House of Commons
Monday 21 November 2011
The House met at half-past Two o’clock
[Mr Speaker in the Chair]
business before questions
Messages from the Queen
The Vice-Chamberlain of the Household reported to the House, That the humble Address praying that Her Majesty should reappoint Maxwell Marshall Caller CBE to be the chairman of the Local Government Boundary Commission for England with effect from 1 January 2012 for the period ending on 31 December 2015 was presented to Her Majesty, who was graciously pleased to comply with the request.
The Vice-Chamberlain of the Household reported to the House, That the humble Address praying that Her Majesty should reappoint Maxwell Marshall Caller CBE to be an Electoral Commissioner with effect from 1 January 2012 for the period ending on 31 December 2015 was presented to Her Majesty, who was graciously pleased to comply with the request.
The Vice-Chamberlain of the Household reported to the House, That the humble Address praying that Her Majesty should appoint Anna Carragher to be an Electoral Commissioner with effect from 1 January 2012 for the period ending on 31 December 2015 was presented to Her Majesty, who was graciously pleased to comply with the request.
Oral Answers to Questions
The Secretary of State was asked—
Learning Outside the Classroom
1. What assessment he has made of the social and economic value to schools and pupils of learning outside the classroom. (81755)
The Government fully support learning outside the classroom, and whilst we have made no formal assessment, we recognise the important contribution it can make to engaging and supporting pupils in their education. We believe that schools should have the freedom, however, to use their professional judgment to determine how learning outside the classroom best meets the needs of their pupils.
The whole point of the pupil premium is to give extra resources for schools that can be used exactly as they see fit for their own pupils. If a school wants to use a large or a small part of the pupil premium for that activity, that is entirely a matter for the head and the school.
Learning outside the classroom includes encouraging healthy eating through breakfast clubs, but new research suggests that one in eight breakfast clubs closed this year and that half of those remaining are under threat. What would the Minister say to the chief executive of Greggs, which funds breakfast clubs for 7,000 disadvantaged children across the country, who recently questioned the coalition’s priorities and the fact that it is able to find £250 million to fund weekly bin collections but is unable to pledge support for the rising number of children coming into school hungry?
I was in Leeds recently, where I awarded on behalf of the Prime Minister a big society award to the founder of Magic Breakfast, which is a voluntary organisation providing breakfasts and doing some fantastic work—in that case, with a local bagel maker renowned in the city. It is providing fantastic breakfasts for the kids, and I was lucky to see this great job being done rather well. In other places like Liverpool, however, which is run by the Labour party, the decision has been taken to reduce some of the breakfast clubs. That is a matter for local authorities; other places are doing it well, and the hon. Lady should look at some of these innovative schemes rather than look to the Government to provide everything.
Pupil Premium (Harlow)
We are planning to allocate £625 million to schools and local authorities in England in 2011-12. The allocation for the Harlow constituency is £1,012,112.
I thank my hon. Friend for that excellent news about how the pupil premium is helping the most vulnerable children in my constituency. Will she look at incentivising schools like Burnt Mill in Harlow that are using the pupil premium to focus on improving maths and English?
I am delighted to hear about that school using the pupil premium in that way. It is good to hear from head teachers examples of how they are spending the money and the impact it is making on the ground. I wonder whether the hon. Gentleman would invite the head teacher to write to me to tell me more about the detail of the work that that school is doing and its impact on pupils, as we are looking to try to publicise examples of good practice and it would be helpful to hear what is happening in the hon. Gentleman’s constituency?
I am glad to hear some grudging acceptance from the Opposition of the benefits of the pupil premium, which focuses money on the most disadvantaged students and gives schools freedom to spend it as they choose. I have just heard an example from my hon. Friend the Member for Harlow (Robert Halfon) of where that is making a substantial difference. I remind the hon. Gentleman that there is a flat cash settlement per pupil, and that an additional £2.5 billion has been made available for the pupil premium.
Schools in my constituency are to receive a welcome £1.5 million from the pupil premium. At a meeting with representatives of the local primary school last Friday, I learnt that some primary schools will be working together to spend that money in the best possible way for their pupils. Does the Minister agree that that is a smart way of trying to get the best out of the pupil premium?
