too many able students will turn their backs on the university and the course best suited to them and be forced to shop around for the cheapest option? Will the Secretary of State accept that the Browne proposals on access to the most selective universities lack any teeth or any strength?

The Secretary of State once advocated a graduate tax because he believed that it could produce a manifestly fair and progressive system, with those who can most afford it making the greater contribution. Now, he has been told that he does not support a graduate tax. Given the promises he and his colleagues made at the election, does he not agree that we all have the right to demand that any proposals meet the same tests of fairness that he used to support?

May I welcome the right hon. Gentleman to his new post? He was a much respected Minister in the previous Parliament and was regarded as a man of considerable integrity, mainly because of his resigning from the Blair Government over the Iraq war. Whatever our differences, he will be respected for that decision.

I should be interested to find any quotation marks indicating that I have ever advocated a pure graduate tax. In the South Bank university speech, I advocated a progressive graduate contribution. That is what this statement is all about.

The thrust of the right hon. Gentleman’s comments related to deficit reduction—a problem on an enormous scale that we inherited from him and his colleagues. May I remind him that according to the analysis conducted by the Institute for Fiscal Studies, my Department—the one that he shadows—was, under a Labour Government, confronting cuts of 20% to 25%. About 70% of that budget is for higher education. He and his colleagues have already said that they do not accept the cuts in regional development agencies and they do not accept cuts in science. They were therefore planning to make massive cuts in the university teaching budget. It is just sheer hypocrisy to stand up here and tell us—[Interruption.]

Order. I apologise for interrupting the Secretary of State. I know that feelings are running high on this subject—[Interruption.] Order. The more noise there is, however, the slower progress will be. Very large numbers of Members wish to participate. I want to help the House, but the House has to be prepared to help itself.

I repeat that Labour Members, who landed the country in this enormous deficit problem, have to begin to spell out what it is that they would cut. It would include universities; let us be under absolutely no doubt about that.

The right hon. Gentleman had the extraordinary nerve to talk about building a future on debt. I and many Members will recall my warning the former Prime Minister five, six or seven years ago about the dangerous escalation of private debt in this country, which has led to British households having more debt in relation to their income than those in any other country in the world. This is what we inherited. He and his colleagues introduced a system of tuition fee funding that is built on debt. They introduced a system of repayment over 25 years; we are extending that, potentially, to 30 years. What is the fundamental objection in terms of personal debt? The right hon. Gentleman has given no convincing explanation of what alternative he is recommending.

I think we need to get to the bottom of this. The right hon. Gentleman did get around to talking abut the graduate tax. Is that now the policy of the Labour Opposition, or is it not? We know that the shadow Chancellor is opposed to it, and that his leader is in favour of it. The right hon. Gentleman is sitting uncomfortably in the middle. What is his position?

The right hon. Gentleman says that the policy recommended by the Browne report, which we have endorsed in outline, is hard on middle earners. Let us confront that proposition. We inherited a system that effectively amounted to a poll tax. That was the way in which the student tuition fee system operated. We required Browne to produce proposals for a progressive formulation. Such a progressive contribution would not have come about if this Government had not intervened and asked Browne to produce proposals. That is the commitment that we have made to middle earners, many of whom will not have to pay the full rate of tax.

Let me read the right hon. Gentleman a comment made by the independent Institute for Fiscal Studies. Opposition Members frequently quote its views, as they did in the aftermath of the Budget earlier this year. The IFS said that

“those in the bottom 30% of lifetime earnings would actually pay back less than under the current system”—

that is, the system that the right hon. Gentleman operated. Only the highest-earning 30% of graduates would pay back the full amount of their loans. That is the progressive system with which we are identified, and with which the previous Government had no intention of proceeding.

Finally, let me confront the pledge, the promise, that my colleagues and I—[Interruption.] Yes, I am confronting that issue: the issue of the pledge that my colleagues and I undertook to implement. In the current circumstances, we cannot implement it. I fully accept—[Interruption.]

Order. The Secretary of State must be heard. Members have challenged him. He is dealing with the point according to his own lights, and the House must hear him.

