Wednesday 19 October 2011
[Albert Owen in the Chair]
Arch Cru Compensation Scheme
Motion made, and Question proposed, That the sitting be now adjourned.—(Mr Dunne.)
It is a pleasure to serve under your chairmanship again, Mr Owen, in what is an important debate. Since it was announced last week, a number of hon. Members have spoken to me about the issue, and I am far from alone in having received e-mails, correspondence and surgery visits from people who have been affected by the collapse of the Arch Cru investment fund. I am pleased that the Minister is present to respond to the debate. I know from previous debates that he has a reputation for seeking to answer questions as fully as possible, and I hope that he will continue to do so today. In recognition of his reputation in that regard, and given the high number of Members present who wish to speak or intervene, I will keep my remarks as brief as I can to give the Minister the maximum time possible to respond. I also wish to recognise the efforts made by the hon. Member for Vale of Glamorgan (Alun Cairns) who is present for the debate. He has been trying valiantly for some time to secure a parliamentary debate on Arch Cru, but it was my fortune that my name happened to be picked. I know that he will contribute to the debate in due course.
Many hon. Members are familiar with aspects of the background that led to the collapse of Arch Cru, but some salient points bear repetition. Arch Cru was established in 2006 to provide low-risk, cautiously managed funds that were sold through independent financial advisers and, like all investment funds in the UK, were regulated by the Financial Services Authority. The authorised corporate director was Capita Financial Managers Ltd, part of the listed Capita group. The two depositories of the funds were Bank of New York Mellon and HSBC. Having spoken to a number of investors and financial advisers over recent weeks, I am in no doubt that the association of those names with the fund lent credibility and provided a degree of comfort for many investors. Approximately 20,000 people invested in Arch Cru, many of whom were small investors who invested retirement savings or lump sum pension payments into the fund, following advice from financial advisers. Those to whom I have spoken invested on the basis that since it involved their retirement pots, funds needed to be cautiously invested. That was the attraction and the reason for their investment.
The fund was suspended in March 2009 by the FSA following a warning that it was insolvent. At that time it was worth a total of £363.6 million but since then—unsurprisingly—the value has fallen and at the most recent evaluation in March 2011, the fund was valued at £148.8 million. Estimates vary but between 4,000 and 10,000 people suffered losses following the collapse of that fund. Many of those people never expected to be in such a position because they were attracted to the low-risk, cautiously managed fund in which they invested. This is not a tale of a get-rich-quick scheme gone wrong, or of a high-risk, high-return investment vehicle. It is a story of thousands of people who were advised to invest savings for their retirement precisely because the fund was categorised as cautiously managed. As we now know, the reality was somewhat different. Far from being cautiously managed, funds were invested via Guernsey cells in what some would argue was a high-risk and cavalier manner. Investments included property in Dubai, Greek shipping and ferries.
My constituents—and, I am sure, those of other Members—have questions that fall within four key areas. First is the role of Capita Financial Managers which, as I have stated, was the authorised corporate director with responsibility for providing assurance that the fund was operating correctly. It sold its services as a hosting solution. I have some of its marketing material with me that states:
“For investment managers looking to manage current assets with authorised fund structures there exists an alternative to establishing your own unit, trust manager or authorised corporate director…Capita offers a ‘hosting’ solution which enables investment managers to focus on investment activities. In this arrangement Capita Financial group becomes the authorised entity by the Financial Services Authority and thereby undertakes the management company function on your behalf, delivering comprehensive administrative and investment servicing and support to your funds.”
That is how Capita sold its services. It is an outsourcing group.
I congratulate the hon. Gentleman on securing this debate. The research papers we have received state that investors were
“sucked into the funds by some of the slickest marketing ever put together in financial services. Marketing so good, in fact, that it bamboozled many good independent financial advisers”.
People will lose 30% or 40% of their money. Does the hon. Gentleman agree that that is unacceptable and that it was a sham from start to finish?
A number of my constituents have written to me voicing their concern about this issue. Does my hon. Friend think that there should be an urgent inquiry into the matter? On the basis of what he has just said, the situation is more serious than a lot of people realised.
I agree with my hon. Friend and I will make some of those points later in my remarks. We are only at the beginning of uncovering what went on, and the situation is worrying for many other funds. There are also questions for regulators that I will go on to address.
I congratulate my hon. Friend on the way he presents the subject under discussion and on securing the debate. The fact that MPs from all four nations of the UK and five political parties are present indicates how widespread the problem is throughout the country. We clearly need an inquiry and to find out what has been going on. We do not want a repeat of the Equitable Life saga when it took 10 or 15 years before people got sight of any money. We need an inquiry, but we also need action by regulators and the Government to try and help people who, as my hon. Friend pointed out, in many cases made what they believed to be a low-risk investment for their later years. They will not be able to wait 10 or 15 years.
I agree with my hon. Friend. It is important that people get their money and that they get it in the right way. I will make that point later in my contribution. Capita is an outsourcing group. The structure works so that Capita assumes a legal responsibility for the assets and subcontracts management back to the fund house. It is effectively an outsourcing operation.
While preparing for this debate I had the opportunity to speak to some individuals who used to work for Capita. What they told me shocked and appalled me. I was told that there was relatively little oversight over funds in Capita Financial Managers, and that there was a small team of people, a high staff turnover, and lots of relatively young and inexperienced staff who worked for over 300 funds at the same time. One individual who previously worked for Capita told me that Capita was
“not the best managed firm and the compliance culture left a lot to be desired. Capita is not particularly well respected in the industry and it is no surprise to me that they found themselves in trouble.”
Those remarks contrast greatly with the way that many people viewed Capita on the basis of their investments. Capita is a household name that for many people has a degree of respectability. People made their investment decisions partly because Capita’s name was attached to that investment.
The hon. Gentleman is right to say that Capita group is involved in a range of businesses across the world. Capita Financial Managers, however, was regulated by the FSA and was supposedly in a position to provide assurance in this case. That is where questions need to be asked.
The hon. Gentleman makes the important point that whatever management inadequacies there may have been in Capita, it was regulated by the FSA. It oversaw what was supposed to be a prudently managed fund. Money was being put into totally illiquid assets and very dodgy assets, yet that was never identified. Was there not a regulatory failure in that regard?
Does my hon. Friend agree that Capita needs to step up to its responsibilities? What it is offering in compensation is derogatory to the people who have lost their life savings. It needs to step up to its responsibilities and offer 100% compensation.
My hon. Friend makes a very important point. I want to come on to the inadequacy of the payment deal—it is not a compensation deal—on the table at present, because there are serious questions to ask about that as well.
If what I have set out was Capita’s reputation among some in the industry, it is perhaps not surprising that Capita appears not to have known about the activity of the sub-funds investing in the very high-risk activity via the Guernsey cells; that Capita appears not to have been aware of the illiquidity in the fund by 2008; and that Capita appears not to have provided a proper sign-off for the accounts. I say “appear” because we do not know for certain the detail of the failings, because the FSA, in correspondence that it has copied to Members of Parliament, says that it is unable to provide details of its investigations.
Suffice it to say that those independent financial advisers who trusted the Capita brand worked on the basis of the CF Arch Cru marketing material, which Capita would have had responsibility for signing off and copies of which I have with me. It includes material headed “Going Well” from November 2008, by which time the FSA had, we know, started looking into Arch Cru. There is also a weekly update from 9 March 2009—four days before suspension of the fund. In approving tones, it boasts of cumulative decline year to year of 2.6% compared with double digit falls in most major traditional public asset houses. It says that all its UK funds retain a top five rank in their category. Those statements were issued to financial advisers just four days before the fund was suspended.
In addition to that type of material, the chief executive of Capita Finance Managers, Chris Addenbrooke, in Investment Adviser in September 2008, said:
“We’ve got the credibility to take on the ACD”—
authorised corporate director—
“role. Our clients see that as attractive.”
Given that material and comments such as that, there is no doubt that people thought that they were investing in something that was very different from what it turned out to be. It is apparent that at the very least there were serious shortcomings in the role of Capita as the ACD.
Secondly, there is the role of the FSA. Earlier this week, I spent some time with representatives of the FSA, discussing Arch Cru, and I am grateful for their time and their engagement in seeking to answer some of my questions, but serious questions remain for the FSA to answer. It was statutorily responsible for regulating Capita Financial Managers. Why did it not know or not appear to know what was happening with Arch Cru? I also spoke to people who had previously worked for the FSA. They said that the ARROW—advanced, risk-responsive operating framework—visit was not until late 2008 and that was not atypical given the risk matrix, which would have meant that the likely ARROW visits would have taken place only every 18 months approximately. I understand and accept that this matter can be complex.
Is the hon. Gentleman making the point that this is not simply a matter of what the FSA did and whether it did it appropriately, inappropriately, negligently or otherwise, and that there was something fundamentally wrong with the processes of the regulatory regime that was operating at the time?
I thank the hon. Lady for her intervention. There are two points: a point about what the FSA did in relation to Arch Cru, and a further point about the regulatory regime. As I said, with the FCA about to be set up, there is an important issue for the Government to deal with in that regard as well.
I congratulate my hon. Friend on obtaining the debate and on the forensic and effective way in which he is presenting a very important case, which affects my constituents as it does others. Does it not pass all understanding how the FSA could have said on 21 June in its statement that it “considers that this package”—the £54 million package—
“is a fair and reasonable outcome, which is in the best interests of investors”
when it is not fair, not reasonable and clearly not in the best interests of investors?
May I return to the point that was made a moment ago? Does it not appear that the structure set up for Arch Cru was designed to ensure that the FSA did not notice what was going on, although the setting up of the structure should have been noticed by the FSA and picked up at an earlier stage?
I thank the right hon. Gentleman for his intervention. When I spent some time with representatives of the FSA, they showed me a diagram of the structure of the fund and it was amazing to see quite how labyrinthine it was and is. The right hon. Gentleman is right to say that that is the root of part of the problems. At the same time, seeking to say, “Well, that’s the responsibility of the Guernsey regulator. That’s the responsibility of someone else,” does not deal with the central issue. That is the lesson for the future that we need to be conscious of.
My hon. Friend is being extremely generous in giving way. Although it is welcome to see cross-party support today for the investors who are innocent victims of absolutely disgraceful behaviour by Capita, will my hon. Friend seek an assurance from the Government that their red tape challenge will not get in the way of effective regulation of this sector to prevent other people from losing out in the way in which the Arch Cru investors have?
I thank my hon. Friend for her intervention. I am sure that the Minister heard her entreaty. I agree with her that in seeking to ensure that the regulation is right, there is a great danger in looking to light-touch regulation. The consequence of that could well be the position that we find ourselves debating this morning. I am sure that the Minister will take that warning on board.
The third issue is the payment scheme negotiated by the FSA from Capita, HSBC and BNY Mellon. As everyone knows, they are careful to say that that deal is not an admission of liability. The FSA says and has said to investors that it is a “reasonable outcome” for them. It says that it saves time, given that a breach does not have to be proved in what the background note describes as a very complex case, involving multiple parties with different responsibilities. It says that it considered that it was appropriate to align the Financial Ombudsman Service decision making with the payment scheme rules.
I congratulate my hon. Friend on securing the debate. It is nothing less than a scandal that hard-working people are being treated in this way. They are suffering anxiety and concern when all they wanted to do was to secure their future. Two of my constituents have written to me to say this:
“Would it be possible for you to support a request for a Section 14 enquiry under the Financial Services Act? This will provide the best opportunity for all investors to receive an improved compensation package.”
I would welcome my hon. Friend’s view on that. Clearly, I would support such an inquiry if it could deliver an improved compensation package, because the concern and anxiety that people are suffering is terrible. Listening to what they have to say is heart-rending.
I thank my hon. Friend for his intervention. I agree with him and will go on to ask the Minister—I am sure that he is expecting this—for a section 14 inquiry and for him to explain why one has not been instituted so far.
To me and to many of the investors, the deal brokered by the FSA—the payment scheme—sounds like an admission of defeat. They cannot work out what went wrong and why.
I thank the hon. Gentleman for the sterling work that he has done, along with my hon. Friend the Member for Vale of Glamorgan (Alun Cairns), to bring this matter to the fore. I am delighted that it is my hon. Friend the Financial Secretary to the Treasury who is here to answer questions. What the 15 people in South Derbyshire who have written to me about the matter have experienced is heartbreaking. They thought that they were doing the right thing, but they have been presented with this letter by the FSA saying, “Take it or leave it—70%. You’re lucky to be getting something quickly.” Is that really how we should play the financial game? Perhaps there should be a bigger inquiry into the way the FSA has been carrying out its duties?
I thank the hon. Lady for her intervention. That all points to the case for a section 14 investigation to get to the bottom of these events and to prevent them from ever happening again.
To return to the payment scheme, it sounds like the FSA cannot work out what went wrong and why, and where the liability was.
My constituent Linda Marsh is particularly exercised by the fact that she is being pressured to accept the payment offer on the table because of the looming November deadline. Is it not really urgent that we remove that deadline and allow a proper inquiry to take place?
I thank my hon. Friend for her intervention. She makes an important point about people being able to make the right decision when they are offered this payment deal, particularly given that it seems to bind in the Financial Ombudsman Service in a way that makes it impossible for it to take a case subsequently. My hon. Friend makes an important point.
On that point, one of the concerns raised by constituents who have come to me is that the compensation offer is conditional and precludes legal action against Capita being brought to court by any investor who accepts it. However, it leaves open the option of the investor pursuing the financial advisers, who were, as Members have rightly said, misled by the information provided to them. That seems a very unjust transfer of responsibility.
The hon. Lady is exactly right. It is almost as though the deal that has been reached leaves the liability with people who have, as she said, been misled, with the result that they end up carrying the can, which would be very unfair. That is why the deal on the table is wholly inadequate, and I will go on to make a few points about that.
Does my hon. Friend agree that it is inappropriate, given that such serious regulatory failures have been identified in this crisis, for the FSA to be so directly involved in the negotiations and the settlement being offered? The FSA lacks the appropriate independence, because it might be to its advantage for the settlement not to result in legal action and further inquiry.
I thank my hon. Friend, who makes an important point, which goes to the heart of this issue—the role of the FSA as the regulator and, it seems, the broker of a deal that might help to get something off its back.
It seems the FSA cannot work out what happened. It wants a line to be drawn under this issue, but thousands of unhappy people expected the regulator to prevent this abuse from happening. The FSA has said that the deal will return to investors approximately or up to 70% of their investment, and the words “up to” are quite significant. That 70% is based on the £54 million that has been returned already, £149 million from the sale of other assets, which were valued at that level at 31 March 2011, and an additional £54 million, which Capita, HSBC and BNY Mellon agreed to without accepting liability in a deal brokered by the FSA. However, that £149 million might well not be realised, especially when we consider that the asset base included Greek shipping and what have been described to me as rust-bucket ferries, as well as middle eastern property, the value of which—if there is any left at all—could have fallen, even in the short time since March, given the current economic conditions.
The question I put to the FSA—it was entirely reasonable, but the FSA was unable to answer it—was why it did not add up the asset sales and projected asset sales and subtract them from the investors’ losses to give a figure that would make the compensation up to 100% of what people invested. In that way, people could get their money back; they would not make a profit, but simply get back what they invested, based on the assurances they were given by an organisation that was regulated by the FSA when they took out their investment.
One thing that has come to my attention through my constituents is that the FSA has given advice to investors pushing them towards independent legal advice. Some of that legal advice has led to further complications and added to the money they had already lost. Does the hon. Gentleman feel the direction the FSA pushed investors in should be addressed, given the extra heartache and money losses they have experienced as a result of seeking legal advice that has turned out to be wrong?
I thank the hon. Gentleman for his intervention. I do not wish to get drawn into the background dispute between people who have paid into a class action legal fund and people involved in a different action group on behalf of investors. To be frank, I have spoken for far longer than I intended, and I want to give others the chance to get in. There are lots of complicated issues, and I want to focus on the compensation scheme before I draw my remarks to a conclusion. I hope the hon. Gentleman will forgive me.
The approach I have suggested would simply enable people to get their money back—to get up to 100%. This case has been described as one of the worst investment scandals of recent years. There was a similar scandal under the FSA’s predecessor, the Investment Management Regulatory Organisation, and the name Peter Young will mean something to many people here. The relationships and problems involved were broadly similar, but following the suspension of the fund in question in 1996, IMRO achieved a settlement whereby people got their money back. The deal was funded by Morgan Grenfell, which was broadly in the same position as Capita.
That settlement was agreed three months after suspension. Although IMRO took action against the chief executive of the fund manager, the offer was not paid until January 1999—two years and four months after suspension. In the case of Arch Cru, however, it is now two years and eight months since suspension, and only now are letters starting to go out to people with the payment offer—I understand that they are going out now or will be going out in the next couple of weeks. Why was the FSA unable to get close to the resolution achieved by its predecessor as regulator in a similar time frame? Why is up to 70% acceptable to the FSA, when IMRO managed to get 100%?
Fourthly, there is the issue of ensuring that these events do not happen again. Something needs to change if these things are not to happen again, and people who invest their retirement nest eggs or lump sums on the basis of being told that a fund invests cautiously are not to lose their money, not to have to battle through the press to get a hearing, not to have to get a debate in Parliament so that issues can be aired and not to experience the stress, anxiety and rank unfairness of losing their money in a high-risk gamble they were told was a cautious investment.
In this regard, the FSA is about to be replaced by the Financial Conduct Authority, and the relevant proposals are beginning their pre-legislative scrutiny. What will be put in place to enable the FCA to prevent something similar from happening again? All of us, including the Government, have an opportunity to get the proposals right, and that is why these issues are a matter for the Minister and the Government. The Minister and the Treasury correspondence unit have been clear that this affair is a matter for the regulator, not them, but when the ACD fails, the regulator admits it did not know what was happening because of the structure of an investment vehicle, and the basis of a payment offer is so woefully inadequate, these things become a matter for the Minister; it becomes the Government’s responsibility to prevent or minimise the risk of such things ever happening again.
It also becomes a matter of my constituents and those of other Members present being entitled to information, but the FSA and others are not releasing much information. That is why I am putting the questions to the Minister today. Does he believe that Capita fulfilled its role effectively? Does he accept that the FSA has been hampered in fulfilling its role as regulator by its structure? Does he understand that in not providing information, there is suspicion among the investors? Does he realise that on that basis, up to 70% is just not good enough? Does he now know that the FCA needs to be bolstered for the future? Given all the above, will he now ensure that there is a section 14 investigation into what went on with Arch Cru?
I have spoken for far longer than I had intended, so I will conclude. It is easy, when looking into the matter, as I have done over the past few weeks, to get into the details and get lost in the technicalities and minutiae of the regulatory regime, and in the reputations of blue-chip companies, the statements of their chief executives and other individuals, and even the reputations of some of those in high-profile positions in the investment fund. Ultimately, the matter is about people—people such as my constituent Mr Pringle of Cambuslang, whom I have been in correspondence with. He e-mailed me yesterday and asked me to include a final point in the debate, which I will conclude on. He said that
“my wife…and I invested all our pension money with the Cru in this ‘Low Risk’ venture. Being pension money we obviously did not want any high risk ventures that would put our money at risk…We are extremely disappointed in the FSA’s attitude towards this case, by saying that they think Capita’s offer is ‘Fair and Reasonable’. Not in any way is their offer ‘Fair and Reasonable’. Investing in Greek Shipping is not ‘Low Risk’!”
That is the crux of the issue. That is why it is a matter for the Government as well as the regulator, and that is why the Minister needs to respond to the debate this morning.
It is a pleasure to serve under your chairmanship, Mr Owen. I want to congratulate and pay tribute to the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) on securing the debate and on the way in which he introduced it. He set an absolutely right tone to try to uncover the scandal and seek justice for many innocent investors.