As I was saying, I fully accept that, but let me explain. I believe that Members in all parts of the House will share this experience. Like many of them, I was the first person in my family to stay at school beyond the age of 15. I went to university free of charge, with no fees or maintenance costs to pay. They were paid for me by the state.

Like many Members, I wanted to ensure that my children’s and my grandchildren’s generations enjoyed that free system of university education. In an ideal world, that is what we would do, but we are not in an ideal world. We are in a world in which we have inherited a massive financial mess. We have come to terms with reality, and it is time that the right hon. Gentleman and his friends did the same.

Order. First, I remind right hon. and hon. Members that questions must be about the policy of the Government: what it is, or what it should be. Secondly, in view of the very large number of Members seeking to catch my eye, I underline the importance of each Member’s asking a single short supplementary question—and, of course, I remind the Secretary of State of the merits of pithy replies.

I welcome the Secretary of State’s statement and commend the Browne report, which is a really constructive piece of work.

We need world-class teaching in our universities and we need world-class research in our universities, so reform must come, and we accept what the Secretary of State has said. Does he agree that the quality of student experience of teaching, tutorials and careers advice needs to be improved, and that we also need more innovative part-time courses?

I very much agree; indeed, one of the incentives provided by this new system will be encouraging part-time courses, and therefore part-time learners, who have been discriminated against in the past. It will also bring pressure to bear on universities to improve their teaching performance, which is highly variable. In the university system, promotion tends to be earned through research rather than teaching quality. Universities will now have to attract students, so they will have to provide quality teaching throughout the system. That is one of the big advantages of the reforms we are undertaking.

The leader of the Liberal Democrats said on 28 April that increasing student fees to £7,000 would be “a disaster”. If it was a disaster on 28 April why is it not a disaster now?

I have already explained the necessity, for economic reasons, of pressing ahead with these reforms. They have great advantages in themselves, but they also help us to address the massive deficit left by the previous Government, in which the right hon. Gentleman served throughout.

It was a great hero, I believe, of the right hon. Gentleman who said:

“When the facts change, I change my mind.”

When the facts change, does not the new Leader of the Opposition bury his head in the sand?

I apologise to the hon. Gentleman for having to deal with this matter in this way, but questions must be about the policy of the Government and, unfortunately, that one was not.

Does the right hon. Gentleman accept that if higher fees to attend the best universities deter poor students from going to them, the most able students will not go to the best universities and Britain will be the poorer for it?

Yes, the hon. Gentleman is right. There is a real issue here, and it relates to the Browne review’s proposals for variable fees, which I made very clear we are still considering. Let me set out the argument. On the one hand we have world-class universities—four of the 10 leading universities in the world are in this country and we want to keep it that way—and they are making a very strong case for variable fees. On the other hand, however, if that were to be accepted large numbers of people from modest backgrounds would be deterred by highly priced courses at universities such as Oxford and Cambridge, and we see the psychological impact of that—it is very real. We need to weigh up those two factors. That is why, although I have come to the House with the firm proposal of our support for the £7,000 limit, we want to consider further how we might balance those two issues in relation to variability of fees.

In welcoming the broad thrust of this report, may I say to my right hon. Friend that his two priorities for such public money as is available should be the protection of excellence and of the position of less well-off people who want to do courses?

Indeed. Those two considerations are at the heart of the Browne report, and that is one of the reasons we have gone along with the thrust of its recommendations. There are proposals that we still have to make—and which, of course, will depend on the spending review—in relation to the maintenance package of grants and loans, which will, of course, affect the least-advantaged people in society. I cannot give details on that today, but that central point is clearly uppermost in our policy.

Conspicuously absent from the Secretary of State’s statement was any projection of the amount of increased funding for universities that would accrue from these measures. Are they designed to provide extra funding for the universities, which we need for an advanced industrial economy, or are they designed just to finance cuts in public expenditure?

I am not going to announce a week ahead of the spending review the details of what it will entail, which is why I could not answer the specific questions the right hon. Member for Southampton, Itchen (Mr Denham) asked about percentages. Of course, as a result of the very difficult cuts we are going to have to make, there will be a replacement of Government funding for teaching with graduate contributions. That is very clear, and it was at the heart of the Browne report as well as of Government policy, but the upshot will be that there will be adequate funding for universities as a whole so that they are in a position to maintain their current standards of excellence. As the hon. Gentleman implies, they are world class and we must keep them that way.