This debate is the first opportunity to air serious issues that have cost some 20,000 people significant sums in respect of a fund once valued at £400 million. The title of the debate relates to the compensation scheme, which is the obvious priority of investors. However, there is also a need to interrogate the background, which raises questions about the scale, source, timing and conditions of the scheme.
The investors’ starting point in the financial scandal was to receive and consider advice from their independent financial adviser. As the hon. Gentleman suggested, the funds were clearly advertised and marketed as cautious managed. That would have sounded reasonable and fitted the risk profile of many private investors across the country.
May I be the first on this side of the Chamber to pay credit to my hon. Friend for his tenacity in assisting people in bringing this matter before the House?
The point that my hon. Friend is making specifically relates to the decision made by investors. I have constituents who have invested, including one who wrote to me only yesterday to tell me that he invested £120,000—the totality of his pensions and savings—primarily because he wanted to be in cautious-managed funds that were safe. That highlights the regulatory failure to which my hon. Friend is alluding.
The cautious-managed issue is a common theme throughout regarding the Arch Cru funds. Cautious managed, from my time in financial services, would be argued as an investment category that fits the majority of people across the United Kingdom. However, investigation shows that the Financial Services Authority does not regulate the risk classification of funds, which is assessed by the Investment Management Association. I find that staggering, considering that that is a fundamental element in the decision-making process of any investor. The IMA is merely an industry managers’ representative body. The FSA has told me that classification is not a regulated activity, so it does not have the powers to amend the classification of funds. However, the FSA needs to be reminded of its statutory objectives, specifically the one relating to maintaining market confidence.
The reality of the investment was that it was not cautious managed. The open-ended investment company invested in unconventional investments, as we have heard. Cell companies were formed and floated on the Guernsey stock exchange, investing in private equity and shipping loans, among other high-risk transactions. As that was a recognised exchange, it circumvented the FSA radar, although FSA rules banned such illiquid investments in open-ended funds. Therefore, it was no surprise that in March 2009, almost three years after they were launched, the funds were suspended.
However, the situation is not that simple. The FSA identified issues with the funds in October and November 2008, but the funds were permitted to continue to trade. It conducted an advanced risk responsive operating framework test at the time, which should have highlighted the issues, particularly pricing concerns. Yet, the funds were only suspended four months later.
Capita became the authorised corporate director, and had failed to act. It had responsibility for corporate governance and daily pricing, and control over the underlying assets. It initially denied having control of the underlying assets, but the auditors’ report from Ernst and Young showed that it held more than 75% of the shares. I suggest that Capita mispriced the funds before suspension due to its failure to exercise control to value the underlying assets accurately. There was a breach of the investment mandate and a pursuit of a reckless investment strategy by Capita’s designated fund manager.
Clearly, that negligence led to Capita’s £54 million compensation offer—70% of the value of the funds at the time of suspension, together with the remaining assets from the valuation on 31 March. That has been criticised as unlikely to hold up. Investors are being asked to accept an offer without knowing what they will receive, as that depends on the value secured on the sale of the remaining assets, which will take years. That is an obvious disparity and injustice.
The auditor was Moore Stephens. It surely should have identified the issues, but it has still yet to offer any form of explanation, let alone compensation. The Guernsey regulators also have some explaining to do and have to accept their part of the responsibility and liability.
My right hon. Friend raises a good point. I have raised that issue with the FSA, which said that it was beyond its jurisdiction. However, to my mind, protecting UK investors is certainly its priority and should fall within its jurisdiction.
To date, there has been no explanation of the logic behind the £54 million offered, and the conditions are somewhat restrictive. Having recently met with the FSA, I know that the reasons behind the current delay concern third-party rights, which I understand. However, it has taken more than two and a half years from suspension to get to the current stage.
I have a constituent who invested several hundred thousand pounds of his retirement money into the funds, but there will be constituents of other hon. Members present who had invested far smaller sums, and which may be even more significant to them individually. A figure of 70% of the valuation at suspension is completely inappropriate, given that all that our constituents had done was to invest in a regulated, cautious-managed fund with a regulated, authorised corporate director and approved auditors. The delay conflicts with the timing of a possible legal challenge. Investors need to act soon to fall within the legal time frame set out by the courts.
In considering criticism of the FSA, it seems hardly just that, having failed in its responsibility to regulate, it has the responsibility to investigate and negotiate a compensation package for the people whom it failed in the first place.
The debate shows that we have a fund that was a scam and regulation that was a sham. We have a problem not just with the FSA’s dereliction of regulatory oversight, but with its deviance and connivance in the deed with Capita. This debate is an opportunity for Parliament to blow the whistle. The FSA is now blatantly offside, and surely it is up to the Minister and the Treasury to make it clear that the deed cannot stand and the deadline must not stand.
The hon. Gentleman has made an extremely powerful point. This is the first debate on Arch Cru, and certainly on the FSA and its change to the successor bodies. Those who have responsibility for this matter need to bear in mind the strength of feeling among investors and the number of people who have turned up to this debate. This issue will not go away until investors feel that they have received justice.
The regulator, the Financial Services Authority, arguably failed in its duty as did the investigators and negotiators. Clearly, there was a position of conflict. It angers me that at every meeting and in every communication, the FSA points its finger at the independent financial advisers. In view of the FSA’s four strategy objectives, passing the buck to the IFAs is wholly inadequate. The pricing and fund performance would have been integral to the advice provided by any independent financial adviser.
In a meeting last week, the FSA told me that the obligation of suitability lies with the IFA. It is unrealistic for IFAs to have the capacity to interrogate individually all marketed funds, products and pricing strategies, or to speak to the financial directors and auditors of every firm on which they advise, when the FSA, with all its resources, failed to protect investors from wrongdoing in this respect.
I accept the hon. Gentleman’s defence of the independent financial advisers. None the less, the only interface that many investors have is with an independent financial adviser. Is there not an obligation upon them at least to check out the funds on which they advise? Is there not some responsibility there?
I am grateful for that valid point. Clearly, IFAs cannot be excluded from all responsibility, but we need to bear in mind the context in which they are working. If they are looking at the strategy and pricing of a fund classified as cautious managed, we need to recognise the context in which that advice is being given. Therefore, the failure of the FSA to set the right context in which an IFA can make recommendations is fundamental to the issue.
There is another conflict. The FSA regulates the authorised corporate directors and Capita acts as the authorised corporate director for more than 300 firms. Taking action against Capita could create difficulties, leading to panic in the marketplace. The FSA has powers under section 166 of the Financial Service and Markets Act 2000 to instigate an independent investigation into organisations that take such responsibilities. Will the Minister tell us whether any such action has been taken by the FSA?
The Arch Cru affair is a minefield of accusation and counter-claim. My hon. Friend the Member for Hexham (Guy Opperman) referred to the Serious Fraud Office. I was alarmed to discover that two of the three main directors or partners who established the Arch Cru funds—Robin Farrel1 and Robert Addison—are still operating, albeit under a new name of Arch Global. Allegations have been made to the Serious Fraud Office about how Arch funds were invested in a property company with common directors. Student accommodation was bought on the open market at one price, only to be sold to the Arch investors shortly afterwards for an inflated sum. I have no knowledge of whether or not those points are true, but they clearly need to be investigated.
As for compensation issues, the auditors and the Guernsey Financial Services Commission certainly need to be pursued by some authority, be it the FSA, the Minister or other parties.
Finally, in view of the FSA’s actions and the associated conflicts, I am troubled that section 404 of the 2000 Act can bind the financial services ombudsman to the FSA’s judgment on the level of compensation. The FSA has made its view of the 70% figure quite obvious in its statement. Therefore, even if investors seek to make a claim involving the financial services ombudsman, or if they follow other routes, the FSA can limit the compensation to 70% at a later stage.
I am grateful to the hon. Gentleman. He underlines the power of the FSA to limit compensation, rather than to uncover and to provide just compensation for people who have been ill-advised and ill-treated throughout this whole process.
These issues need to be reconsidered in an equitable way and without conflict.
Will my hon. Friend confirm that the vital thing that needs to be done straight away is to lift the deadline so that people can make decisions, knowing that they are not throwing away some future interest? Will he also join me in saying to the Minister that, whatever direct powers the Government may or may not have, they do have the opportunity to call people together to say that the present situation is unfair and not right for investors? They need to find a way to make it possible for MPs, financial advisers and everyone else to say to investors, “This is what you should do now.”
That pragmatic and practical intervention would certainly set us on the right road to gaining justice for investors. The issue needs to be reconsidered in an equitable way and without conflict. The Minister and the Government should have the responsibility to bring together the various parties. Under section 14 of the 2000 Act, the Minister also has the power to launch a formal investigation, so that those with conflict are removed and the situation is judged objectively and properly. That will be the first step towards achieving justice for investors.
I congratulate my hon. Friend on the points he is making. On the section 14 inquiry, does he not agree that one of the most important things is for investors and their financial advisers to be able to make an informed decision? An informed decision cannot be made until that inquiry has happened and the real bases of the problems and of any compensation have been set out in detail.
My hon. Friend makes a valid point. When such problems are combined with questions about the legal time frame, investors who have experienced wrongdoing are in the unenviable position of making decisions about receiving compensation or pursuing it through the courts, without there being a thorough investigation of who is responsible.
I thank hon. Members for their support, and the hon. Member for Rutherglen and Hamilton West for securing this debate. There will be many more such debates until justice is achieved for investors.
It is great privilege to serve under your chairmanship, Mr Owen, and to follow the hon. Member for Vale of Glamorgan (Alun Cairns) who, along with my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex), has pursued this matter with such dedication.
I rise to speak on behalf of my constituents who have been affected by this debacle, including Michael Sharkey, Ian Matthews and Donald Tart. They have invested not hundreds and thousands of pounds but smaller amounts, which are highly significant for their future standard of living. There is widespread concern, nay fury, among my constituents that they are seeing only up to 70% of the returns in this so-called £54 million funding package. In many circumstances, they face the loss of more than 40% of their investments. As we have heard, we are discussing people’s lives and money that people had worked hard for and put away for retirement or hoped to pass on to their children or grandchildren.
Of course, we will not know the full scale of the negligence involved and the real losses until all the remaining assets of the fund are eventually sold. However, private advice has conservatively estimated the losses in my constituency alone at around £1.5 million, which is a sizeable amount of money for my constituents, or to put it another way that is around 1.5% of the value of the contract recently awarded to Capita to run the national pension scheme. As the authorised corporate director for the Arch Cru investment fund, and therefore having the regulatory responsibility that we have heard so much about today, the Government might think about stepping back from giving Capita further powers and authorities. We have heard about the extraordinary negligence and even allegations of criminal activity involved in the running of these funds.
In June, I tabled 19 parliamentary questions to find out just how much business this Government have awarded to Capita. As of 3 August 2011, the Government had awarded 447 contracts worth at least £112 million to Capita. The hon. Member for Worthing West (Sir Peter Bottomley) has suggested that the Government have a role to play in bringing people to the table. I suggest that if someone is awarding £112 million-worth of contracts, they have a powerful role to play in bringing people to the table.
I was going to say that I thank the hon. Gentleman for his intervention, but he seemed to be making an unnecessarily partisan point when we are trying to work together for the good of our constituents. I will simply let it pass in that manner.
That figure of £112 million does not include contracts from the Department of Energy and Climate Change, contracts from the Ministry of Defence, which would only provide ranged values of contracts up to a total of £20.6 million and contracts awarded by the Department of Business, Innovation and Skills, which simply did not answer my question. I hope that the Minister will seek out the truth himself.
Does the hon. Gentleman agree that one important aspect is what attitude the Government take? The second important point is that Capita and its shareholders ought to make a clear assessment of the reputational risk of Capita handling something where things clearly went wrong and of its failure to spot what was going wrong.
The hon. Gentleman is absolutely right that what we are seeing this morning is the decimation of the reputation of Capita. That decimation will only grow unless Capita steps up to the plate, works with the Government and accepts that it is in its own long-term interest, as well as its moral obligation, to ensure that those who invested in this fund on the basis of Capita’s reputation see their payments returned.
I will not go through all the intricacies of my investigation into the awarding of contracts to Capita. Suffice to say that the Government have a whip hand on this issue and should be thinking about using it.
The point is that with financial products and investment opportunities becoming ever more complex, it is vital that investors have confidence in the regulatory framework that upholds their investment. It has been said that
“A badly designed product or a product that is widely mis-sold can have a negative effect on consumer outcomes and actually, over the long term, a negative effect on the industry. It doesn’t just affect the particular product or firm involved. It also erodes people’s confidence in financial services.”
As the Minister will know, those are not my words but his words.
The hon. Gentleman is making a crucial point about confidence. Although it is important that people have confidence in the independent financial adviser that they go to, and that they have confidence in whatever companies are operating under the different structures, surely the supreme amount of confidence must be placed in the regulatory authority that has to oversee all those things. That is the crucial point that the Minister must respond to.
The hon. Gentleman is absolutely right. What we have seen with the Financial Services Authority is a lack of confidence in its capacity to deal with this inquiry and the regulation of it. That is why I join my hon. Friend the Member for Rutherglen and Hamilton West in urging the Minister to take advantage of section 14 of the Financial Services and Markets Act 2000 to launch an inquiry, because the FSA has been silent on this matter for too long and as a result investors have little confidence in it. The FSA is part of the regulatory framework that initially failed our constituents.
I will wrap up now as I know that other hon. Members want to speak. I agree with my hon. Friend the Member for Rutherglen and Hamilton West that we are only at the beginning of this process. As I have said, we need the sort of inquiry allowed under section 14 of the 2000 Act. We also need a proper compensation deal and package, and I am struck by the 1996 Investment Management Regulatory Organisation model as a way of moving forward.
However, the Government have a role in this process. They are pouring money down the neck of Capita and for the Government to say that this issue is nothing to do with them strikes me and my constituents as remarkably detached and arrogant. Actually, the Government have a role to play in bringing people to the table, making Capita see sense and delivering justice for our constituents.
Thank you, Mr Owen, for calling me to speak.
The victims in this case are savers, widows and pensioners, who we must not forget and who we are fundamentally elected to fight for. It is definitely in the Government’s interests—is it not?—to encourage proper saving and proper investment. One can use this particular disaster—it is nothing less than that—to encourage proper investment in proper companies.
I am very pleased that, along with other colleagues, I have this opportunity to speak today on an issue that dozens of my constituents whose lives have been irreparably damaged by CF Arch Cru have contacted me about.
I must thank the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) for securing this debate. A lot of us have tried to secure such a debate. I also want to thank him because he gave his address in a measured, reasonable, all-party tone. That is welcome, because hon. Members are united—in every part of the country and in every democratic and political process—in their view of the disaster that has occurred.
I must also thank my hon. Friend the Member for Vale of Glamorgan (Alun Cairns), who has campaigned tirelessly on this issue. He has sought debate after debate after debate on this issue and was, frankly, pipped at the post by the might of Scotland in the form of the hon. Member for Rutherglen and Hamilton West, who snuck up the inside rail and secured this debate. However, I know that we are all working together, which is a wonderful thing to see.
Obviously I speak as a constituency MP, but I also speak as someone who, for approximately 15 years, was employed on a repeat basis by Her Majesty’s Government as a prosecutor of fraud trials. I worked for the Attorney-General and the Serious Fraud Office, and I bear the scars of involvement with cases such as Blue Arrow and Guinness, and particularly a scam in relation to a company called Moneywise, which was investigated by the Financial Times. In that case, I spent six long months in Guildford Crown court bringing fraudsters to justice and recovering money. It was another case where people were defrauded by supposedly safe investments and money was taken from them. We successfully brought prosecutions for conspiracy to defraud.
I do not know the inner details of the particular case that we are discussing today, because only those involved, the Financial Services Authority and others have full access to the documentation. It is easy to make glib comments, but, speaking as an informed observer, I would seek the involvement of the Serious Fraud Office. With respect, there seems to be only two choices in relation to official actions and official offences committed here. Either the Minister is appropriately referring this matter for an inquiry under section 14 of the Financial Services and Markets Act 2000 or—frankly—the Serious Fraud Office needs to get off its backside and investigate this matter properly, bringing people who are committing these particular offences to justice. Clearly, there is the potential—I can go no further than that—that criminal offences of conspiracy to defraud have taken place.
An awful lot of questions have been raised, and I do not want to repeat the points that other hon. Members have made, but we come back to the question why an investment advertised as a
“safe and cautious fund—ideal for pension transfer”
has so damaged people’s lives. We must move on to the simple question how to stop it happening again.
To deal first with the compensation package, given that the funds were suspended in March 2009, one might have imagined that it would have been put forward a little earlier. The delay by those involved and their dilatory tactics are to their discredit. However, the £54 million package is inadequate. Let us be blunt: Capita is a substantial company. There may be arguments about whether the company in question is limited within the confines of Capita’s many companies, or about the parent company not being responsible for the individual failings of individual people in other lesser companies in the group. Those may be perfectly legitimate comments, and if Capita wants to take that high financial moral tone with us, so be it. However, it needs to grasp that it has a simple choice in this Parliament. Either it provides 100% compensation or it will find that it has few friends in this House. The £54 million is frankly not sufficient. This is not like Equitable Life, because this is not a situation in which a company has run out of money. Capita has not gone bust. To quote one investor who wrote to me:
“The current package is barely a pinprick on Capita’s little finger.”
I accept that they have a role to a degree. The hon. Gentleman is being a little naive, because the provision of certain services by a perfectly reputable part of the company is satisfactory, and he is far too intelligent not to know that. However, we must deal with individual mismanagement by parts of the company, which happened in years gone by, and the hon. Gentleman knows that companies have obligations in relation to such matters. The matter can be pursued either as a civil obligation in the High Court or by way of criminal compensation arising out of a prosecution. Alternatively, it can be dealt with under section 14 of the Financial Services Act 2010. However, it is over-simplistic to say that just because the Government provide contracts to an organisation that is performing perfectly satisfactorily in some respects, they cannot be involved in seeking other compensation.
This debate is an opportunity for the Government to give a lead on what they will do, and they need to answer some questions. I want to discuss examples involving a couple of my constituents. The point has been fairly made that the losses have been suffered by people who are not wealthy. We are not standing up for toffs and fat cats, but for people who have lost £1,000, £2,000, £5,000, £10,000 or £15,000— people who have lost their life savings, and who were encouraged to put their money in.
My hon. Friend is making a powerful argument, building on some other powerful speeches. He is right about the people involved, and the same is true of my constituents, who are not wealthy but who were doing the right thing. Our party and all other parties have asked people to make provision for their pension and retirement. Those people were doing the responsible thing, and they had their fingers badly burned. Confidence has been mentioned, and the Government must address that.
I totally endorse that point, and that is where the Government definitely have a role. They can use the inadequacies of the present case to highlight their intention to come down hard on those who mismanage investments as in this instance, to give investors confidence in other investments in the future. Sadly, that should have been done previously, and such scams and difficulties have been bubbling over for the past 20 years.
My constituent, Mr Ian Robinson, transferred his entire pension pot of £90,000 into Arch Cru on the advice of an independent financial adviser. He thought it was a sensible policy. In 2009, his funds were revalued down to about £55,000; they were then frozen; and the remaining capital was eroded over the next two years. He will be lucky to get 40% back under the compensation package. Another constituent, who wants to remain nameless, worked all his life and built up a business. He sold it and thought that he and his wife had a successful pension pot of several hundred thousand pounds. They put all of it—savings and pension—into Arch Cru. After the devastating effects of what happened, he and his wife have been living off a state pension and with the current offer of recompense they will be forced to downsize to enable them to live from any capital that is released. They will have lost hundreds of thousands of pounds, which they thought was securely invested to provide a gentle but secure return, and they will be lucky to be able to leave anything to their dependants. If my constituent agrees to the package at this stage, he will have less than half the compensation needed to put him and his wife back in the position they were in prior to their investment. In the current climate, we should support such hard-working people.