As my right hon. Friend listens to the responses to the Browne report and develops the Government’s final proposals in the weeks ahead, can he tell me how he will ensure that our Government do not do anything to discourage young people from estates such as the Tabard Gardens or the Four Squares in my constituency, and millions of others, from going to university because of the risk of having significant debt at the beginning of their working lives?

Yes, indeed. We certainly need to be very conscious of the position of people at the bottom end of the social scale, which is why I emphasise the importance of a social mix in universities, and of course of middle earners too; this is not simply a question of the most deprived communities. Two issues affect the people about whom my hon. Friend is concerned. The first is the poverty of their own families, which is why we need to have generous support, through grant and loan provision, for maintenance. The other is the psychological impact of people being deterred by extremely high fees, which potentially some universities would charge if they were allowed unlimited permission to do so. That is why we are hesitating before accepting that recommendation and are considering carefully the very strict conditionality that would have to be attached to any movement on that score.

Does the Secretary of State agree that our higher education sector is one of the most successful in the world and is probably our single most successful sector, and that that is so not because of the top four or top six universities, but because of the 100-plus universities that provide a fantastic service? We had this blood on the floor when we introduced top-up fees all those years ago, but after we did it we could see that the money we raised flowed into university salaries and into research. Will he guarantee me not only that this money will flow into our universities, but that he will not cut drastically the universities’ budgets in a week’s time?

I can certainly guarantee the hon. Gentleman that these sets of proposals will be welcomed by the university sector; if he reads the response of Universities UK, he will find that it welcomes them.

I welcome the report’s recommendations to extend support to more part-time students and to raise the threshold to £21,000, both of which would benefit students at the university of Worcester, which I represent. However, may I urge the Secretary of State to ensure, in implementing this report, that such universities, which have a strong record of securing long-term employment for their students after graduation, are encouraged to continue to focus on employability?

Yes, there is a major problem of employability, as unfortunately we have a growing pool of graduate unemployed. At the same time, there is a chronic shortage in some subjects, notably science, technology, engineering and maths—STEM subjects—which suggests that the existing system is not giving the right signals to universities. What we certainly want to see is much greater attention being given to universities’ demonstrating their record on employability, performance and teaching, so that students can make informed choices in future.

Will the Secretary of State acknowledge that although the Browne report’s proposals address higher education institutions in England, they will have implications for such institutions in Northern Ireland? They will certainly have implications, by way of variable fees, for students who would wish to come to courses here. Will he discuss those implications with relevant Ministers in the Northern Ireland Executive and in Scotland, or does he hope by default to impose the policy changes that he has just undertaken on the devolved Administrations?

Of course we respect the separate position of the different nations of the UK, and I am very happy to discuss it with the hon. Gentleman.

The hon. Gentleman asks about Scotland. I was there last week discussing this with university authorities, who told me that the existing model in Scotland is not sustainable and that they may well have to move to a model similar to that in England and Wales. So I think that in Scotland, as elsewhere in the UK, these realities will have to be faced.

May I welcome Lord Browne’s report, the Secretary of State’s statement, and his recognition that a graduate tax would be ruinous for this country? Could the right hon. Gentleman reassure the House that under his plans, no student will be penalised for early repayment of their loan?

It is certainly feasible under the existing system—and it will be in future—for people to pay their obligations early, but we need to be very clear that we cannot allow very affluent people to be able to buy their way out of their obligations under a fair graduate contribution system. Anybody who has tried to pay their mortgage back early will have discovered that there is something called a redemption fee to maintain the integrity of the system. We need to look at ways of ensuring that there is no mechanism that allows people to avoid making a fair contribution to universities.

Can the Secretary of State confirm that when we set up the Browne review, we asked Lord Browne to look at an employer contribution? The Secretary of State said nothing in his statement about the position of employers, despite the fact that they clearly benefit from higher education. Will he take this opportunity to correct that position?