Much could be said about the dilatoriness of the process, because, as other hon. Members have mentioned, nothing has really happened since suspension in March 2009. I shall briefly discuss Capita. Others have spoken eloquently and forcefully about its inadequacy in its role. One constituent told me:
“This is not just a case of an investment that has underperformed due to the Global Financial Crisis but one where there are serious misgivings in relation to the management and governance of the funds”.
That is certainly how I see the matter—it is potentially a criminal investigation. Capita was paid as trustees to oversee the management of the funds, which we all agree it simply did not do. Therefore why is Capita not fully accountable for the extent of the losses of the people whose money it was managing? Clearly it is vicariously liable and has an obligation.
Hugh Aldous has prepared a report on Capita, and I recommend that anyone who has not taken on board the full level of ineptitude should read it. It is clear from the report, in which Hugh Aldous makes multiple observations, that the net asset values of several of the cells that were invested in were overstated at least from 2007 onwards. He reported that the condition of the physical assets was far worse than
“we reasonably expected and, in some cases, frankly appalling.”
It seems inexplicable that small investors should suffer so severely with an inadequate package.
Several hon. Members have spoken about the compensation package, and the Minister must address two points. Why on earth has a closed offer been made, when it is also time-limited? That is wrong. The Minister must assist hon. Members by giving the reason for that and telling us whether the Government will do anything about it. Everything would change if the Minister were to say that it is an interim offer. If it were an interim offer, so that the victims of the scam could receive the £54 million paid down in the usual way, with the right to continue to take civil action if they wanted to pursue matters further, I would say, “So be it.” However, to tell them that it is a time-limited £54 million offer and they can take it or leave it is wrong.
The FSA has supposedly been making great efforts to ensure that companies can meet their commitments when they fall down. There are regulations to protect consumers. The FSA is a publicly funded body. It exists to protect investors, and it has not done so in this case. It should surely have launched a proper investigation. My hon. Friend the Member for Vale of Glamorgan has called for a proper investigation, and I repeat that call. The FSA seems reluctant to admit that Capita has failed in its duty as an authorised corporate director.
The hon. Gentleman is making some strong points. Does he agree that in this crisis it is the failure of the regulatory aspect that has caused the biggest ripples in public confidence? People took the FSA’s regulation of the funds and the advice they were given at face value, which created a level of confidence that did not match the confusion about what was happening within the fund. The FSA has not only failed people but caused a crisis in public confidence.
I endorse the hon. Lady’s comments about the authority.
There are tremendous financial consequences here, but there is also a human one. All hon. Members—I have been here for only 18 months, but others have been here for many years—will have gone through the pain, difficulty and correspondence in relation to Equitable Life. To be fair, this situation is not the same, but it is similar in that constituents have written to me because they have given up. One told me about a retired couple in ill health who have already given up, because
“they have not the energy or the mental resolve to fight this”.
The Minister had an extremely difficult job with Equitable Life, and I applaud the fact that he did the best he could in very difficult circumstances. This matter, however, is far simpler, and I hope that he takes on board the four key points. First, will the inquiry be a section 14 inquiry? Secondly, why is the offer a closed one? Thirdly, why is the offer deadlined and time-limited? Fourthly, does the Minister agree with a large proportion of hon. Members—I say this based on the comments that have been made during the past hour and 11 minutes—that Capita has a simple choice: either it gives 100% compensation, or it is left with no friends in this House?
I shall certainly be brief, Mr Owen, as I, too, look forward to the Minister’s speech about cleaning up the mess of financial scandals that arose long before he took office. I am not alone; it is worth reiterating that we have heard this morning from MPs from six political parties, and 5% of all MPs have turned up for a debate lasting only 90 minutes, knowing full well that barely a fifth of them would get to make speeches. My first point to Capita and all the bodies involved is that there is a lot of interest in this House and that their reputation in all parts of the United Kingdom is therefore at stake. I hope that they do not wish their companies to become the household names that others have in disputes that this House has unfortunately had to deal with.
Officials in the building across the road will have urged the Minister to bat questions away to the Financial Services Authority, and will have suggested that he speak of the FSA’s independence and of how this matter is for that authority and not for the Government. Our collective presence here this morning will have made it clear to him that the public interest is too strong to accept that. In addition to the complaints about the companies involved, many of our constituents are asking: who regulates the regulators? They do not trust the regulators’ handling of the matter. This morning, we have come here with reasonable questions that have not been answered in our correspondence with the FSA on constituents’ behalf. How did the FSA authorise the fund in the first place? Why did it not respond sooner to the informed criticism of experienced fund managers? Does the scope of the FSA’s investigation extend to questions about its own conduct, and does the review team have the independence to do that effectively? Even clearer are our constituents’ concerns about how the payment deal is being agreed, and about how the FSA is able to bind the Financial Ombudsman Service so securely to Capita’s proposals.
When such questions are being raised about the regulator, it falls to the Minister to reassure Members that he is totally on top of their concerns. I hope that he addresses the plea for a full inquiry that has been made across the House this morning, and I look forward to him throwing his weight behind the demands for a section 14 inquiry.
I pay tribute to my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex), and to the hon. Member for Vale of Glamorgan (Alun Cairns) and other Members, for drawing attention to this exceptionally important and complex issue. It is simply not right that people, many of whom have worked hard on modest incomes and have saved money in what they reasonably thought to be a responsible way, stand to lose significant sums. We welcome the Financial Services Authority’s efforts in securing a compensatory offer from the parties involved, which will be administered through the Capita financial managers, but although up to 70% of the sum invested could be returned to investors via the consumer redress scheme, many will be dissatisfied because the amount falls far short of their original investment.
I want to make five quick points. First, on the unfair constraints on the choices for out-of-pocket investors, there have been reports that the FSA is reluctant to set out a full statement of events surrounding the Arch Cru failure, possibly until after the closure of the redress scheme. I would be grateful if the Minister would agree that that would be an extremely unfortunate state of affairs, as my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) and the hon. Member for Hexham (Guy Opperman) have indicated. The FSA should either set out its understanding and explanation while the redress scheme is extant, or the scheme’s closing date should be extended to allow the full facts to emerge before investors are forced to decide whether to accept the final settlement. Does the Minister agree that that would be reasonable?
Secondly, can the Minister clarify the potential role of the Financial Services Compensation Scheme? The FSA has been brokering the voluntary settlement scheme, but at what point will the option of claiming anything via the FSCS be made clear to investors?
Thirdly, I want to ask about the lessons to be learnt about Capita and the role of the regulators. Irregular practices clearly took place, and an investigation into the regulator’s handling of the Arch Cru scandal is merited. Hon. Friends are pressing the Minister and the Treasury to look into the behaviour of the regulator, and I would be grateful if the Minister could address that in winding up the debate. Did the regulators check Capita’s capabilities? Compliance work is usually done by banks, but the Arch Cru fund was compliance-managed by Capita and, as we have heard, questions have been asked about the adequacy of Capita’s business resourcing and its internal checking procedures for ensuring the thoroughness of its important responsibilities.
Fourthly, we must have tighter regulation of investment fund descriptions, and there is an urgent need to ensure that consumers are protected from exaggerated marketing terms. For instance, do we need clearer rules about the use of terms such as “cautious fund”? The hon. Member for Hexham highlighted the term “ideal for pension transfer”, which goes to the nub of the marketing mispractice involved. “Guaranteed investment,” “absolute returns” and “balanced funds” are all used frequently in investment schemes, but I am not sure that we have the right regulation of the use of marketing arrangements.
Finally, although we should not underestimate the pain, anger and distress that many people justifiably feel, we must consider the messages that this kind of scandal sends out to the public at large. This situation can serve only to undermine people’s confidence in saving for their future, doing the right thing by planning ahead and putting money aside through pensions and investments. Parliamentarians and the Government must consider not only the impact of the scandal on the people directly affected but its repercussions on people’s trust in financial products more widely.
I congratulate the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) on securing this debate and on how he introduced it. Despite a barrage of interventions, he managed to maintain his pace and tone and set out a clear narrative of what happened to Arch Cru. I also congratulate my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on his tenacious pursuit of the matter, as well as the other hon. Members who have taken part in the debate.
I express my sympathy to the many Arch Cru investors who have lost a significant proportion of their savings as a consequence of the events that we are discussing. Regardless of how large or small the investment was, and whether they have lost all their savings or a fraction, they have lost out. It is important to think carefully about the cause and what lessons need to be learned.
As my hon. Friend the Member for Chippenham (Duncan Hames) rightly predicted, I must add a note of caution about Treasury responsibilities in the matter. We do not have investigative or prosecuting powers of our own. The Financial Services Authority is the independent regulator. I have spoken to its chief executive about Arch Cru and sought further information about the FSA’s investigations and the voluntary compensation package, and I will respond as fully as I can to the points made today. Hon. Members clearly have an appetite for a lot more detail. I understand, as I have the same appetite, but enforcement action is ongoing, so there is a limit to what can be disclosed in the House.
As the hon. Gentleman and others have said, the case is complex and involves multiple layers of responsibility. Many investors will initially have engaged with Arch Cru’s UK open-ended investment companies, or OEICs, through their independent financial advisers, with Cru Investment Management conducting the marketing of the OEICs. The management of the OEICs was then the responsibility of Capita Financial Managers Ltd as authorised corporate directors and of BNY Mellon Trust & Depositary (UK) Ltd and HSBC Bank plc as depositaries. Although the legal form is that Arch Financial Products acted as the delegated investment manager, in substance, it approached Capita and proposed that fund structure.
The OEICs invested principally in more than 22 Guernsey- domiciled incorporated cell companies, which were listed on the Channel Island stock exchange and required to comply with Guernsey regulations. The cell companies had two independent directors. The administrator of the cell companies was regulated by the Guernsey Financial Services Commission and was responsible, among other tasks, for producing valuations for the cell companies, which were made available to the Channel Island stock exchange. Arch was the investment manager for the cell companies and, of course, the OEICs themselves. Both the OEICs and the Guernsey cell companies were independently audited. That complex structure should make it clear that it is not easy to apportion full responsibility to any single player in the matter.
As part of the authorisation process for UK OEICs, the FSA assesses a fund’s proposition before launch and decides whether it complies with the rules. The FSA then reviews the fund’s prospectus and, after authorisation, continues its normal supervisory activity, which includes visits to authorised corporate directors and depositaries and thematic work such as the monitoring of financial promotions. As hon. Members have identified, the FSA does not regulate descriptions of funds, such as “cautious managed”. It is worth reflecting on what “cautious managed” means. It means that a fund invests in a range of assets with a set maximum equity exposure and a minimum exposure to fixed interests and cash. A minimum percentage of assets must also be held in sterling or euro-denominated assets. That describes what such funds should be.
The FSA is not an auditor and does not check underlying investments or the veracity of share prices. That is the responsibility of others. The regulatory regime is not a zero-failure regime, and the FSA conducts risk-based supervision. It does not visit every firm every year; the frequency of visits depends on firms’ risk and impact. If hon. Members reflect on that for a moment, they will expect more resources to be devoted to a big insurer than to an insurance broker on the high street. However, it is ultimately the responsibility of the firms involved to ensure that they comply with all the relevant rules.
What did the FSA do in this situation? It has been suggested that the FSA let down investors, but its financial promotions monitoring activity picked up some of the issues with Arch Cru OEICs, which were raised with the parties involved. Crucially, in October 2008, during the course of an ARROW inspection visit, the FSA identified issues with the funds, including the fulfilment of the OEICs’ investment objectives. Those issues were raised with Capita Financial Managers, the authorised corporate director, leading to the suspension of the OEICs in March 2009.
On the payment scheme, it should be clear from my opening remarks that the structure underpinning investment in an Arch Cru fund was complex and multi-layered. The FSA could have pursued a comprehensive package of redress, which would have needed agreement from all the parties involved, some of which were responsible for the management of the funds and some for their sale or promotion. Not all those parties are regulated by the FSA or based in the UK. To have put together such a package would have been time-consuming and complex. The FSA has reached agreement with the three parties responsible for the management of the UK OEICs: Capita, BNY Mellon and HSBC. The package was announced in June 2011, and will pay up to £54 million to investors. The amount of compensation takes into account distributions already made to investors and the remaining value of the funds.
The compensation amount also has an element of proportionality, taking into account the fact that while those three parties share some of the responsibility for the losses, they are not solely responsible. Other parties contributed to the failure, and the FSA is currently considering the positions of those other parties. The pursuit of a voluntary settlement with the three parties allows investors to opt to receive payments by the end of this year rather than having to wait several years for the uncertain outcome of a more complex process, which would include enforcement action against the relevant parties. It is a trade-off. Do we want investors, some of whom invested all their funds in Arch Cru, to receive money sooner or later? A question was asked about time scales. People have until the end of next year to decide whether to opt for the package.
The FSA has required the Financial Ombudsman Service to apply the payment scheme to complaints that it receives, under the provisions of the Financial Services Act 2010, which was introduced by the previous Government and supported by us. The provisions ensure certainty to investors and a consistent regulatory approach between the FOS and the FSA. Without them, the FOS would have to consider individual cases on their own merit rather than applying the same principle to every investor. I will explain what the FOS is bound to.
No, I will continue. I have three minutes left and more points to make.
The FOS is bound only in respect of complaints made against Capita, HSBC and BNY Mellon. Complaints made to the FOS about other parties to the investment chain, including independent financial advisers, can still be heard by the FOS. The limitation on the FOS applies only to complaints made about the three parties. That is a clear signal to investors that they can make further complaints about other parties. Investors are free to pursue action through the courts and to challenge the IFA who advised them to invest in Arch Cru funds over whether that advice was appropriate. Numerous people have already done so. If they are not satisfied with the IFA’s response, they can go to the FOS. If a complaint has been upheld but the adviser is no longer in business, investors can also complain to the Financial Services Compensation Scheme and apply for compensation.
No, I cannot. I have two minutes left. My hon. Friend and others asked about section 14, which I would like to address; I am sure that he will be grateful if I do.
I have yet to be persuaded that a section 14 inquiry is appropriate. It certainly would not be appropriate to announce one while enforcement action is being taken against any party to the matter. The powers are available where it appears that significant damage has been done to the interests of consumers that might not have occurred but for a serious failure of regulation. It is worth pointing out that the power has never been used. Throughout the life of the Financial Services and Markets Act 2000, many issues have not been examined.
As I have said, it is not the FSA’s role to ensure that no firm ever fails, to approve the investment strategy of every OEIC operating in the UK or to ensure that all investments are sound. The FSA does not audit or sign off an OEIC’s accounts. That responsibility rests elsewhere. It was the FSA, through its ARROW inspection, that identified the issues in Arch Cru.
It is vital that everyone engaged in the matter—the regulator, industry players, IFAs and others—reflects on the lessons learned. Many issues emerge, including the scheme’s complexity and consumers’ need for better financial education and better-quality advice. We look carefully at every lesson learned from such cases, and that is reflected in our thinking on the operation of the FSA.
It is a pleasure to serve under your chairmanship, Mr Owen. I thank Mr Speaker for granting this debate, which I think has been welcomed by all parties in the House and by areas throughout the country. For that reason, I hope we can keep the debate on the strictly all-party basis it deserves. That will certainly be the tenor of my remarks throughout.
More than 6,000 postmen a year are bitten or attacked in one form or another by dogs. There are approximately 10 attacks per constituency per year, so it is a matter in which we all have a direct and important interest. Indeed, the devolved Parliament in Scotland has legislated on the issue, and Northern Ireland is in the process of doing so.
The reason why I have called for this debate relates to a nasty incident in Coventry involving a young girl, Alicia Foskett, whose mother, Sarah, has, without a great deal of encouragement, led a campaign. Under existing law, the Dangerous Dogs Act 1991 excludes private property from any criminal provision, so Sarah Foskett felt that, at best, she got passive help from the police and local council. That might be understandable in the context of the present law, which I wish to address. I hope to leave as much time as I can for the Minister and other MPs to respond, but I cannot leave too much time because it is only a half hour debate. The support for Sarah Foskett seemed inadequate, so she led a strong and courageous single-woman campaign to raise the profile of the issue in Coventry and has done extremely well. I am pleased to say that the police are now giving her a lot of support in the civil action she intends to take.
I agree. They should have given much more positive support beforehand, but they could not take any action under the existing legislation. I will come back to that in a moment, but it is one of the principal things that needs to be addressed. As things stand, the case is for a civil action rather than criminal proceedings.
As I have said, this is not a party political issue. Indeed, the Prime Minister in a letter to the Communication Workers Union just before the election, when he was Leader of the Opposition, made it clear that he and the Conservative party were very much in favour of the action that I wish to recommend. He wrote:
“We support extending dangerous dogs law to cover all places including private property”.
That is a clear statement from the then Leader of the Opposition and now Prime Minister. I hope that the Government can find some impetus in the light of that support.
The more general statistics are interesting, but I will not detain hon. Members with them for too long. I have already mentioned that 6,000 postal workers are injured every year. Some 2,500 adults and 2,700 children are treated for injuries every year. In the past four years, six children and two adults have been killed. The attacks seem to come in spates. The past few years have seen a further spate of attacks in London that have been so bad that the Met has set up its own special dog unit in response.
A constituent of mine, Mr Naylor, has asked me to raise this very point with my hon. Friend. The burden on the authorities and the taxpayers is growing daily because of the lack of control and responsibility exercised by owners. We need more control over the behaviour of owners, whether that be via an insurance policy—that idea has been floated in the past—or some other mechanism. We cannot have the general public picking up the bill for irresponsible dog owners.
Getting all dog owners to pay into an insurance fund relating to a small minority of dogs would tar everybody with the same brush. Over the centuries, dogs have been man’s greatest friend. They are appreciated in families such as mine and by children. That idea would also be grossly unfair at a time of extreme stringency for all families. It is a question of getting the owners to change their behaviour and become responsible. I regret to say that that is a more general problem throughout society at present.
In the case of Mrs Foskett, the owner refused to even have the dog looked at. He shunted it off to a friend. We do not know where it is yet, but it continues to be on private premises and to pose a danger, which is not good enough. He even refused to have the dog put under the temporary care of the Royal Society for the Prevention of Cruelty to Animals while it undertook training. That is, by any standards, irresponsible behaviour. I agree with my hon. Friend that part of the solution is to change that, but the application of criminal law—the greatest sanction the country can impose on any individual—would be a good step forward. Making the law apply to individual premises would begin the change of mindset that my hon. Friends the Members for Coventry South (Mr Cunningham) and for Birmingham, Selly Oak (Steve McCabe) are seeking.
I congratulate my hon. Friend on securing this debate, and I congratulate his constituent on her work. Does he agree that it is not the breed of dog that seems to be the problem? It seems to be a problem with all dogs. A common theme seems to be that cases are not treated as seriously as they could be by the police, and that far greater resources need to be given to making prosecutions.
I am grateful to my hon. Friend for that intervention and agree with her to some extent. In Scotland, they have brought the “deed, not the breed” distinction into play. I do not know how useful that would be; I would go for “and the breed”. It was a Staffordshire bull terrier that was involved in the incident in my constituency, and there was dreadful scarring to the young girl’s face. The breeds are fairly identifiable. Indeed, the Met’s conclusion is that they are being bred in London by young men and others almost as trophy items to display. That is a problem, and I do not think that we lose anything by having a category. It should also be made clear that no other breed of dog is excluded, and that the criminal law will apply to them if there is any doubt, which I do not think there is.
An additional issue that has been brought to my attention by some of my constituents is attacks by out-of-control dogs on wildlife, particularly swans. There has been a distressing increase in the number of swans killed or injured by dogs. At present, rescue groups such as the Gwent Swan Rescue, which is now called Swan Rescue South Wales, cannot claim back the veterinary fees from irresponsible owners. Surely that must be put right.