We will certainly look at that suggestion, but I have not heard any detailed, practical proposals from the right hon. Gentleman or anyone else on the subject. A good many courses at university, particularly apprenticeships at university level—at skill level and full level—are funded by employers, and I am sure that we would want to see that extended.

I also thank Lord Browne for his report, and am thankful for the influence of the Secretary of State and Liberal Democrats in the coalition Government; it has made the report rather more progressive than the original commissioners might have envisaged when the remit was set. Much of the attention has been on collection arrangements once people graduate, but far more attention needs to be paid to young people much earlier in the graduate journey, when they are teenagers making their decisions in, say, the deprived parts of Sheffield or Bristol, or even in the south Wales valleys. Will my right hon. Friend undertake to ensure that much more attention is given to that stage, so that children from poorer backgrounds see that university is for them?

Yes, absolutely, and that message fits in with the broader direction of Government policy on education. The simple truth is that very large numbers of people are being failed by the school system at present. They have to find a second chance, for example in further education colleges. That direction of policy—particularly with the idea of the pupil premium, which will help people through the school system—is very much part of our thinking, and we intend to carry that philosophy into the university sector.

The Secretary of State emphasises the importance of STEM subjects. What with today’s report, the propositions that are starting to emerge in relation to the comprehensive spending review, and the impact of changes to overseas student rules, does he not see that he is leading us headlong towards massive cuts in STEM provision? Which departments does he want to see closed, and which does he want to keep open?

I certainly do not want to see that outcome; we want to see the exact opposite. We want more investment in STEM subjects. The hon. Gentleman will know that a level of, say, £7,000 would not cover the full costs of many STEM courses, and the Government will continue to support them through the teaching grant.

I was lucky enough to go from my outstanding comprehensive school to a world-leading university, and then took time out of the work force to raise my family—a decision that I have never regretted. Millions of women choose to do the same. Can the Secretary of State assure the House that there will be provision, when the proposal eventually comes to Bill stage, for women like me—and, indeed, men—who choose to take time out to raise their family and then return to the work force?

Yes, indeed, and that is a very important consideration. Of course we want women to have equality. The gender gap has got to be closed, and the issue of taking time out is an important part of that. Of course, during the period that women—or men, in certain circumstances—take out of the labour force to care for their families, the real interest rate would not accrue.

Like the Secretary of State, I was the first person in my family to go to university. The key thing is that I am not sure that I would have gone if I faced the debt that is likely if the general thrust of Lord Browne’s report is followed, as the Secretary of State said it would be. What reassurance can he give young people from backgrounds like mine that they will not be unfairly disadvantaged by the reluctance of his Government to invest properly in higher education?

The Government are going to invest in higher education. It will be properly funded as a result of this package. I make the point to the hon. Lady again—I made it in my statement—that the average university graduate earns cumulatively over a lifetime well over £100,000 more than someone who chooses not to go to university. That is a substantial graduate premium. We need to communicate to many people in disadvantaged communities that it is in their interests to pursue higher education. We will make sure through the careers service, a proper system of advice and the support that we give in maintenance that they have that opportunity.

Will it not be a sad day for academic meritocracy if and when able students from poor backgrounds are deterred from going to top universities because those universities are allowed to charge more than other universities in fees to students?

Yes, the hon. Gentleman is quite right, and for that reason he will recall my comments about the need to be careful about following through the request of the Russell group universities for unlimited fees. There are serious problems with that. Of course there are advantages in terms of world-class universities, but we need to be careful about going down that road, and we will reflect further on it.

I strongly oppose variable tuition fees and a market in higher education, and so did the Liberal Democrats. May I tell the Secretary of State today that the Lib Dem website still has a six-point timetable for scrapping tuition fees, and it is in a section entitled “What we stand for”. The coalition agreement already includes provision for Liberal Democrats to abstain on the issue and not opt out from what they stand for.

May I ask the Secretary of State this question? Today he has nailed his colours to the mast on variable tuition fees and a market in higher education, but what is it to be for other Liberal Democrat Ministers? Is it to be their manifesto and a principled orange line in the sand or betrayal of their voters and a miserable white flag of surrender?