I agree. This is pointing towards a consolidation of all previous laws—many of them go back many years; one of the most useful was enacted in 1871—into new, modern statutes to deal with some of the points that are not clear in previous legislation. In addition to dogs attacking defenceless, beautiful animals such as swans, I have even heard of dogs attacking guide dogs. It largely comes back to the owner. We must put in place the sanctions that make it clear we are not going to tolerate this situation any more.
Without rehearsing the whole history of the issue, I shall give hon. Members a flavour of it. Related Acts were introduced in 1839, 1847, 1861 and 1871. This is, therefore, a recurrent theme in society and our pet community. It is no good denying the problem; we must simply do the best we can to minimise it, even if we cannot totally eliminate it. That means introducing sensible, modern legislation. I hope that some Conservative Members have time—as they can probably tell, I am trying to get through my speech as quickly as I can to leave time for others to speak—to join us in supporting such an approach. The consultation has been carried out, and finished in June 2010.
Does the hon. Gentleman agree that two clear things need to be done? First, the Dangerous Dogs Act 1991 needs to be got rid of and replaced by sensible, effective legislation; and secondly, we need a workable law that introduces compulsory micro-chipping for all dogs.
I am coming to that in a moment. I agree with the hon. Gentleman but the point is: why are we not getting on with it? We must face the fact that we need legislation to deal with the problem and, if we all agree on that, we could go one step further and say that it needs to be consolidated. Let us have fresh legislation that takes all recent experience into account. This is not a criticism of the Prime Minister, the Government or the Conservative party, but the consultation was completed a year and a half ago and I cannot think what is holding things up. There is widespread support in the House for dealing with this problem, which exists throughout the country, so let us get on with sorting it out.
Does the hon. Gentleman agree that we have consensus among a range of organisations—such as the Kennel Club, the dog wardens’ body and, indeed, the postal services union—on the need to introduce consolidated legislation that works in the 21st century?
Absolutely. I could not agree more. We have little influence with the Government these days, but the question is whether Conservative Members can influence the Government to get on and produce the legislation. This is a time of party political tensions. There have been bitter disputes in the House about the economy, social welfare and a range of issues, and it is difficult for parties to agree in this time of extreme danger in the economic sphere; but this is an issue on which we could get ahead, do something useful and be united. The country would feel much better for it. There is every reason for taking action.
I will finish my speech by 11.15 am. It is only a half hour debate, and I hope that the Minister will not take too much time and that others can contribute if they still wish to do so. I am not going to legislate now, but essentially, the basis of the new legislation should definitely be to extend the criminal law so that section 3 of the 1991 Act includes private premises. We also need to consider the issue of micro-chipping. As the hon. Member for Romsey and Southampton North (Caroline Nokes) said, there is widespread agreement among, for example, the Dogs Trust and the Kennel Club. Everyone recognises the need to deal with these issues—even those on which we are not known for agreeing. We could push ahead, but we should do so sensibly and clearly.
We should also consider the issue of dog control notices. The no-fault personal injury compensation scheme should not be paid for by all dog owners. That is unfair and unnecessary. There must be some other approach—one that does not impact, I hasten to add, on the public purse.
Much has been made of the fact that breed-specific legislation does not seem to work. Does my hon. Friend know of any analysis of whether such accidents or attacks are breed-specific? We seem to be talking simply about statements made by one side or the other.
I made a statement, for which I do not have any statistics, based on my personal impression—which may well be wrong—and the examples I have seen in and around my constituency and in London. In Scotland, for example, they have rejected that view and are taking a deed-based approach. However, by definition, such an approach accepts that damage has to be done before action can be taken. I do not know what the phrase “deed and breed” might add to the legislation, or whether it might confuse matters; but I am not against that approach.
I am grateful for that intervention. Of course, that is why I said that we cannot focus just on the breed; we also need to consider the deed. We do need, however, to focus a little on the breed, just to make people conscious that other breeds are available. To ditch that approach after a certain amount of effort has been put into it would be unnecessary.
I have covered the personal injury compensation scheme and micro-chipping. Tougher penalties for and punishment of irresponsible owners should be applied through the criminal law. That would be the single most important legislative action we could take to influence owners’ behaviour, which is clearly what we must do.
I will now open the debate to others who wish to take part. All I am saying is this: it has come to the point when we owe it to ourselves, our constituents and the young children and adults who have been scarred for life by these dogs, to deal with such legislation properly. We need to produce something that is comprehensive, clear and up to date. That is the minimum we can do to prevent such scars from blighting people’s lives in future.
I congratulate the hon. Member for Coventry North West (Mr Robinson) on securing this important debate. I agree with much of what he has said, particularly about the criminal law needing to be much tighter on the irresponsible ownership of dogs. In most cases, it is the humans who are at fault, not the dogs. Possession of a violent dog has caused catastrophe in the hon. Gentleman’s constituency in Coventry. If it can be proven that an owner has trained that animal to be aggressive, it should be an aggravating factor and fall under the criminal law.
I shall offer a slightly different view on the issue of “deeds not breeds,” which I am erring in favour of. The breed issue is not clear. The pit bull terrier is not a single breed of dog; it is a generic name and a grouping that contains several breeds of dog, including the popular Staffordshire bull terrier. If handled in the correct manner, the Staffordshire bull terrier is an affectionate and loving family pet. A dog bearing just one or two of the physical characteristics associated with a pit bull terrier can be classified in law as a pit bull terrier. The implication of that for anyone who complains to the police about a neighbour with an animal bearing just one of the characteristics of that dog type is that the police are mandatorily enforced to take that dog away from that owner. My visit out with the Royal Society for the Prevention of Cruelty to Animals the week before last to mark world animal day confirmed that such an approach can be very unfair indeed, because unfortunately many of the calls the RSPCA get from members of the public are malicious. I ask the Minister to take that into account.
Just briefly, I support and congratulate my hon. Friend the Member for Coventry North West (Mr Robinson) on his call for the consolidation of existing laws into a new statute. I will not repeat everything that he has said and instead make two further points.
First, I found out today from a written parliamentary question that 892 people were admitted to hospital last year in Yorkshire and the Humber alone as a result of dog attacks. If we can establish the average cost for those admissions as opposed to accident and emergency attendances, I am sure we will find that, overall, there is a significant multi-million pound cost in England to the Exchequer. That underlines the argument that I have always made, which is that the improvement of existing legislation and an addition to available resources, particularly to local authorities to enable them to enforce legislation and engage in education and prevention activities with dog owners, will be an investment that will actually result in a reduction in public spending. At the moment, we spend a great deal of money on treating people who have suffered in the way mentioned by my hon. Friend the Member for Coventry North West.
The consultation finished in June 2010. It is now October 2011. The Minister of State, Department for Environment, Food and Rural Affairs, the right hon. Member for South East Cambridgeshire (Mr Paice) pointed out in July in this Chamber that action must be taken, yet we still have no response from the Department. We must have an answer to the consultation soon. I hope that the Minister will today give us a date for a response to the consultation.
I congratulate the hon. Member for Coventry North West (Mr Robinson) on raising this important subject. When the Minister of State, Department for Environment, Food and Rural Affairs, my right hon. Friend the Member for South East Cambridgeshire (Mr Paice) replied to the debate on dangerous dogs in July, which was introduced by my hon. Friend the Member for Romsey and Southampton North (Caroline Nokes), he made it clear that the Government were sympathetic to hon. Members in all parts of the House who feel that the existing law is in need of an overhaul.
The Government recognise the difficulties faced by those who find themselves in the front line dealing with irresponsible dog ownership in communities. No one can fail to be shocked by the savagery described by the hon. Member for Coventry North West, the savagery of dog attacks that we have all seen in the media and by the several deaths in the past few years that have been mentioned by hon. Members. We understand the very real concerns about safety and the impact on communities. We also recognise the immense pressure on dog rescue centres as they see an ever-increasing rise in the number of Staffordshire bull crosses—so-called status dogs. I wish that we could somehow get away from using that phrase, as it indicates some sort of status for the people who use dogs in a malign way. Calling them “stupid people’s dogs”, or something like that, might be more relevant. Very often, these dogs are cruelly abandoned by their owners, and we often forget that in this debate.
There are no easy answers to this problem. We do not want to rush into changes to the existing law without giving thought as to whether they will work. We want to be sure that any changes will have a real impact on reducing instances of irresponsible dog ownership, particularly dog attacks.
I would like to update the Chamber on the progress made since July, and I hope that that will answer the point raised by the hon. Member for Penistone and Stocksbridge (Angela Smith). Ministers and officials have continued to work across Government and with key stakeholders such as the police, local authorities, the Royal Society for the Prevention of Cruelty to Animals, the Dogs Trust, Battersea Dogs and Cats Home and the Kennel Club. Contrary to what has been said, those organisations do not all share precisely the same view on how the law should be changed. Indeed, differences have been suggested in the Chamber today. However, they have all been very helpful in letting us know their views and helping us to refine our thinking about what should be done.
As the consultation that the Department for Environment, Food and Rural Affairs held last year showed, the issue of dangerous dogs covers a range of concerns, from thoughtless and irresponsible ownership, up to deliberately using a dog as a weapon to intimidate and harass others. As a result, a number of agencies and interested parties are involved. Earlier this year, the Home Office concluded a consultation on a more effective approach to antisocial behaviour. That new approach is intended to reform the toolkit available for tackling antisocial behaviour, including that relating to dogs.
When launching the consultation, the Home Secretary made it clear that the Government expect everyone to have a right to feel safe in their home and in their neighbourhood. She said that antisocial behaviour should be a priority for local agencies, including police, councils and social landlords. She underlined the fact that we need a new approach to problems that are fundamentally local. The proposals include streamlining the toolkit used to tackle antisocial behaviour, so that police and partners have faster, more flexible and more effective tools; sweeping away a swathe of statutory powers, so that the police have simple, intelligible powers that they can use when necessary; and giving victims and communities the right to force the authorities to take action, where the authorities have failed to do so.
I realise that there are concerns that a simpler approach by the Home Office will somehow overlook the problem of dogs being used to intimidate others, but that is simply not the case. Ministers and officials are continuing to work closely with the Home Office to ensure that dogs are not overlooked in the new framework and that the police, local authorities and local communities continue to be able, where appropriate, to develop their own solutions to dog problems that do not necessarily involve the courts and criminal sanctions. That may answer the point made by the hon. Member for Penistone and Stocksbridge. In the next month, we expect the precise details from the Home Office about how it feels this should be taken forward. We will then be able to involve that in what we are saying.
Will the Minister cover the issue of private property and the loophole in the law that allows 4,000 postal workers to be attacked without any prosecution being brought?
I am coming on to that precise point. Ministers have made it a priority to see how this issue is being dealt with on the ground in the communities that are affected. We are keen to learn the lessons of what works—and what does not—from local projects in areas where there is a high incidence of dog-related problems. Our view is that local action is key to tackling the problem of irresponsible dog ownership. We are keen to support local people, charities, the police and local authorities, so that they can jointly tackle local issues. We are also looking at what more Government can do to support the police, local government and the courts in dealing more effectively with dog problems. We have already facilitated the production of guidance for the police, the courts and the public. We have also provided financial support for the training given by the Association of Chief Police Officers to police dog legislation officers. Ministers are keen that we build on this support in future.
If my hon. Friend will allow me, I am coming to the point that he raised earlier.
A number of people support the idea that if breed-specific legislation is not repealed, then owners should be allowed to apply to the courts to have the dogs added to the index of exempted dogs. I want the police to have the final say on whether a dog is seized, and there may also be scope for not kennelling other types of dogs that are not a danger. In all cases, the police would need to be satisfied that the dogs are in the care of a responsible owner. That idea would undoubtedly save money for the police who, under the existing law, must first seize the dog pending the outcome of court proceedings. However, we also need to consider whether such a proposal would allow for the public safety factor of each application to be properly considered.
On the point raised by the hon. Member for Washington and Sunderland West (Mrs Hodgson), another proposal under consideration is to extend the criminal law on dangerous dogs to all private property. That would allow the police to investigate dog attacks on private property, and we have sympathy with that desire. That may, on the face of it, be an easy thing to do, but we should consider the effects of, say, a trespasser with criminal intent who is attacked by the home owner’s dog. Do we really want a trespasser successfully prosecuting a home owner because the home owner’s dog has acted in a way that many people would consider only natural? I point that out as just one example of where it is not a simple binary decision. There are some major implications in extending the law into the home. Before going down this route, we would need to be sure that all the potential risks are understood and can be addressed, but I assure the hon. Lady that we get the problem and are very keen to move position, which I think all hon. Members would—
The Minister said a moment ago that not all organisations agree about every detail—that is true, and they never will. However, what everybody agrees on is the extension of criminal law, and everybody agrees with a natural exemption if there is a trespasser or a burglar. That happens in all criminal law. It is not a real problem, unless the Minister wants to make it one. We have no timetable for any sort of legislation to deal with the issue.
We are mindful of that point. We believe that we can get through it, but it indicates how the issue is not straightforward.
Turning to the point made by my hon. Friends the Members for Romford (Andrew Rosindell) and for Romsey and Southampton North about microchipping, I worked closely with my hon. Friend the Member for Romford on this issue before the election. There are obvious side benefits to the compulsory micro-chipping of dogs, one of them being the ability to identify the owner of a dog that has become dangerously out of control even if the owner is not present at the time of the incident. Better traceability of owners could discourage them from letting their dogs run loose, and hence reduce the likelihood of attacks. However, I consider that the principal benefit is that it would enable the police, local authorities and rescue centres to reunite lost and stolen dogs with their owners. It may also help where dogs have been stolen, which is a big issue in my constituency. That is an important step forward, and one that I believe that we can support, but would it reach the problem owners we are talking about? That is a fundamental point that we have to consider.
With respect to the hon. Gentleman, I have just a few seconds left, and I want to say that the Government take this issue very seriously. It is a complex issue that spans many areas of undesirable behaviour from thoughtless and irresponsible dog owners.
Ministry of Defence (Procurement)
[Mr Jim Hood in the Chair]
It is good to have you in the Chair for the debate this afternoon, Mr Hood, and I apologise for its wide-ranging nature. A number of Ministers have responsibility for Ministry of Defence procurement, which I know has presented something of a dilemma as to who should respond to the debate. The Under-Secretary of State for Defence, my hon. Friend the Member for Mid Worcestershire (Peter Luff), appears to have drawn the ministerial short straw, and I appreciate that he might not be able to answer fully some of the issues raised. However, if necessary, I am more than happy to receive a delayed response from his appropriate ministerial colleague.
The issues are varied but a common theme runs through them: the apparent flaw in how contracts are negotiated by the Ministry of Defence. The first such contract to mention is a memorandum of understanding signed between the British MOD and the Canadian Department of National Defence, an agreement about the British Army training unit, Suffield—BATUS for short—which is sited at the Canadian forces base at Suffield in Alberta, Canada. In case my words are taken as a criticism of the coalition Government, God forbid, or its immediate predecessor, I should point out that although the current agreement was signed in July 2006, the original one was signed way back in 1972. I have a copy of that agreement and, in all my experience in the contracts industry, I have never seen a more one-sided document. Not only does the agreement give to the Canadian Government the final say in how BATUS is operated, down to who is employed on the base and from whom and from where equipment is purchased—I will come to that aspect in a moment—but it is also my understanding that the financial split between the two Governments is such that the British pay 80% of all the costs and the Canadians 20%. Bizarrely, however, nowhere in the documents are those figures spelt out explicitly.
The effects of the agreement are plain to see by anyone who visits BATUS, as I did recently with colleagues from the armed forces parliamentary scheme. Let me give a couple of examples. Administration on the base is shared between Canada and Britain, but three or four Canadian civilians work there, compared with one Brit. That is hardly surprising if we consider that the Canadians decide who is employed but the British taxpayer picks up 80% of the bill for employing such people. On the equipment side, earlier this year the Army decided to withdraw its helicopters from Belize and wanted to transfer them for use at BATUS in support of battleground exercises. The Canadians refused and insisted that British forces at BATUS lease Canadian helicopters piloted by a Canadian civilian from a Canadian company. That is not a good use of British taxpayers’ money.
On the subject of helicopters, to save money BATUS has now stopped using helicopters as part of its battlefield training exercises, apart from in a support role. That is a false economy because the lack of proper training could put at risk members of our armed forces during any future active service in which helicopters might be needed to transport soldiers to the front line. The cost of using helicopters during annual training exercises is estimated at £100,000—a small price to pay for a soldier’s life. If the MOD wants to find that money, let me say where it can be found.
At BATUS, there is a range control building, which is used to monitor vehicles accessing and leaving the training area. It is sited at the beginning of Rattlesnake road—yes, there are rattlesnakes on the prairie, to which my colleagues and I will bear witness—but eight years ago the Canadians insisted that the building was in poor condition and needed replacing. The MOD agreed and, earlier this year, contracts were awarded for a new range control building on a site a few hundred yards from the existing building, which, surprise, surprise, will be built by a Canadian construction company, using local labour. The cost to the United Kingdom, confirmed in a letter from the MOD, will be £4 million. Setting aside that we could build a decent-sized primary school for that amount, I question the need for a new building at all. As I said, I was at BATUS with colleagues a little more than a month ago, and the old one looked fine to me. The House need not accept the judgment of a humble Back-Bench MP, however, because I can assure the House that that view is shared by the permanent British military personnel in Canada, who categorically state that they do not need the new building. I urge Ministers to look again at that unnecessary project and to pull the plug immediately. Just think how many helicopter training hours we could fund with the £4 million saved.
I thank my hon. Friend for securing the debate. I was on the same trip to BATUS and the training facilities there are second to none—they are an incredible facility for the British Army to use, and no one for one minute is doubting that. During our recent visit to BATUS as part of the armed forces parliamentary scheme, however, we saw another example of the ludicrous bias in the memorandum of understanding. The British Army has two personnel looking after several bunkers of live ammunition, whereas the Canadians have six personnel looking after the equivalent of a tableful of ammunition, 80% of whose cost is paid for by the British taxpayer. Does my hon. Friend agree that the BATUS memorandum of understanding needs to be looked at again now, for renegotiation, rather than being ignored? My understanding from the Minister is that there are no plans at all to renegotiate the MOU.
I thank my hon. Friend for his intervention and for reminding me of that additional scandal—which is what it is, ultimately—about an agreement that allows the Canadians to employ whomever they want with the British taxpayer paying up to 80%. I, too, urge Ministers to enter into immediate negotiations with the Canadian Government to reduce the percentage of the total operating costs of BATUS paid for by the British taxpayer. I hope they do so, and it can be done, because the memorandum of understanding is a rolling contract—there is no bar on opening negotiations at any time.
The MOD pays the Canadians £20 million a year to use the BATUS training area which is, as my hon. Friend said, a fantastic training facility, and I would certainly not want it to close. Entering into new negotiations with the Canadian Government might pose a threat because the Canadians could turn round and ask the British to leave, but I do not believe they would. It is Canada’s interest as much as ours to have that joint training facility, and I remind Ministers that it is a joint training facility for which we Brits pay 80% of the cost. In addition to the £20 million that Britain pays for use of the training area, the UK pays a proportion of the operating costs, which is around £80 million a year, so the total cost of the facility is £100 million a year. In the current economic climate, with members of the armed forces being asked to accept cuts in pension entitlement and allowances, it is surely right that the MOD makes an effort to reduce the cost of operating BATUS.
I congratulate my hon. Friend on securing this debate. I, too, was on the parliamentary scheme visit to Canada, and I could not decide whether the Canadian Government wanted the British Army at BATUS. Given what my hon. Friend has just said, would it be worth considering leaving Canada and using other areas such as Scotland and Germany? The Army of the Rhine has to return to the United Kingdom, and perhaps we could look at more cost-effective areas instead of staying in BATUS.