When the Government’s economic policies have produced the successful outcome that we all expect, we can return to the question of how universities can be supported in a more generous way, but at the moment we face a massive financial crisis that we inherited from the Labour party and we therefore have to make choices that he and his colleagues ducked.

Young people in my constituency have some wonderful options on their doorstep. There is Huddersfield university and the expanding Kirklees college, and some local engineering companies are offering apprenticeships. With that in mind does the Secretary of State wish to revise the target of 50% of young people going to university, or is he sticking by it?

We do not believe in prescriptive targets. The 50% target was a serious mistake, not least because it sent the wrong signals to the further education sector that it was undervalued and that vocational qualifications did not have the same status as graduate degrees. We intend to change that approach fundamentally and look at post-16 and post-state education as a whole, giving vocational and academic education equal status.

Does the Secretary of State agree that implementing Lord Browne’s review will lead to the financial collapse of 30 wide participation universities such as Bolton in my constituency, which has a number of mature students attending it? Will he ensure that the interests of students such as those attending Bolton university and others are protected?

I think the hon. Lady’s central point is that it is possible that some universities will be in financial difficulty. They already are under the existing system, and we are having to consider how universities in that position will be dealt with. The analogy is with the banking system. If banks collapse, the depositors are protected—in other words, the students are protected so that they can complete their education—but the management of failed institutions has to change. We are currently working through a failure regime to deal with institutions that find themselves in difficulties. The number that the hon. Lady mentions is almost certainly implausibly high, but there will be some.

Will the Secretary of State consider carefully how we can prevent students from being deterred from undertaking longer courses such as medicine and pharmacy—very able students in particular may be put off those courses—perhaps by introducing a three-year cap on fees?

The answer to that question is similar to the one that I gave on the other STEM subjects. Medicine is a costly course, which is why continuing support is needed through the teaching grant from Government to keep graduate contributions at a moderate and reasonable level, and that is what we shall aim to do.

I was one of 33 Labour Members who voted against the introduction of fees in 1998. I took that view then, and I have not changed it at all—I do not believe that it is unaffordable or unsustainable. May I suggest to the Secretary of State that the Government seriously attack the tax gap, as less than 10% of the tax gap would pay for fees or, indeed, a quarter of the amount of tax breaks for the rich on their savings?

I think that the hon. Gentleman will have to apply his considerable powers of persuasion to his Front-Bench team, because they have not yet caught up with his ideological journey.

Will my right hon. Friend consider a reduced graduate contribution for those subjects where we have a real need and where there is a skills gap such as maths, science and engineering?

I thank the hon. Lady for her question but, again, I have answered that in different ways. We accept that one of the fundamental problems at the moment is the imbalance in the graduate population. There is a severe shortage of engineers in particular, but in STEM subjects in general. Unfortunately, there is a growing pool of graduate unemployment in other areas, so we must support the STEM subjects, and we will continue to do so through the teaching grant.

The Secretary of State mentioned the advent of real interest rates, but he does not seem to understand that their introduction means that a maths teacher on a middle-income salary will ramp up a bigger debt than, for example, an economist in a multinational company. Is he trying to tell us that in reality injustice is the new fairness?

I know that the hon. Lady is highly economically literate, going back over her history, but I think that on this particular issue, she has not read the report or perhaps not followed it closely enough.

The proposal for real interest rates applies only above the £21,000 threshold. Some numbers were published on the front page of The Guardian this morning that probably gave rise to the conclusion that the hon. Lady has drawn. Those figures are wrong, and the Institute for Fiscal Studies, which was quoted, has disowned them. It is clear from the analysis that the structure is progressive, but not in the way that she described.

For many mature students, the most cost-effective way to pursue a university degree is to do so as close as possible to their own home. Will my right hon. Friend encourage universities to collaborate much more closely with the further education sector to use FE campuses to help them deliver higher education degrees?

That is a helpful intervention, and I completely agree. We certainly wish to see the university sector evolve in that direction more flexibly, providing more genuine choice, including two-year degrees, and portable qualifications between universities. The model that the hon. Gentleman described is very much the model of the future. I used to teach in a Scottish university where that was the norm, and that is a form of good practice that we could adopt here.