My hon. Friend is right to point that out. While we were visiting BATUS, it became clear that with the number of oil wells in the 2,700 sq km of training area, which is essentially protected by the Canadian Government, there must be tremendous pressure on them from the oil companies to encourage the British Army to leave BATUS. That is a risk, as I pointed out, but my hon. Friend is right in suggesting that other options are open to the British Government, not only in Scotland and Germany, but perhaps with expansion of the training area in Kenya, which colleagues may visit in the new year.
My personal view is that nothing that we can provide in this country is suitable for armoured warfare and tank manoeuvres. That is a problem with Scotland, although it could provide good training facilities. Germany is an option, but Kenya would pose a risk because of what might happen if there were a change of regime to an unfriendly Government and we had to leave. At least Canada is a long-standing ally and, I hope, a long-standing future ally.
I do not want BATUS to leave Canada, but in the present economic climate the Canadian Government will recognise that the British Government must do something to reduce costs, and I ask the MOD to start those negotiations. If we could negotiate a more equitable 60:40 split, which would be a reasonable split for a shared facility, that would save British taxpayers at least £20 million a year, and probably more. A more equitable cost share would encourage the Canadians to be more cost conscious when considering whom they employ, how many people they employ, and how they operate. That should be considered.
Good negotiation is the key, and there is the rub. I simply have no faith that some other procurements negotiated by the MOD provide the best possible deal for British taxpayers or, perhaps more importantly, the armed forces personnel who must live with the consequences of those contracts.
I congratulate my hon. Friend on securing this debate. Does he agree that the MOD’s focus should be on value for money, rather than price? A contractor in my constituency, F.J. Bamkin, made high-quality socks for the MOD, but lost the contract to a company providing a much cheaper but inferior product. If the focus was on value for money, rather than just price, we might be more successful.
I thank my hon. Friend for his intervention. He is right, and I will come to that when referring to a contractor in my constituency whose situation reflects, in a slightly different way, the difficulties facing suppliers. I hope that he will bear with me.
I have no faith in the MOD securing a good deal for taxpayers, and I will highlight as an example a couple of contracts, the negotiation of which can best be described as nonsensical. I recently visited the 2nd Royal Tank Regiment at its Tidworth camp in Hampshire. I toured the armoured vehicle repair shop and noticed that one of the lifting ramps was cordoned off. When I asked why, I was told that the ramp had been out of order for a couple of weeks, and that although the on-site mechanics could repair it, as would be expected from REME personnel, they were not allowed to because the contract for the equipment required outside contractors to be called in, and the regiment was having trouble getting those contractors in. The bureaucracy involved in applying for the contractors to do the work was not only taking up a lot of time, but was a lot of work. That is idiotic.
While at Tidworth, I saw another example of idiocy. The problem, which is only a small one, is in the sergeants’ mess, but I have no reason to think that this is not replicated in all messes throughout the armed forces. The range of beers on offer is limited to brands determined by the private company that runs those messes, and if that is not bad enough for beer drinkers, the corporals are even worse off, because the contract does not recognise that corporals have a mess. It recognises only officers’ messes and sergeants’ messes. The corporals must pay almost double the price for beer as sergeants. In the grand scheme of things this is a small issue, but such small niggling issues chip away at the morale of our service personnel, yet they are so easy to resolve with the right contracts and the right negotiation.
I turn now to a specific procurement problem that affected a company in my constituency. The company wanted to bid for MOD work, but the tender document was drafted in such a way that compliance was impossible for any company except the existing supplier. The products that my constituents wanted met all the relevant quality and safety standards, and all the tender conditions except one. The tender document required proof of field trials carried out in Desert Storm warfare conditions. That condition could, of course, be met only by the company that supplied the equipment during that conflict. My constituent was not best pleased and, understandably, believes that the tender document was written not by the MOD, but by the supplier of the original equipment. I am slightly more charitable, and inclined to believe that the MOD staff who drafted the tender document simply did not consider the ramifications of what they were writing, and what the consequences would be.
I want to finish with a confession. I know something about MOD negotiators, because I worked for 15 years as a senior contracts officer for GEC Marconi Avionics. I spent my time running rings round MOD staff while negotiating various defence contracts. That is the problem and the solution all in one. The MOD needs people with a sound commercial background, the desire to get as good a deal for the taxpayer as they would if they were still working for a private company, and a financial incentive if they succeed.
I congratulate my hon. Friend on securing this debate. He has put his finger on the crux of the matter with his ability to run rings around procurement staff at the MOD. Is part of the problem the fact that procurement staff in the Ministry rotate, and would a more professional, stable procurement service go some way to solving the problems that he has outlined so eloquently?
I welcome that intervention. My hon. Friend is right because that is half the problem. However, my experience of running rings around staff during negotiations does not apply only to MOD staff; I have also negotiated with staff from the Department of Defence in America and with Canadian defence staff and they are all the same. They are civil servants who have no interest or background in commercial matters. They are negotiating with taxpayers’ money, which does not come out of their pockets or affect their profits. They have no incentive.
I thank my hon. Friend for securing this debate and for sharing his vast experience. I know that the taxpayer needs value for money, but does my hon. Friend also accept that we need to use Great British companies, such as Mettis Aerospace in my constituency which employs over 500 people?
I accept everything that my hon. Friend says. It is vital to bring more professionalism into procurement. I do not want this debate to be only about kicking the MOD. I suspect that procurement systems across Government are absolute rubbish, and today’s debate highlights a deeply flawed system that we must try to do something about.
I am sorry that I was not present at the start of the debate and I will be brief because other colleagues wish to speak. I want to introduce a wider issue of defence procurement and I hope that the Minister will respond to my contribution. The issue concerns the large amounts of money that are being spent in advance of a parliamentary decision on the replacement of Britain’s nuclear weapon system. The Minister is smiling but I am not sure why—perhaps it is out of desperation at the amount of money flowing out of his Department and into the hands of contractors as we speak.
I would like the Minister to answer a number of questions about the costs of replacing our nuclear weapon system. The main gate decision on the Trident replacement is not due before the House until 2016. Out-turn prices were estimated in the initial gate report to be £25 billion for the replacement of the submarine, and costs for the successor system, including the warhead and infrastructure development, were between £30 billion and £32 billion. So far, £900 million has been spent on planning and replacement, and £3 billion is due to be spent on detailed design before 2016. The rest will be spent after the main gate decision in 2016.
A number of serious questions must be raised. This is not a discussion on foreign policy and we are not debating nuclear negotiations. Nevertheless, when we are faced with a massive deficit, and people in every community in the country are being told to make savings, why is the Ministry of Defence calmly ploughing ahead to get rid of £100 billion of public money on a nuclear missile system that many of us believe to be illegal, unnecessary and dangerous? All the money being spent is going into the pockets of various contractors around the world and not being put to any socially useful purpose.
Whatever choice is reached in 2016, major elements of the vessels will already have been ordered before Parliament has had a chance to debate the issue. That includes £380 million spent on the first submarine, £145 million on the second and £6 million on the third —those are the submarine costs alone. I hope that the MOD will be more open about what that expenditure is for and why it is necessary to make it ahead of any parliamentary decision. I was told by a Minister in another debate that such actions are the normal way of doing things in the Ministry of Defence, and that it does things on a sort of custom and practice basis. If it is custom and practice for the MOD to spend such sums of money without parliamentary approval, I suggest that that custom and practice needs to stop. There should be specific parliamentary approval for each element of expenditure, but that has not happened in this case.
Further spending is taking place at Atomic Weapons Establishment Aldermaston and Burghfield, and the full cost of project Pegasus—the proposed new facility for manufacturing enriched uranium components for nuclear warheads and reactor fuel for nuclear-powered submarines—was priced at £747 million when it received initial approval in 2007. I would be grateful if the Minister confirmed whether that figure is correct. If it is not, will he give the Chamber an accurate figure and state how much more money is expected to be spent on project Pegasus at AWE Aldermaston and Burghfield?
The relationship between the MOD and defence contractors is interesting. Poachers who join the side of the gamekeeper are obviously extraordinarily welcome, and the hon. Member for Sittingbourne and Sheppey (Gordon Henderson) brought a particular expertise to the debate. He seemed, however, to underline an issue that needs questioning concerning the close relationship between the MOD, defence contractors and the defence industry, and the large amounts of money being spent. Parliament exists to control what the Government do. MPs exist to represent their constituents and hold the Executive to account, and there are serious questions about the decision-making process surrounding the replacement of Trident, the purpose of Trident, and the vast expenses that are being undertaken without any parliamentary approval.
I congratulate the hon. Member for Sittingbourne and Sheppey (Gordon Henderson) on securing this debate and I want to pick up the point about contracts and transparency in Government expenditure. The strategic defence and security review will lead to the renegotiation of many contracts, and that may lead to some savings or perhaps to an increase in costs. So far, the MOD has failed to provide the Public Accounts Committee, the parliamentary body that looks at value for money in defence spending—
Absolutely. Parliament must scrutinise such expenditure. One of the greatest weaknesses of the British parliamentary system relates to its ability to scrutinise expenditure. We do not traditionally do line-by-line budget voting in this country, and although the Public Accounts Committee does a good job, it can look into only one theme or area of expenditure at a time. Perhaps we need tougher scrutiny, particularly where the Ministry of Defence is concerned and given the levels of expenditure being discussed.
I have two final points. Some colleagues present today represent constituencies that have embarked—or are likely to embark—on the manufacture and development of submarines and nuclear warheads, and some represent constituencies that have a big defence interest. I do not have a big defence interest in my constituency but I understand what the position of my colleagues may be. However, there are enormous skills in the defence industry in this country. We make planes, ships and all kinds of things very well, and we have a highly skilled work force. How much better would it be to have a longer-term trajectory for using those skills to make other things such as socially useful products that will develop, sustain and support people, rather than weapons of war or, in the case of nuclear weapons and submarines, weapons of mass destruction that can only kill large numbers of civilians?
Concerns have been raised that the cost of the Trident replacement programme puts significant stresses on the rest of the Ministry of Defence budget. I hear complaints from many people throughout the armed services that they are experiencing various shortages at present. All hon. Members in the Chamber will be able to relate to that. None of those shortages will be met while we continue with the massive expenditure on nuclear weapons and the preparation for replacing the submarines and missiles.
A document entitled “Looking into the Black Hole” by the Royal United Services Institute states:
“The largest, and politically most difficult, procurement programme over the next two decades will be the construction of a successor to the Trident nuclear deterrent submarines. The MoD is due to spend £7 billion over the decade to 2020 on the initial concept, design and development phases of this project, equivalent to around 11 per cent of the new equipment budget over the decade from 2011/12 to 2020/21. But the bulk of spending on the successor submarines, total costs of which are projected at £25 billion, is due to occur during the decade after 2020/21. The Main Gate decision, which gives permission for the Demonstration and Manufacture phase to begin, is due to be made in 2016. If this schedule remains, spending on the successor programme will rise sharply, probably reaching a peak of around 30 per cent of the new equipment budget by 2021/22 or 2022/23, when the first-of-class begins production. It is likely to remain close to this level until after the planned delivery of the first submarine”.
We are on a trajectory to spend a great deal of money before Parliament has even made the decision. I could write now the speech for the Secretary of State, whoever it will be, in 2016—“We’ve spent so much, done so much and made such preparations. Let’s spend another £60 billion on this project.” Why can we not have that debate, discussion and decision now, rather than leaving it for another five years, until 2016, when all this money will have been spent?
I do not know whether you care to cast your mind back to May 1997, Mr Hood, but you drew the short straw of being the hon. Member who had to respond to my maiden speech. That speech was about nuclear weapons—Trident—and I fear that this one will be on the same subject. Indeed, I suspect that it will not be the last one that you or other hon. Members hear from me on the subject. I sometimes think that I should go into a sort of partnership with the hon. Member for Islington North (Jeremy Corbyn). We have debated this subject many times over the years. He never changes his tune, and I never change mine, but the debate remains live. It relates to procurement, in addition to strategy and the ethics or otherwise of nuclear deterrence, because of course the procurement process for Trident has been much disrupted.
The hon. Gentleman made great play of the fact that Parliament has not yet had the debate. Well, excuse me, I think that Parliament did have a debate. If I remember correctly, it was in the spring of 2007, and both the Labour party and the Conservative party were wholly in favour of the next generation of Trident being constructed. I recall the then Leader of the Opposition—now the Prime Minister—to whose speech I had contributed, passing me an Order Paper on which he had inscribed the words “Julian gets his way”. Sadly, of course, there’s many a slip between cup and lip or, indeed, between a vote in Parliament and the deployment of a successor generation. The slip concerned came in the failure of the Conservative party to win an overall majority at the last general election. That ought not to have been a problem for the procurement process for Trident, given that the Labour party had gone into the election pledged to renew the nuclear deterrent and so had the Conservative party. Only the Liberal Democrats were opposed to that.
I know that the hon. Gentleman loves the fact that the Conservatives are in a coalition Government with the Liberal Democrats—it is what gets him out of bed every morning and into work—but in his discussions with his Liberal Democrat colleagues, has he reached any conclusion about whether they do or do not want a nuclear missile or whether they want a different type of nuclear missile in the review that apparently is being undertaken?
I have to say to the hon. Gentleman—I am tempted to say “my hon. Friend”—that the Liberal Democrats really differ from both of us, because he knows where he stands on nuclear weapons and I know where I stand, but the Liberal Democrats stand firmly with a foot in both camps. They know that they do not want Trident, but they do not want to put themselves in his camp by telling the truth, which is that the majority of their activists are one-sided nuclear disarmers and do not want a strategic nuclear deterrent at all. Therefore, they come up with this fiction that it is possible to have a viable strategic nuclear deterrent with an alternative system to Trident.
That ought to have made no headway at all when the coalition was formed. The reason for that was that I and all the other Conservative Members of Parliament, who were being addressed by the Prime Minister-to-be at a meeting in Committee Room 14, were told what the terms of the coalition agreement would be, or some of the basic outlines of the terms. We were told that we would have to accept certain things that the Liberal Democrats wanted that we did not want, such as a referendum on the alternative vote, but that the Liberals would have to accept things that we wanted that they did not want, such as the renewal of Trident—that was the very example chosen. I remember my friend and colleague the future Chancellor of the Exchequer looking up at that moment, catching my eye—because at the time I was still the party spokesman on the Royal Navy and the nuclear deterrent—and nodding vigorously in confirmation of what the leader of the party had said. You can imagine, Mr Hood, my surprise and dismay—
On the issue of discussions and debate, does the lesson of someone nodding vigorously in agreement with a position, only for that subsequently to be replaced by a cold, hard dose of reality, ring a bell in relation to other issues?
There is always the possibility that people will change their mind when they see different circumstances, but I genuinely feel that that has not applied in this case as a result of what I was about to explain and what hon. Members will remember. Out of the blue, even though the procurement of a replacement and successor system for Trident had specifically been excluded from the terms of the security and defence review, on the day when the statement was made, publishing the review and presenting it to Parliament, we were told that the main gate decision, the contracts for Trident would be put off until after the next election. With the greatest respect to the hon. Member for East Londonderry (Mr Campbell), there was no doubt at all that that had nothing to do with hard facts or realities creeping in, and everything to do with politics, as the letter subsequently sent out from the president of the Liberal Democrats, crowing in triumph at the delay of the Trident decision, made clear.
I must not wander too far from the procurement emphasis of this debate. Therefore, I would like to put a specific question to my hon. Friend the Defence Minister with responsibility for procurement issues. It relates to the study that is being done about alternative systems to Trident as a possible nuclear deterrent. That is being done as a gift, a present, a political offering to the Liberal Democrats in the coalition, and I believe that the study is being carried out by the Cabinet Office rather than the Ministry of Defence, although the Ministry of Defence is supplying the material to the Cabinet Office.
I have to say to the Minister that any halfway competent assessment team, facing the problem of examining the existing and the potential systems for carrying a nuclear deterrent in the future, could do a comprehensive study over a period of probably not more than two or three months and arguably over a few weeks, on the basis of the accumulated knowledge of half a century that we have in the business of strategic nuclear deterrence. I would therefore like to know what progress such a study is making or whether it will in fact be spun out until the next general election. The reality is that there is no alternative to Trident for the next generation of the strategic nuclear deterrent, and I suspect that my political opponents in the CND ranks would agree.
I do not mind so much when unclassified documents are thrown away, but I do mind when this country’s basic protection is thrown away. I really do not want to see another hung Parliament, with both major parties having gone into an election proclaiming their commitment to the next generation of the nuclear deterrent, only for a small third party that is adamantly opposed to that deterrent, but which does not have the guts to wear its unilateralism openly, to blackmail the leaders of those two parties in turn, saying, “You get rid of this weapons system and we will make you Prime Minister.”
I feel loth to interrupt my hon. Friend as he expands on how a small but effective team can punch above its weight in the coalition, because he is doing a splendid job. Does he not see, however, that the threat facing the United Kingdom has changed hugely over the 20 or 30 years since the end of the cold war? Does he not agree, therefore, that it is right and proper to examine whether we need to change our plans in response to that changing environment?
Thank you very much. I would simply say that punching above one’s weight and getting a result that reverses the mandate of the two large parties are very different things.
The question is what happens in the procurement process for a weapons system that Parliament has already voted in principle to bring into existence. The hon. Member for Islington North says Parliament should debate and vote on the issues again and again at every stage of the procurement process. As the Minister will confirm, however, procurement does not work that way; there are certain set stages in the procurement of a weapons system at which Parliament may have its say and at which contracts must be signed. The fact is that the contract in this case has been put off until after the election, and the result is that the entire procurement project has been put in jeopardy.
The systems we are worried about—whether nuclear systems or aircraft carriers—will be built over a fairly long period, but they will be in service over a very long period. The lifespan of the new super-carriers will be 50 years, and that of the next generation of the nuclear deterrent will be about 30 or 35 years. Therefore—I would not dream of returning to our earlier debate—the circumstances that have changed in the world over the past 15, 20 or 25 years might well change again over the next 15, 20, 30, 40 or 50 years. That is why we have armies, navies and air forces in times of peace, when there is no apparent threat on the horizon, and why we need systems such as the nuclear deterrent—to prevent us from being taken by surprise.
I must draw my remarks to a conclusion, as others will not have time to speak otherwise. However, I would not like today to pass without paying tribute to my right hon. Friend the Member for North Somerset (Dr Fox), the former Secretary of State for Defence, and wishing him all the best. I served under him and three previous shadow Secretaries of State, and I know that defence specialists across the parties are bound by a common world view and a common realisation that decisions taken in the defence portfolio, above all others, will determine whether the people of this country remain safe and whether our forces, when they go into action, sustain great casualties or emerge triumphant, bearing few, if any, casualties. The responsibility for those issues is fearsome. My right hon. Friend had a passionate belief in the importance of the Anglo-American alliance and of procuring a future generation of the nuclear deterrent, and I trust that his successor will be equally committed.
Finally, I welcome the hon. Member for Plymouth, Moor View (Alison Seabeck) to her responsibilities. Like many members of Labour defence teams in the past, she takes defence seriously and works on a non-partisan basis when she can.
It is a pleasure to speak under your chairmanship, Mr Hood. It is also a pleasure to follow the hon. Member for New Forest East (Dr Lewis). My remarks will follow on neatly from his, as his did from those of my hon. Friend the Member for Islington North (Jeremy Corbyn)—those who speak in debates on the deterrent are a kind of a parliamentary tag team. This is not the first time we have seen that, and I am sure that it will not be the last.
Yes, that is quite possibly true, and I may say something about the fundamental importance of this debate for Opposition Members later.
I want to talk about the successor deterrent in the context of procurement and the critical issue of sovereign capability. Defence procurement is different from so much Government procurement in other Departments, because of the importance of Britain retaining capability in certain key strategic areas. Submarine capability must remain one of those, and British submarines defending British shores must continue to be built in Britain. It is a happy fact that the only place in Britain that can build them is in my constituency, and what an incredible engineering feat is achieved there.
It is important that procurement is undertaken in the most effective way. Gaps in construction could spell disaster for our capability to build submarines. Hon. Members will think back to the early 1990s, when the previous Conservative Government left a gap between finishing the Vanguard class submarines and starting the Astute class submarines. Ministers say—I welcome this, and we need to hold them to it—that they have learned from those mistakes and from the experience of how difficult it was to restart our capability in Barrow. In fact, the problems and cost overruns experienced with the new Astute class submarines came in large part from the fact that the people building them were learning their craft anew.
Given the constraints of sovereign capability and the fact that only one place in Britain will retain the skills to build submarines, it is critical that the Government do whatever it takes to ensure that the taxpayer gets value for money and that the country’s security is upheld. Conservative Members were hot on that in opposition, when they repeatedly pointed out the cost to taxpayers of delaying important procurement projects and of shifting timetables to the right. It therefore greatly concerned me that when they took office, they delayed the proposed in-service date for the successor deterrent submarines from 2024 to 2028, which necessitated a re-baselining of the Astute class submarines at an increased per boat cost to taxpayers and created the need for a costly refit of the Vanguard class submarines. In an answer to me on 8 November 2010, at column 5, the former Defence Secretary, the right hon. Member for North Somerset (Dr Fox), put the cost between £1.2 billion and £1.4 billion, which is the cost of refuelling alone aside from any other cost incurred in keeping the submarines going.
Apart from the increased cost, the changed in-service date has potentially stretched the safe life of the current Vanguard class submarine to its limit. Experts in the Navy, Barrow shipyard and the Government say that with the increased cost of the refit they think they can keep the Vanguard class submarines in service for the projected time, but their life will be stretched to the limit, and any further delay could compromise safety and radically increase the cost. I hope that the Minister will comment on that. It is important that we keep the project to time, but it has slipped in the past, and if it slips further, given that he has increased the risk to the project, what will happen?
I hope that the Minister will make it clear whether the new Defence Secretary intends to look at the issue afresh, and, if so, what that is likely to entail. Will he ring-fence the budget for Trident from the defence main budget, which has already been mentioned in the debate? Will he make clear the overall extra cost to the taxpayer from the political deal between the coalition factions, which the hon. Member for New Forest East has expanded on at length? That deal subjugated what was in the best interest of British taxpayers on procurement and the defence of the realm to political expediency in this Parliament.
I take my hon. Friend’s point about timing, which is perfectly made, but the alteration to requirements is also important. In the strategic defence and security review the Government, as we have seen, changed their mind about what planes would travel on the new aircraft carrier, which has pumped up the cost by billions.
My hon. Friend has extended my point. Because of the limitations that have necessarily been put on defence procurement for very good reasons, Ministers have an increased responsibility to make the right decisions. The hon. Member for Sittingbourne and Sheppey (Gordon Henderson), whom I congratulate on obtaining the debate, expanded at length on other areas of difficulty, and I hope that the Minister will deal with those points, particularly the most important issue of all for our defence—the ultimate deterrent that the UK maintains.
I congratulate my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson) on securing the debate, which he promised would be wide-ranging, as it has certainly proved. I want to make passing reference to some of his points about the waste of public money in various previous defence procurement contracts, which is particularly galling given how hard we are now sweating our military assets, working people and equipment to deliver incredible value for money. It is galling, too, because, representing a military constituency, I receive letters from wives in military families saying, for example, that their husband is about to be deployed for a second eight-month term with only a 10-week break, and will be away for a second consecutive Christmas. That puts incredible pressure on families, so it seems very wrong to throw money away thoughtlessly on ill-devised and badly thought-out procurement contracts.
I want, however, to talk about another matter, and that is the vagaries of a defence procurement process which puts obstacles in the way of good, efficiently run British companies—particularly small or medium-sized enterprises—winning contracts, creating jobs and earning the money to help the country grow out of its economic hardship. I know that the Government have always recognised the strategic and economic importance of the defence sector. I have six significant defence companies based in my constituency, so I have become increasingly aware in the past 18 months of the challenges that the industry faces. In the light of the forthcoming White Paper on defence and security equipment, support and technology, I urge the Ministry of Defence to deal with three areas of concern to the companies in my constituency: support for SMEs, greater long-term planning and a strategy for successful outsourcing to industry.
I have spoken before in the Chamber about the great importance of SMEs in all sectors. They are truly the lifeblood of the defence industry. In my constituency, SMEs such as Vector Aerospace represent vital links in the supply chain that allow our headline companies to succeed, and to be world beaters. Britain boasts more SMEs in its defence industry than France, Germany, Spain and Italy combined, and we must recognise and nurture those unique assets.
I welcomed the acknowledgement in the December 2010 Green Paper that SMEs are a vital source of innovation and flexibility. I now urge the Government to address the enduring challenges that SMEs face, as unreliable or slow acquisition processes continue to place unmanageable burdens on their cash flows. Requirements such as the framework agreement for technical support listing have also been highlighted by small contractors in my constituency as prohibitive to SMEs supplying the Ministry of Defence.
The forthcoming White Paper must deliver comprehensive support, through the procurement processes and supply chain management, for our SMEs, so that they can continue to be the pride of the British defence industry. Across all tiers, our defence companies provide jobs for more than 300,000 people and add £12 billion to the UK economy, but, despite the importance of that, the Government are right to prioritise the needs of our armed forces and the taxpayer above industry. We must always be clear that we are not in the business of artificial job creation through public sector procurement. However, the companies whose representatives I have spoken to in my constituency and beyond are not demanding protectionism. They want, for the taxpayer and for industry, an environment that delivers the best value for Government and appropriate support for British companies.
Many do that, and many work in the defence of other countries outside the UK, but Vector Aerospace does repairs and servicing for many of the helicopters—Chinook, Sea King and Lynx—and the mainstay of its work is for the British military.
The White Paper must tackle two procurement challenges that have frequently hampered both industry and cost-cutting efforts. First, we must ensure that through-life capability management is fully considered in the procurement process. In many respects, the MOD is right to prioritise buying off-the-shelf products at the best value, but with acquisition representing only 15% to 20% of the lifetime cost of a programme, there can be significant cost implications to excessively short-term thinking. That has been all too apparent in the case of the Carson rotor blades purchased under an urgent operational requirement for helicopters in Afghanistan, which lacked a repair contract and so had to be ordered as new each time one broke. That is absurd and highly expensive, and we must seek to avoid that in future through greater scope in the procurement process for long-term thinking.
Secondly, the White Paper must ensure that the limited resources of the MOD are put to the best use through successful partnerships with industry. Representatives from Vector Aerospace, which I have already mentioned, have noted that the outsourcing of functions carried out by service personnel or civil servants can deliver significant savings to the taxpayer while continuing to support British industry. They have had incredible results by sending their own personnel to Afghanistan to service and repair Chinook helicopters. Their performance has always been described as exceptional.
We need to ensure that long-term thinking is built into our procurement process. I look with great anticipation to the publication of the forthcoming White Paper, and urge the Government to ensure that it sustains the strategic and economic importance of our defence industry through delivering a supportive and considered procurement environment.
It is always a pleasure to serve with you in the Chair, Mr Hood. This is my first opportunity to speak as shadow Minister since the Minister’s warm welcome last week at Defence Question Time. Looking back through Hansard, it is a little surprising that this is the first Westminster Hall debate on procurement since the last election, with the exception of two half-hour debates. I therefore warmly congratulate the hon. Member for Sittingbourne and Sheppey (Gordon Henderson) on securing this debate. He certainly ranged widely, as promised, and highlighted the broad scope and reach of the Ministry of Defence in procurement. There are major challenges in balancing defence equipment needs while ensuring value for money and retaining the essential skills base to support sovereign capability.
I know that I am not the only MP in the Chamber who has a sizeable defence community in their constituency. Before the last election, my constituency was called Plymouth Devonport, which included Her Majesty’s naval base at Devonport. Thanks to the Boundary Commission, it looks like it might be coming back at the next general election, but we shall see. For me and many hon. Members, providing the right equipment to our troops when they need it, so that they can carry out the work for which they have been trained to the best of their ability, is of upmost importance. A number of hon. Members in the Chamber and I have constituencies filled with military personnel and their families, and I often pick up concerns on the doorstep. I should say at this point that I am delighted to have 29 Commando back in Plymouth, safe and sound. It is right and proper to debate the issues here today.
I listened with interest to the speech made by the hon. Member for Sittingbourne and Sheppey and particularly to his reference to the British Army training unit, Suffield, based in Alberta on the Canadian prairies. It is worth noting that the reason why the British Army started to use that training site was due to the loss of El Adem and Tobruk in Libya when a certain Colonel Gaddafi came to power. The hon. Gentleman’s point about the need for bases in secure venues is absolutely right. Suffield was used briefly during world war two, and since 1972 it has been used as a British Army training base, initially on a 10-year lease. The agreement has been repeatedly renewed, which the hon. Gentleman touched on. I believe that a rolling programme of indefinite use is being offered. I note his comments and questions regarding that area. Other hon. Members also quite rightly challenged whether money was being best spent by the MOD on upgrading the premises there. I will listen with interest to the Minister’s answers to those questions.
The hon. Member for Sittingbourne and Sheppey also touched on morale and beer prices, and he raised a genuine concern about how new companies break into the MOD marketplace, to which I will come later in my speech.
My hon. Friend the Member for Barrow and Furness (John Woodcock) flagged up some potential problems, such as the need to secure the skills agenda and the loss of historic capability in Barrow, which is a lesson that we cannot forget. He also spoke about the implications of delays for contracts and cost overruns that follow.
The hon. Member for St Austell and Newquay (Stephen Gilbert), in supporting concerns about the rotation of staff in procurement, raised a challenging issue. That did not used to be the case, because officers used to be retained within certain specialties, and a number of senior and ex-members of the armed forces have spoken to me on exactly that issue in the past. I hope that the Minister will respond to that, because that area deserves consideration.
My hon. Friend the Member for Islington North (Jeremy Corbyn) asked a series of serious questions about Trident replacement and whether it is needed. He has always campaigned on that issue with a great deal of commitment. Again, I want to hear what the Minister has to say about the time scale and transparency regarding Trident.
My hon. Friend the Member for Blaenau Gwent (Nick Smith) raised the issues of contracts and transparency and of the cost of the over-specification of projects.
The hon. Member for New Forest East (Dr Lewis) is on the flip side of the coin from my hon. Friend the Member for Islington North. He described, with benefit of his long-standing interest and knowledge in defence matters, some of the problems regarding procurement and politicians’ role in muddying the waters, if I am to be gentle about what is going on in the coalition regarding Trident.
Because there has been such candour on Government Benches about muddied waters, for the sake of clarity, will the hon. Lady take the opportunity to reaffirm her party’s firm commitment that Trident should be renewed and replaced by the successor system?
The hon. Gentleman and I both stood on manifesto pledges that said exactly that. I also thank him for his kind comments in welcoming me to my new role.
I would like to look more generally to the future of defence procurement. It would be remiss of me not to thank my predecessor in this role, my hon. Friend the Member for Barnsley East (Michael Dugher), for his work alongside that of my right hon. Friend the Member for East Renfrewshire (Mr Murphy) in taking forward Labour’s review on defence procurement—not least in commissioning the report from Admiral Lord West, Bill Thomas from Hewlett Packard and Tony Roulstone from Rolls-Royce Nuclear. I thank them for their incredibly detailed and thought-provoking report, which builds on the work carried out under the previous Government by Bernard Gray, who has been brought in by this Government as the new Chief of Defence Matériel.
In response to questions last week, the Minister told me that he had read the report, although from our exchange last Monday, I think that there might be some differences in interpretation. However, I believe that we need, on the back of the report and Lord Levene’s excellent work, to look at structural reforms and at how, despite repeated attempts by successive Governments, we have failed to tackle overpriced and overrun projects. The Public Accounts Committee and the National Audit Office have clear views and some pretty sharp criticism on that. The Gray report did not mince its words either when talking about overheating in the equipment programme and the inability of the system to flesh out the real cost of equipment at an early stage.
We need to have a defence procurement policy that works with an active industrial policy—one that promotes defence exports, an area in which we in Britain excel and should continue to do so. The hon. Member for Sherwood (Mr Spencer), who is no longer in his seat, pointed that out. While value for money is clearly important, so is the quality of the product supplied to our armed forces, and British products are among the best. More than 21% of the global market in the past five years was met by British production, and we are the largest exporter to the European Union. Also, there is evidence that competition in the export market leads to an enhanced drive for innovation and improvement in those companies, from which the MOD could benefit. The make or buy proposals in the report submitted to the shadow defence team—it is good reading—deserve some further consideration. We all agree that we need a sustainable defence industrial base that can continue to deliver in the long term. Will the Minister let us have his thoughts on the proposal in the Gray report for a 10-year rolling budget, which does not seem to have found full favour with the current Government?
The hon. Member for Gosport (Caroline Dinenage) was absolutely right to say that small and medium-sized enterprises need a degree of long-term certainty when it comes to supporting programmes, particularly bigger programmes. My hon. Friend the Member for Islington North rightly mentioned the need for diversification of industry. It is all to the good if companies can diversify and find other markets, but there are a number of firms, of which I have several in my constituency, that are incredibly specialised in what they do. They provide bespoke products for defence purposes and it is difficult for them to expand, change or move on from what they do.
I welcome the Minister’s thoughts on all those issues. Will he tell us what sort of relationship he has with his colleagues in the Department for Business, Innovation and Skills and what the feelings are about the need to join up procurement policy, which is such an important element in all this?
Finally, is the Minister happy that, for future procurement policy, there is a clear enough delineation between the absolute sovereign capability and the deployment sovereign capability? Is that something that will be made clear in the expected White Paper? Given the ever-changing nature of conflict, the need for greater co-operation between nations, the drive to secure British business opportunities in this field and the economic challenges that we face, we need to ensure that Governments now and in the future have in place the best systems through which to deliver equipment that is designed to enable the front-line soldier to survive, operate and fight. We also need the best technology and back-up for our armed forces, so that they can deliver force wherever and whenever it is required. I look forward to the new White Paper, because there is a real opportunity to make a difference in this particular sphere of MOD procurement.
I join the hon. Member for Plymouth, Moor View (Alison Seabeck) in welcoming you to the Chair, Mr Hood. I am grateful for the opportunity to serve under your excellent chairmanship. We have been on various defence expeditions together and have enjoyed them greatly, and it is good to be here today.
I agree with what the hon. Lady said about the paucity of defence debates, and of defence procurement debates in particular. I commented on that fact about two or three weeks ago in the Department, and since then there have been two Adjournment debates, so we sometimes get what we wish for. Let us hope that there are more such debates, because it is very good for hon. Members to discuss these issues.
I congratulate my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson) on securing this important debate, which, according to my script, relates to a number of interesting and pertinent issues. I will go further in saying that there is a bewildering range of interesting and pertinent issues that cover everything from the price of beer in messes to the nuclear deterrent. The underlying philosophy behind defence procurement is underneath all that. I may not be able to do justice to all the remarks that have been made during this debate, but I will do my best.
Reflecting on what my hon. Friend the Member for Gosport (Caroline Dinenage) said in her contribution, I pay tribute to all those who serve in our armed forces. Their courage and bravery enable the Government to fulfil their first and primary duty of providing security for our country. That duty remains ever more challenging given the complex nature of the threats that we face in the 21st century. Although, procurement—or acquisition as it is called these days—is an important part of that, it is simply a means to the end of helping those brave men and women serve their country, as they are doing right now as we speak, in two theatres.
The hon. Member for Blaenau Gwent (Nick Smith) mentioned the strategic defence and security review, which sets out a coherent path to delivering adaptable and flexible armed forces. It is crucial that we put in place the right technologies, skills and industrial capability to deliver that outcome. I do not recognise his description of the lack of scrutiny of MOD contracts. If anything, we suffer from an excess of scrutiny. The Public Accounts Committee and the National Audit Office do an excellent job. We will soon have the next NAO report on major projects to consider, too.
It does not feel like that from this side of the fence. I look forward to the conclusions of the PAC on the forthcoming NAO report.
I accept that we need to be clear about how we plan to acquire and support our equipment for the armed forces, which is a point that my hon. Friend the Member for Gosport mentioned. The support costs are typically about two thirds of the total acquisition cost, with one third being the initial acquisition. We also need to be clear about how we invest in technology to sustain the skills of the defence industry, which is something that the hon. Member for Islington North (Jeremy Corbyn) raised. That was about the only thing that I agreed with in his speech.
The scale of what we spend is huge; the total spend for the whole range of procurements in the financial year 2009-10 was £20.6 billion. It is right that hon. Members should be concerned about how we spend that money. It is also right that we should say that much of that is spent very well, very wisely and very effectively by skilled and talented people. It is inevitable that we concentrate on the problems, because that is the nature of Parliament and holding the Government to account is what we do. None the less, I pay tribute to all those who do their jobs remarkably well, whether they are in the armed services, the civil service, the MOD Abbey Wood or the organisation Defence Equipment and Support. They all do a great job serving our nation.
It is true that we face some difficult decisions. I will not score any partisan points by talking about our economic inheritance, and especially the inheritance for Defence Ministers, from the previous Government. In a characteristically thoughtful and articulate speech, my hon. Friend the Member for New Forest East (Dr Lewis) spoke about the need for fixed points in programmes for decisions. As he said, such a measure is important given the long period over which such decisions are felt. As I am frequently reminded, the last captain of the aircraft carriers that we are currently building is probably not even born yet, which puts into context the length of time we have.
I think that I can give the hon. Member for Plymouth, Moor View the assurance that she sought about the 10-year equipment programme. As I understand it, we now have a groundbreaking deal with the Treasury, which enables us to plan with much greater certainty the future of defence equipment and support in general.
I also want to pick up something that my hon. Friend the Member for New Forest East said about the previous Secretary of State, my right hon. Friend the Member for North Somerset (Dr Fox). The MOD is now set on a path of real recovery, real hope and real confidence thanks to his excellent work. It now falls to the ministerial team to continue that work as a tribute to his sterling leadership as Secretary of State.
I will concentrate my remarks on the speech of my hon. Friend the Member for Sittingbourne and Sheppey, because I owe him that courtesy. If I cannot deal with everyone else’s comments, I apologise and will write to them. I will not comment on individual cases, but I reassure my hon. Friend that the support that we give to SMEs has a high priority in my portfolio. I pay tribute to Vector Aerospace, which is one of the few companies that have been named in this debate. It is an outstanding example of a medium-sized company.
We are making a few changes that should help the SMEs considerably. We are reducing the threshold at which the MOD advertises contract opportunities and have created the new defence suppliers forum, which meets regularly under my chairmanship, to discuss how SMEs can make a better contribution to defence and how we can help them achieve that. We are learning a lot from that group’s work. We are launching a new Government-wide contracts finder that offers a free-to-access one-stop shop of public sector opportunities over £10,000. There will be more in the White Paper, the publication of which I too look forward to very much indeed. I cannot say too much about its contents but it will include a definition of value for money—something that many Members have mentioned—and talk more about outsourcing. Although there is already extensive outsourcing in defence—more extensive that many people realise—I agree that there is scope for more. The White Paper will also address the framework agreement on technical services and through-life costing, which is essential.
I am happy to reassure the hon. Member for Plymouth, Moor View that our relationship with BIS is excellent and that there is nothing between us. I know that she would expect me to say that, but it happens to be true as well.
The White Paper will also define sovereignty requirements. I do not foresee any change in the definition that was published in the Green Paper last year.
I will now specifically address the remarks of my hon. Friend the Member for Sittingbourne and Sheppey. I note that he worked for GEC Marconi, where he apparently ran rings around our officials. That issue is why Bernard Gray is working at present on the new matériel strategy. One of the principal purposes of that strategy is to ensure that we have the skills in place in Defence Equipment and Support to make sure that these procurement decisions are taken well and that the contracts are well negotiated. My hon. Friend has made a powerful point, and that work is ongoing. I hope that submissions to Ministers will come before the end of the year. And watch this space, because I agree that it is important that we do procurement and acquisition well, which has not always been the case. In the spirit of consensus, I think that the Opposition’s document on acquisition is not at all bad. In my view, all it lacked was an apology, but that is another matter for another day.
Turning to Canada, I am pleased that my hon. Friend and other hon. Members obviously had such an interesting visit to the British Army training unit Suffield—BATUS—over the summer with the armed forces parliamentary scheme. That is a great scheme, which works very well under Sir Neil Thorne’s excellent leadership. I have benefited from it twice with the Royal Navy— I am a “postgraduate” according to the scheme’s definitions. Today has shown how valuable the scheme is in enabling Members to speak with authority about the armed services and to challenge Ministers on things that they find. It is what the scheme is there for, and we need to make even better use of it than we do already.
I slightly disagree with my hon. Friend’s emphasis and what I think was the spirit of his remarks when it comes to Canada. Led by my right hon. and hon. Friends in the Foreign and Commonwealth Office, Her Majesty’s Government are looking to develop even closer ties with Canada, as well as with other Commonwealth countries. A joint declaration of closer working between the UK and Canada has been drawn up by the FCO for signature by the two Prime Ministers, with a desire to seek
“greater interoperability between our defence forces and deepen co-operation on procurement and capabilities, to be enabled in part by a Memorandum of Understanding - MoU - on Defence Materiel Cooperation”,
and so on and so on and so on. The document was signed on 22 September by the two Prime Ministers, and it symbolises the very close relationship that we enjoy with the Canadians.
I will now talk about BATUS in more detail. As my hon. Friend the Member for Sittingbourne and Sheppey reminded us, it was set up in Canada in 1972. The location was chosen for its ability to provide the large-scale manoeuvre exercises that at the time—the middle of the cold war—were seen as being critical to meeting the UK’s operational and tactical requirements. BATUS provides 2,690 sq km of rolling, semi-arid prairie, delivering training on a scale that is unparalleled by anything available in the UK and enabling more than 11,000 troops to be trained each year. I want to place on record our real gratitude to the Canadians, who have been our utterly reliable allies in providing this world-class training location since 1972, which allows us to train in a way that is just not possible in the UK. The training at BATUS has been essential for the preparation of our troops for operational deployments, and we owe the Canadians a great debt for the part that they have played in enabling the training to happen.
The hon. Lady not unexpectedly anticipates remarks that I will make in a few moments. I will turn to that issue then, if I may.
I will now address the concerns of my hon. Friend the Member for Sittingbourne and Sheppey about the costs involved with BATUS. The BATIC—British Armed Forces’ Training in Canada—agreement makes clear provision for the cost-sharing of goods and services relating to UK training in Canada, including the provision of all goods, services and facilities supplied in Canada or procured through Canadian sources. The costs are shared in accordance with agreed formulae, which my hon. Friend talked about in his speech, and those arrangements are scrutinised carefully. In addition, the memorandum of understanding is open-ended and may be renegotiated—that will give my hon. Friend some encouragement—at any time with the mutual consent of both parties.
In my view, the UK quite rightly pays the lion’s share of the costs of BATUS, on the basis that we use the facility significantly more than the Canadians. That is absolutely right and proper, and I have no problem with the cost-share involved in these arrangements. I agree that there is always scope to reduce costs, but other locations, as suggested by some hon. Members during this debate, are simply not equivalent and they would incur costs of their own, including significant set-up costs. So I am sure that the scope for savings is always there, but it may be more limited than my hon. Friend imagines.
I accept what my hon. Friend says about the useful nature of BATUS. Nevertheless, does he not accept that it is wrong for the British taxpayer to have to pay such a high proportion of the costs without the MOD having a greater say in how those costs are accrued?
I will look at some of the specific points that my hon. Friend made during his remarks, but I must say that I am broadly content with the overall structure of this arrangement, which delivers great value to British taxpayers and great opportunities for British armed forces, while strengthening and deepening our relationship with an important ally.
I must also say specifically that there has been no cancellation of helicopter training in BATUS. It is true that there are some different arrangements with contractors, including changes to some of the transport arrangements, but the training facilities involving helicopters have not been affected in any way. It is very important that that is understood.
I am not sure whether we MPs were misled during our visit to BATUS, or whether the information has not yet filtered back to London, but I assure the Minister that there are two aspects of helicopter use during battleground operations: one is the use of helicopters to help injured people during the exercise, which is still being maintained and which involves BATUS using Canadian pilots; the other aspect, which has been cancelled, is the training that allows helicopters to be used to take troops into battle, as they would be used during a real battle operation. That second part of the training is the part that has been cancelled.
I will clarify exactly what the arrangements are in a letter to my hon. Friend, so that there is no misunderstanding at all, but my information is that no aspect of our training arrangements has been affected by the new arrangements for helicopters.
Turning to the range control building at BATUS, it is true that there is an existing building, which provides the safety and co-ordination function required. It controls access and oversees safe practice on the range area, which is extremely important where live ammunition and weapons are concerned. Of course, it also controls movement around the prairie during live firing. In 2003, the Canadian Government approached the MOD with a number of infrastructure requirements that they felt needed to be addressed to enable the future use of the BATUS facility, including improvements to the range control building. I agree that the decision to upgrade that facility may not have been the UK’s first priority, but the facility was in very poor condition and met neither UK nor Canadian building regulations. A number of options were considered and the only viable option was to construct a new building. The contract for that was awarded in February this year, so I am afraid that the possibility of cancellation is no longer one that we can countenance.
I promised the hon. Member for Plymouth, Moor View that I would talk about future training in BATUS, which relates to what other colleagues have said. I will simply say that BATUS is 2,690 sq km compared with Salisbury plain’s 375 sq km, so BATUS is about eight or nine times the size of Salisbury plain. We must assess BATUS in the context of our overall training requirement, both in terms of the capacity and the nature of environments in which we need to train. We must also ensure that we end up with an overall solution that is the most cost-effective mix.
There is more work to be done before we can draw any conclusions, but what is certain for BATUS, any other training area and indeed for defence as a whole is that we need to drive out any unnecessary cost and to prioritise ruthlessly between what is “essential” as opposed to what is “highly desirable” or just “desirable”. I know that our Canadian partners will support us, so any work that looks at BATUS will be a truly collaborative effort. Not only does the memorandum of understanding require that collaboration, but Canada is one of our closest and most valued allies, and our interests are closely aligned. So, to answer the hon. Lady’s question, work is being done in this area.
I will briefly address the tank-lifting ramps at Tidworth. In view of the time that I have left to speak, I will not give my hon. Friend the Member for Sittingbourne and Sheppey all the remarks that I have here. It is true that the Royal Electrical and Mechanical Engineers could fix the ramps; it is also true that there are some issues around the contract; and I will look at that matter and write to him about it, because he has a point. I assure him that there has been absolutely no impact on operational capability. It is an important point, but he need not be concerned about the preparation of our armed forces or the health and safety of personnel using the site.
I now turn to the very important issue that my hon. Friend raised, which is drink—beer. The three-mess system is very much at the heart of the military ethos. Junior ranks’ messes are private sector enterprises, because all bar stocks are purchased by the contractor and the messes are wholly commercial ventures. In the officers’ messes and senior non-commissioned officers’ messes, bar stock is purchased by the mess and paid for through mess members’ subscriptions. Any profit is returned directly to the mess and lower prices can be set. I agree that there is a distinction there, but I am told that the three-mess system goes to the heart of military traditions and ethos. It is not a matter of contract—it is a matter of armed forces’ choice—and this politician is not going to interfere in the traditions of the armed services. However, I have been assured that military front-line commands keep this matter under constant review, so I understand my hon. Friend’s concern.
In the minute that I have left, I will address nuclear missile systems. I smiled when the hon. Member for Islington North got to his feet, because I could see the other “usual suspects” in Westminster Hall and I knew what would happen. Actually, I think that the hon. Gentleman’s concerns have largely been addressed. The long-lead items for HMS Victory were bought 15 years ahead of the construction of the ship, and the oak for the ship was laid down accordingly. Long-lead items are an established part of military procurement, and they always will be. I do not think we need to make any apology for that.
I heard what my hon. Friend the Member for New Forest East said, and he is right to keep us to our pledge. I assure him that the main gate decision being delayed until 2016 brings certain advantages, in that there will be a more mature design by then for us to approve. However, I hope he will hold us to the fire on an important capability that guarantees our freedom, as he so rightly reminded the Chamber. I also heard what the hon. Member for Barrow and Furness (John Woodcock) said. He and I have often talked about this issue, and I will correspond with him about some of the specific points that he made.
Finally, as for the aircraft carriers, it is true that we are getting a more capable and stable carrier variant than the previous Government decided to have, and it is also true that that has a cost. However, at least we are buying increased capability for an additional sum, because the previous Government delayed the carriers for a year, which cost £1.6 billion, and just got them a year late.
Rural Broadband (Cheshire East)
I will first speak about the need for rural broadband, particularly of the superfast variety, in Cheshire East. I will then go on to describe the benefits it will provide for that area and the wider region, to talk about the gaps in coverage and funding, and to ask for reassurances and a response from the Minister.
Cheshire East council considers that investment in superfast broadband is the single greatest action that can be taken to drive economic growth and improve the quality of life of residents. The area served by the council includes my constituency of Congleton and those of Macclesfield and of Crewe and Nantwich, and I am grateful to the Members who represent those constituencies for being here today, and also to my hon. Friend the Member for Warrington South (David Mowat), to whom I will refer later.
The local enterprise partnership has designated the roll-out of superfast broadband across the area, and across the wider area of Cheshire West and Warrington, as its top priority. The Cheshire and Warrington superfast broadband partnership has been established by three local authorities—Cheshire East, Cheshire West and Chester, and Warrington—which, working together, aim to achieve 100% superfast broadband coverage by 2015. To maximise the economic, social and environmental benefits for businesses and residents right across the region, that aspiration exceeds Broadband Delivery UK’s 90% target. Much of what I say today will be in support of the work of that partnership, and I shall highlight the needs of constituents in Cheshire East.
The economic growth that the area needs, particularly to provide jobs for the next generation, will largely be driven by small businesses, and in my constituency it will be almost entirely so, because almost all its 4,000 or so businesses are small. They need the high speeds that superfast broadband provides to be able to compete nationally and globally with their more urban competitors that already have the service. Superfast broadband will enable them to offer existing services at lower costs, expand their market reach, increase productivity, develop new products and provide new services. The area needs high-speed broadband not only to ensure that existing businesses develop but also to attract new ones, but the benefits would not be for just businesses. I heard recently of a business man who was considering relocating to the area but was deterred by his school-student son, who said that he did not want to move because of the poor broadband connections.
It is not just the young who want high broadband speeds; the elderly, and the public and voluntary sectors that serve them, recognise the transformational social impact that comprehensive superfast broadband can bring, through technology that supports health care delivery. This includes telehealth, which is the remote capture of information for clinical review, telecare, which is a range of alarms and sensors in the home to enable independent living, and medical consultations through video teleconsultation. In the Cheshire East area, with its considerably higher than average ageing population, the benefits would be substantial. An excellent example, which demonstrates how the council is keen to capitalise on the use of technology to benefit older people, is the recently developed DemenShare scheme. This is a web-based scheme through which dementia sufferers and their carers can access and share support and know-how.
The need for superfast broadband in rural areas is well documented, and Cheshire East has a higher level of rurality than one might realise.
I am pleased that my hon. Friend has secured this important debate, and I welcome much of what I have heard about the introduction of high-speed broadband in Cheshire East. However, the benefit will be spread much wider than the residents of Cheshire because many of my constituents receive their broadband and their telephone line through the Congleton exchange.
That is a point well made. Staffordshire Moorlands is a highly rural area, and it will benefit exponentially from the support.
Cheshire East is 64.4% rural. Rural areas can benefit disproportionately from investment in superfast broadband, and they are there to be benefited. The growth rate in VAT-registered businesses in rural areas is 2.7%, compared with a decline of 0.3% in England and Wales as a whole. Home-based businesses are becoming increasingly important in rural economies. An academic study by Mason and others reported that 50% of businesses in rural areas are home based, compared with 26% in urban areas. In a more local study—of Alsager, in my constituency—of which I was advised by the Alsager partnership, it was calculated that approximately one in 10 homes hosts some form of home-business working.
Bearing in mind the historically low levels of state-funded investment in recent years in many rural areas—including in my constituency and in Cheshire East as a whole—compared with their urban counterparts, there is significant potential to add economic value through superfast broadband investment. England’s rural areas host at least 27% of the country’s enterprises but only 9% of its business revenue. There is genuine potential, and superfast broadband is the platform for unleashing it in Cheshire East.
Turning to the benefits that superfast broadband coverage will provide, I have already touched upon those for the rural economy and for older people. In addition, exponential benefits can be gained in this region as a result of the already-skilled entrepreneurial population. The area is home to a high proportion of knowledge-based industries. In my constituency, there is already a significant presence of digital and creative industries, with a potential for great growth that could be magnified by the benefits of comprehensive superfast broadband coverage. Lying as it does just beyond the main commuter belts of Manchester and Liverpool, the high-level digital connectivity to new business provided from MediaCityUK in Salford has a particular potential to provide transformational impact, both in strengthening existing businesses and in promoting the area as a business location of regional significance. For example, a graphic designer who is able to download large files quickly could work efficiently mainly from home in Cheshire East, with occasional face-to-face meetings in MediaCityUK.
Turning to the educational benefits for our young people, educational attainment is higher than average in Cheshire East, and that is important because young people are likely to adopt superfast broadband and play an important role in using it to create and distribute content. In a constituency from which a disproportionate number of young people have migrated in recent decades to find work, it is particularly important for the intergenerational balance of our communities that we provide work for, and retain, young people within the area, and superfast broadband will be a key factor in ensuring that. In other words, the social and economic returns to the region—and, in turn, the support for the national economy—from investment in superfast broadband through a combination of private and Government funding will, I am assured, be disproportionately greater in the Cheshire and Warrington area than in many other regions.
I congratulate my hon. Friend on securing the debate. It is fair to say that some of the issues she has raised and the opportunities she has identified are similar across the border in north Wales. Does she agree that in rural areas an industry that would benefit greatly from increased access to fast broadband is the traditional agricultural community? In view of all the paperwork and forms that have to be completed online these days, that community needs superfast broadband.
I agree, and I thank my hon. Friend for that intervention. When I speak of the rural economy, I speak on behalf of the farming community in my constituency.
What current gaps in coverage and funding do Cheshire East and the wider Cheshire and Warrington sub-region seek to cover through the superfast broadband initiative? At present, 67% of the population of Cheshire East is covered, a figure provided by Ofcom in August 2011. That figure will increase to 86% by next year through private investment, mainly from BT, leaving a 14% gap representing 50,932 Cheshire East residents. The funding allocation for the area from Broadband Delivery UK will bring the figure up to 90%, but there are complications with the date and procedure for releasing that funding. I will return to that issue later.
The Cheshire and Warrington superfast broadband partnership is also seeking funding from the European regional development fund, but ERDF allocations will not be finalised until March 2012. Meanwhile, the BDUK approval framework will not be concluded until May 2012, leaving a disconnect between the two sets of funding, which are effectively interdependent. I am grateful to the Minister for having met me and representatives from Cheshire East some weeks ago to discuss the issue. I will appreciate his comments today, after his agreement to look into it. Underwriting such funds could be a considerable stretch for local authorities in these constrained economic times.
I congratulate my hon. Friend on securing this important debate and recognise some of the concerns that she is discussing, particularly broadband access in communities such as Rainow—which I think she will mention in a minute—those in the peak district such as Wincle and Wildboarclough, and Flash in Staffordshire Moorlands. Is it not important for Government to signpost further and give local authorities such as Cheshire East greater support in securing access to those funds? It is not clear how to secure them quickly and in a co-ordinated way.
I agree entirely that the picture is confused and detailed. As I will mention later, it is also split among Departments.
The total funding needed to achieve our aspiration of 100% broadband coverage across the Cheshire and Warrington area by 2015 is £40 million. Although we welcome the BDUK funding support, we recognise that under current plans, it will increase coverage only to 90%. The rural areas to which my colleagues have referred will be among that 10%.
I, too, congratulate my hon. Friend on leading the charge in this debate and on this subject. During her remarks, I think I have heard the word “rural” two dozen times. Does she accept, however, that it is also an urban issue? In parts of Warrington, urban development has massively outstripped broadband infrastructure capability, and the need there is as great as in some of the rural areas mentioned by her and others.
I agree entirely. Chapelford, which I know well from my time as a Warrington councillor, is one such area. One cause of difficulties is that although approximately 85% of telephone exchanges can be upgraded, about 15% of telephone cabinets are deemed by the private sector to be uneconomic or unfeasible to upgrade. BDUK financial support will not necessarily include those, either. Will the Minister comment on how they will be provided for, particularly in the areas to which we have referred?
In some areas, broadband coverage appears on paper to be provided, but the area contains white spots. Timbersbrook in my constituency is a good example—it has no adequate coverage at all—as is the Congleton business park. In the neighbouring constituency, the village of Rainow, only a couple of miles outside Macclesfield, is similarly affected. I heard a councillor for the area say only this week that it is faster to post a letter than to use the internet there.
I join the chorus in congratulating my hon. Friend on securing this debate, which is timely given the efforts being made in Cheshire East to introduce superfast broadband across the county. Will she add to that list some areas in my constituency? Businesses have contacted me that are already operational and want to expand, but are frustrated by extremely poor telecommunications infrastructure. If we are to attract new businesses to our county as well as keeping existing ones, we must ensure that we can provide them with that secure future.
Absolutely. If we in the county of Cheshire are to achieve our aspiration to compete with the northern cities, we need that infrastructure in place for our businesses.
Funding is available from the European regional development fund—£43 million has been allocated to the north-west region as a whole—and Cheshire and Warrington will bid for £15 million to add to the £3.24 million in BDUK funding and the £430,000 secured from the rural development agency. It is hoped that the balance of the required money will be matched by the private sector. However, the £15 million bid to the ERDF is aspirational. We believe that Cheshire and Warrington have a strong case for the additional economic and social benefits that investment from the fund would secure for the local, regional and national economies, and a strong case within the north-west for securing that sum.
I am aware that there are other bidders to the ERDF funds for the north-west allocation for superfast broadband. Any comments or suggestions from the Minister on how funding towards superfast broadband in Cheshire East and the wider region might be secured from alternative sources, should our £15 million bid not be successful, would be appreciated. Will he also confirm whether today’s announcement from Europe of a further £8 billion in superfast broadband funding is new money? If so, how can our aspiration, and those of other areas of the UK, to attract money from that funding provision be improved?
I seek further support from the Minister on streamlining the time frame for the BDUK and ERDF funds. Also, as my hon. Friend the Member for Macclesfield (David Rutley) mentioned, interdepartmental help could be provided to streamline the complex application process for local authorities.
I congratulate my hon. Friend on securing this debate. I am grateful to her for mentioning my home town of Rainow. I wonder whether she can do something about the mobile phone signal, which is also weak. Earlier, she mentioned young people leaving Cheshire, Congleton and so on. Young people need places to live, and there is a shortage of affordable homes for newly-weds and young people. Does she agree that any future planning permissions should include good broadband provision as a condition?
I agree entirely. I thank my hon. Friend for his intervention; his constituency is part of the Cheshire and Warrington partnership area.
At present, various Departments are involved in funding streams. The Department for Culture, Media and Sport—we are grateful for the Minister’s presence here—is responsible for the BDUK allocations, while European funding for broadband lies within the remit of the Department for Communities and Local Government, and rural development funding is under the control of the Department for Environment, Food and Rural Affairs. In summary, Government support, which is much appreciated and clearly demonstrates the importance the Government place on this issue, is found across Departments. Any help the Minister can give to ensure that funding streams, time scales and application procedures are harmonised would be appreciated.
While I am discussing Government support, I commend the Government’s work on digital inclusion through the website Race Online 2012, which is dedicated to promoting digital inclusion among older people. I ask that similar thought be given to promoting small businesses’ use and maximisation of the benefits of technology, particularly superfast broadband, perhaps through a national business-focused campaign similar to Race Online 2012. It would encourage a groundswell of interest from businesses, which could in turn encourage much-needed additional private sector investment.
In conclusion, it is projected that a superfast broadband-enabled Cheshire and Warrington could add up to £197 million of growth annually to the region, create 5,500 jobs in the area over the next 10 years, and provide innumerable valuable social and economic benefits to the whole connected community.
I am grateful for the opportunity to serve under your chairmanship, Mr Hood. I congratulate my hon. Friend the Member for Congleton (Fiona Bruce) on securing this debate. She and I have already met executives from Cheshire East council to discuss the issue. I also know from her own personal history that, before entering the House, she did some extraordinary work in her local community, which she continues to represent forcefully now that she is in Parliament. There could not be a stronger champion than her for broadband in her part of the world. I also thank my hon. Friends the Members for Macclesfield (David Rutley), for Staffordshire Moorlands (Karen Bradley), for Crewe and Nantwich (Mr Timpson), for Aberconwy (Guto Bebb), for Warrington South (David Mowat) and for Weaver Vale (Graham Evans) for their interventions, which show the astonishing amount of engagement and interest from colleagues in this important issue.
I want to use the brief time remaining to outline the progress that we have made in bringing greater broadband access to rural areas, and to try to answer some of the specific points that my hon. Friend the Member for Congleton has made. It is the coalition Government’s aim to have the best superfast broadband network in Europe by the end of this Parliament, with 90% of households having access to superfast broadband, and universal broadband access of at least 2 megabits. It is an ambitious programme, but we have secured more than half a billion pounds to ensure that it happens.
As my hon. Friend has said, in her constituency some 14% of premises are unable to receive a good level of broadband, even after the private sector investment that is already taking place in the area. One in five people live in a rural community, and rural communities are home to more than 1 million businesses, so this is not just a “nice to have”—getting broadband out to rural areas is essential to our economic growth, as my hon. Friend has made clear. Reliable broadband also underpins the social fabric of our rural communities.
We published our plans for superfast broadband in detail at the end of last year. Through Broadband Delivery UK, the Government are working with local authorities and the devolved Administrations to ensure the delivery of broadband infrastructure to those areas that the market will not reach on its own. We have announced indicative funding allocations for every local authority area in England. As my hon. Friend has pointed out, £3.2 million has been set aside for Cheshire and Warrington. If that can be matched with local funding, we believe that that will make it possible to bring superfast broadband to 90% of properties, and standard broadband to all premises.
We are not dictating to each local authority how it should go about installing broadband in its area. It has been our view from the very beginning that local communities and, therefore, local authorities are best placed to determine their own priorities. Every local authority has therefore been asked to produce local broadband plans for each area that set out its approach, how it will deliver the economic benefits from broadband, and how it will ensure local match funding. Many local authorities throughout the country have made clear, detailed and imaginative proposals, and I am confident that this is the right approach.
As my hon. Friend has indicated, I was able to find out about the good progress being made on Cheshire’s plans when I met her and officials from Cheshire East council recently. In my view, the Cheshire local broadband plan is well on the way to being ready, and my officials in BDUK are working closely with council officials on it.
I realise that match funding, particularly money from the European regional development fund, to which my hon. Friend has referred, is key to Cheshire’s broadband future, as well as that of many other parts of the country. We have vigorously pursued the issue with colleagues in the Department for Business, Innovation and Skills and the Department for Communities and Local Government, to try to ensure that broadband can be funded from the north-west region’s programme, and likewise in other regions. We need to ensure that expenditure on broadband is consistent with the ERDF regulations. We recognise the critical nature of this funding to Cheshire and, indeed, others, and I want to make sure that we give as much scope as we can to allow funding for broadband projects.
I will briefly indicate the nature of the problem. Given that ERDF funds exist to promote economic growth and are, therefore, targeted at small and medium-sized enterprises, it has been a task to try to get some flexibility in the programmes. As my hon. Friend has made clear, a pipe going into a domestic home that houses a graphic designer will clearly promote economic growth, but, under current ERDF regulations, that would not be seen as funding to support economic growth, because it would not be going directly to business premises. We have, however, secured a revised definition of the final mile with DCLG, which should allow ERDF funds to be applied. The issue is with DCLG at the moment, and it is important that we work with it to communicate the revision to local offices of DCLG around the country. The issue was raised at the ministerial group on growth, and there was agreement that DCLG needs to address the issue. We continue to work with it on it.
We are also awaiting decisions from the cabinets of Cheshire councils to underwrite the ERDF funding, in lieu of a decision on ERDF to speed up so that we can speed up project approval of the local broadband plan. I would be happy to write in further detail to my hon. Friend on that progress, and to the Minister of State, Department for Communities and Local Government, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), to impress on him the need for clarity from my hon. Friend’s point of view.
The procurement process has been mentioned. There are 40 local broadband projects across the country. We have worked with BDUK to put a framework contract in place to speed up the procurement process and to help local authorities minimise the costs and time taken for procurement. We also have to be mindful of physical limitations. Clearly, we cannot network the entire country at once and it will be important, as I think my hon. Friend has indicated, to ensure that we progress projects in a timely manner, to ensure that the operators who win contracts have the resources to implement them.
We are making a number of other key policy interventions. We will publish a second consultation on the deployment of new overhead lines, which should allow the deployment of broadband much more cheaply. Next month, we will issue guidance on microtrenching and street works. I also impress on my hon. Friends how important it is for them to work with local councils to ensure that the planning process is as simple and as low-cost as possible for operators when they are laying new fibre.
Finally, we have commissioned a review of the electronic communication code and how it applies to wayleaves and access to private land. I recently wrote to the Country Land and Business Association and the National Farmers Union to ask them to speed up the voluntary agreement at which they are meant to arrive to ensure that wayleaves can be dealt with. We have also made significant progress in reducing the cost of access to BT’s ducts and poles. At the Conservative party conference, the Chancellor announced an additional £150 million for mobile coverage.
I hear what my hon. Friend says about responsibility being parcelled among a number of Departments, and I agree with the implications of her remarks, namely that the responsibility should be mine. I hope that she will lobby the Prime Minister on that later tonight.
I am delighted to have the opportunity to discuss a pressing question in Wales. This debate about S4C—I usually pronounce it “Ess pedwar eck” and if I slip in to saying it like that, I hope hon. Members will forgive me as I will be speaking my first language—could scarcely be more timely.
I have an interest in this matter because part of the Welsh TV industry is located in my constituency. I sometimes tell people much to their surprise that the main industries in my area are agriculture, tourism and TV. Those areas hardly sit together, but there we are. I therefore have a particular interest in the matter. A properly resourced, managed and directed S4C is absolutely essential for the continuing renaissance of the Welsh language. It is vital to secure the plurality of the television provision in Wales because it is crucial for the Welsh television industry both in English and Welsh. Clearly, there is a relationship and an exchange of ideas and staff—they are co-dependent.
It is often left out of the debate that it is essential we have a properly managed, directed and resourced S4C for the future of the workers in the industry. Over the years—in fact, decades—workers in the television industry have lost their jobs and been moved. The unions have complained, studios have been closed and so on. Those people have a proper interest in the matter as well.
A moment ago, I said there had been a renaissance in the Welsh language. Welsh language television has played a significant part in that. Some years ago, I remember speaking at a conference on language planning in Dublin and explaining the utility of having children’s programmes, rock and roll music, drama and soap operas in Welsh and how that was adding to the growth of the language. A voice at the back said, “Are you seriously telling the conference that the renaissance in the Welsh language is all to do with having pop music in Welsh?” Well, that is clearly not the case. There has been movement from this Government, the previous Government and, significantly, the Government in Wales over the legislative status of the Welsh language. Significantly, the Welsh Language Act 1993, which was passed by the preceding Conservative Government, was a huge step forward and I am glad to pay tribute to all those people who were involved with that.
Does the hon. Gentleman not think that the growth of the language—the holistic approach operated by successive Assembly Governments—has necessitated the importance of a meaningful dialogue between Government here and colleagues in the national Assembly? Such an approach is necessary to promote the language agenda required to build the truly bilingual Wales that I know he aspires to.
Order. Before the hon. Member for Arfon replies, I should point out that this is a half-hour debate and that the rules are different from those for one-and-a-half-hour debates. The hon. Gentleman has secured the debate and it is his decision whom he allows to intervene. Back Benchers are not permitted to speak at all without seeking the relevant permission. Those are the rules on the half-hour debate.
Thank you, Mr Hood. I have been approached by various hon. Members, and I will certainly allow at least one intervention from each of those people who have contacted me. This debate interests people from across the political and language spectrum in Wales, and I will take further interventions. However, I will also talk very quickly, as is my wont.
The hon. Gentleman makes an excellent point. A consensus has been built in Wales over many years, which I am afraid is in jeopardy because of this decision. That consensus has been built on proper dialogue between people who properly have an interest in the matter. That is not confined to any language group, any class or any political party. I say that as a member of Plaid Cymru.
There has been a lack of clarity about the Government’s intentions and actions in the matter, not least in relation to elected Members such as myself. If I ask the Minister some naive and ill-informed questions, the cause of that may lie not with me but with how the matter has been handled. As with a good deal of the Government’s programme, the impression has been given that it is being made up as they go along, with backtracking and amendment often the order of the day.
I would like to ask some questions, and the debate’s timing in relation to the decisions that are now being made means it is essential we have answers as a matter of urgency. First, I scarcely need to say that the threats to S4C’s future have caused huge concern in Wales and across Welsh society—both Welsh and English speaking—particularly among those who are concerned with the language. We have seen a stronger galvanising of the campaign for the Welsh language than there has been for many years—stronger even than with the campaign for new Welsh language legislation that took place some time ago.
Indeed, I do. However, I will come on to some questions about that later.
As I was saying, there has been a campaign the like of which we have not seen for some time. A small example of that is the e-mail bombardment of members of the Public Bodies Bill Committee. I served on that Committee with the hon. Gentleman and others. I received 1,200 messages and I answered them all, which offered some relief to the people who sent them. Other Committee members from England were amazed at the volume of correspondence, the like of which they had not seen before. I doubt, in fact, that the Government predicted that supporters of S4C would be so galvanised.
I am not sure if the Minister and his colleagues knew the background to their decision on S4C—although perhaps he will correct me later. The Conservatives would have been wise to consult those in their own party who took the initial decision to set up S4C in the first place. Former Conservative Ministers took an honourable and constructive role in that decision.
I think I am one of the oldest lags in this debate, having written a document called “Television in Wales” in 1973, which became Labour party policy. It has been an extraordinary period, and the most extravagant hopes of those of us who were talking about the subject in 1973 have been more than realised. S4C has been an enormous success both artistically and as far as the language is concerned. I give the hon. Gentleman my full support and that of many members of my party.
I am very grateful for that point, which was very well made. As I said, the Conservatives and certainly the Liberal Democrats should have known better, with honourable exceptions. They should have read up on the history and on the conflict over the location of Welsh language programmes.
As someone who comes from the same town as Ian Jones, I am looking forward to great things from a Morristonian. Does the hon. Gentleman agree that Governments persist in thinking that S4C and the BBC are not in competition with each other when they are? The idea that they will share producers and directors is of great concern.
I share the hon. Lady’s concerns, which relate to some of the questions I will ask about the involvement of the BBC in S4C. I am sure that that can be managed with good will on all sides and a proper degree of independence and funding for S4C. I will return to that issue in a moment.
I was talking about the history, the conflict over the location of Welsh language programmes, the long campaign throughout the 1970s and the promise to set up the channel in the first place. That broken promise, the conflict, the arrests, the court cases and the jailings led many thousands of reasonable and normally law-abiding Welsh citizens to break the law and not pay their television licences. That consequence was a matter of regret to us all as parliamentarians. In fact, some people went even further in taking what was always non-violent direct action. The Government could have read up on the social conflict engendered and on Mrs Thatcher’s first U-turn. Clearly they did not and they repeated their mistakes.
I have some questions for the Minister on the decision itself in the first place. What consultations were there with the people in Wales before the decision was made on funding, and subsequently on the inclusion of S4C in the Public Bodies Bill and its relationship with the BBC? Is he satisfied that all the relevant people were able to put their point of view forward? Were they heard, or does he concede, as some, possibly wrongly, suspect, that these decisions were made for reasons of policy here—cutting back public spending and cutting back on the size of the state—that had little to do directly with broadcasting in Wales? Indeed, some people suggest that they were heedless of the consequences to Wales, the Welsh language or the broadcasting industry. I have to tell the Minister that that is how it appeared.
I congratulate the hon. Gentleman on securing the debate on this very important matter, about which many of my colleagues are concerned. Does he agree that the cuts facing S4C—even prior to the 2015 period, which has now become the 2017 period, for which we are supposed to be grateful—are actually greater and disproportionately greater than those facing the BBC, and that this is a total disgrace and shows the shambolic way the Government have treated S4C?
I agree that the cuts to S4C are probably going to be very deep indeed, and deeper than any reasonable broadcaster might be able to cope with given the long time scales of planning. I was just saying that that is how it appeared to people in Wales, but also to disinterested commentators. It is not just people who are taking particular sides who saw that. I am sure that that was not what the Government intended.
I would like to ask further questions beyond those about consultation, such as how the whole issue was handled. I will give a small example that will be familiar to those who were members of the Public Bodies Bill Committee. The agreement between the Department for Culture, Media and Sport and the BBC was made on 13 September. On the morning of 15 September, the Bill Committee met to discuss S4C. The debate continued from 1 pm onward. The Minister who replied to the debate, the hon. Member for Somerton and Frome (Mr Heath), referred to the BBC agreement in support of his argument. However, that agreement was not published until the afternoon of that day. It was too late to inform members of the Committee for that debate—although not the Report stage or on Third Reading—other than the Minister, of course, who had it in his hand. Was that completely coincidental? Why was the agreement not available on 13 or 14 September, or even on the morning of 15 September?
I raised this matter in a subsequent sitting of the Committee as a point of order, but to no avail. I have to tell the Minister here today that the impression given, rightly or wrongly, was of, at best, sharp practice. Consequently, he should realise that there are people in Wales who are now even more distrustful of the motives and action of the Government, and they will not be reassured by evasions or warm words. In fact, some might conclude that the wisest course of action for the Government would be to backtrack and restore at least part of the funding to S4C, to take S4C out of the Public Bodies Bill and, instead, consult and include any proposals in the forthcoming broadcasting Bill.
Given that they are unlikely to do that, and pressing on with my questions, I want to ask the Minister, and give him time to answer, rather than answer through his unfortunate friend, the hon. Member for Somerton and Frome who had to face the Public Bill Committee. He did his best to answer. I know he did his best to answer. [Interruption.] Perhaps I would not go as far as “brilliant”, but he is a very nice man.
On money, in the amended Public Bodies Bill, there is an undertaking for the Government to provide “sufficient” funding. This is mainly made up of a contribution by the BBC from the licence fee. I understand that that is supposed to be approximately £76 million in 2014-15. Will the Minister tell us what the contribution will be in 2015-16 and 2016-17, and the next two years? It is not clear to me, at least. I have heard two figures mentioned—£74 million, or is it £76 million? We are only talking about a couple of million, and we are used to talking in trillions in this place, but £2 million is a load of money. Will all the BBC money be devoted to production, as we have heard? Must it all be devoted to production? Must it all be spent in the independent sector? Are these not decisions that S4C should be taking independently, rather than being directed?
May I just say that I am very pleased that my hon. Friend has been able to secure this debate? I am pleased with the attendance of hon. Members from all parties today, showing the depth of feeling in Wales about this issue. Will he please ask the Minister, if I can ask a question through him, what is the latest on the editorial independence of S4C?
I certainly will put those questions to the Minister, given that I have been speaking now for some 14 minutes. First, though, there is the question of administration. I understand that administering the channel costs about £20 million. From where is that to be obtained? I understand that the DCMS is to provide £7 million and that £3 million can be obtained from the channel’s commercial activities. What about the other £10 million? Where will that come from?
On management and governance, the point raised by my right hon. Friend is pertinent. We come to the matter of S4C’s independence. Again, the Government have assured us that S4C’s independence will be guaranteed. Will the BBC be appointing people on the operational side, which is my understanding? If that is so, how many people and at what level? What will be their function? Will they be there to look after the BBC’s interests? How can they avoid literally taking the BBC’s side? For example, if S4C decides to bid for a particular sports event that is in competition with the BBC—the Government are in favour of competition, are they not?—where will the loyalties of those BBC appointees lie? Will it be with the channel, or will it be with the BBC? Will they have a veto or a super majority, whatever that might be?
I congratulate the hon. Gentleman on securing the debate. On the issue of competition with the BBC, I find that a very odd comment in view of the fact that the most popular programmes provided by S4C are actually provided for the channel by the BBC. Secondly, in terms of the independence of the channel and the concern that the hon. Gentleman raises in terms of BBC involvement, is it not the case that back in 1982 the S4C authority members were a minority on the board of S4C? Indeed, there were representatives from the independent television production sector. Yet S4C, launched in 1982, became a great success.
Indeed. The hon. Gentleman makes my point for me. It is possible to do this. It is possible to do this without the uncertainty that the Government have caused by how they have handled this issue. We are uncertain and I look to the Minister and the hon. Gentleman to reassure us that the highly successful co-operation that existed before is obtained again in the future. I am glad that he made that point.
As I was saying about the BBC appointees, will they have a veto? What about reporting back to the BBC? Will it be a matter of providing quarterly information reports? That is one thing, I suppose, but day-to-day reporting about individual decisions is quite another, so where does it lie?
In respect of the board, I take it that they will all be DCMS appointees. Perhaps the Minister will confirm that. What will be the BBC representation? What will the split be between the BBC representation and others? Will the Minister confirm that the board members loyalty will be to S4C and not to any body that appointed them? Is it not usually the case with such bodies that the first loyalty is to the body itself, whatever the sponsoring organisation? Surely, in the interests of securing the future, their loyalty must be to the channel.
Huw Jones, I think yesterday, said that S4C
“will be an effective partner for the BBC—managing itself but being accountable to the BBC Trust for its use of licence money and to the Government for the other public money”.
That is a very positive statement, and I hope that all hon. Members will take it as such. However, for this to be the case, all of the questions I put, and possibly more, must be answered before the people of Wales have any confidence that the Government are committed to ensuring the best possible television service for the Welsh-speaking audience and the future of S4C.
It is a great pleasure to appear once more under your chairmanship, Mr Hood. I am delighted to be taking part in this debate. It gives me a chance to outline the secure, new and positive phase in the distinguished history of S4C. Unlike the hon. Member for Arfon (Hywel Williams), who, incidentally, I congratulate wholeheartedly and warmly on securing this important debate, I do not want to look to the past; I want to look to the future. For that reason, I welcome the appointment of the new chair, as well as the exciting announcement yesterday that Ian Jones is to be the new chief executive of S4C.
I want to dwell on the latter appointment, because it is indicative of the positive future of S4C. Mr Jones started his career at S4C in 1982 but went on to have an extraordinarily distinguished career in television broadcasting in the UK and in the United States. His current position is managing director of A&E Television Networks, which is one of the most successful cable companies in America and is based in New York. My hunch—I am sure that the hon. Gentleman will correct me, if I am wrong—is that a man of the calibre of Ian Jones would not leave such a job to join a sinking ship. He leaves such a job to take on an exciting new challenge to rejuvenate a chann