Trends in Education and Schools Spending
I read the IFS report with interest, and found its arguments thought-provoking.
The report shows that education spending is being reduced dramatically. Head teachers in Rochdale and throughout the country deserve our praise for their hard work in dealing with the cuts that are being made by the Government of whom the Secretary of State is a member. Will he take this opportunity to apologise for describing head teachers as whingers?
I am grateful to the hon. Gentleman for praising head teachers in Rochdale. Head teachers everywhere are doing a fantastic job with limited resources. The one thing that I hope I shall be able to work with the hon. Gentleman to ensure is that head teachers can make those resources go even further by allowing their schools to convert to academy status.
The report shows that capital spending on schools was the fastest-growing component under Labour, but that we shall see the biggest cut under the Secretary of State’s plans. In Barrow, a vital development is currently being upheld at the planning stage by Conservative councillors. Will the Secretary of State guarantee full funding for the project if those planning objections are dismissed?
I think that the hon. Gentleman probably means “held up” rather than “upheld”. However, we shall do everything possible to ensure that not just the planning system but building regulations are reformed so that necessary investment in schools is accelerated, and we shall do everything possible to ensure that resources are there for those in the most need.
In the light of the IFS report and the understandable concerns that it will have raised among my constituents who have children at school, can the Secretary of State assure Harrow schools that have just become academies that there will have been no real-terms cut in direct Government spending by the time of the next election?
All schools that have become academies have the chance to spend their money directly on the priorities that are close to them. Obviously every school will have different funding results over the next four years, but, overall, cash spending on schools is protected, and schools should also benefit from the pupil premium.
The IFS report sets education spending in the context of the national economy as a whole. Will the Secretary of State remind the House of the comparator between the size of the education budget each year and the size of the net annual debt interest bill left to this country by the Labour party?
The IFS report shows that the Secretary of State is undertaking the largest cut in education spending since the 1950s, and that education capital will be cut by an eye-watering 57%. Can he tell us how that 57% cut compares to the average capital spending cut across all other Departments?
I am reminded by my hon. Friend the Minister of State with responsibility for children and families that it should be “compares with”, not “compares to.” The truth is that under the last Government capital spending was poorly allocated and wastefully squandered, and we are now ensuring that money goes in particular to those primary schools in desperate need that were neglected when the hon. Gentleman, unfortunately, was not in government but so many of his colleagues were.
The right hon. Gentleman’s English may be better than mine, but his maths certainly is not, because, as he knows, the cut is double the average cut—a truly terrible spending settlement for education capital. With youth unemployment now over 1 million, will he join me in pressing the Treasury to bring forward capital investment in schools, as set out in Labour’s plan for jobs? Does he agree that that would not only be good for education, but it would be good for jobs and economic growth?
The hon. Gentleman is, indeed, very good at arithmetic; if only he had been in the Treasury over the last five years when so much money was wasted by a spendthrift and profligate team of Ministers who had not a care for prudence, economy or the next generation. If he believes in a plan for jobs and growth, he should support the deregulation measures that will be in the autumn statement; he should support the Chancellor in making sure our economy is competitive again, and he should support the education reforms we are introducing, which will ensure that our children go on to become the best educated and the most enterprising in the world.
Average funding per pupil for 2011-12 has been kept cash-flat at £5,082 per pupil, plus the pupil premium. The pupil premium totals £625 million this year, rising to £2.5 billion in 2014-15. It provides £488 for each free-school-meal child and looked-after child. In addition, the children of families in the armed services will attract £200.
I thank the Minister for her answer. According to recent research, a London child living in one of the country’s most deprived neighbourhoods in 2010 had a 75% chance of finishing above the bottom quarter of the national results at age 16. Without the London weighting attached to the pupil premium, how will the Government ensure these high standards are maintained in constituencies such as mine?
I absolutely agree that the figures for attainment for children on free school meals and looked-after children are woefully inadequate at present. That is why we have introduced the pupil premium. I should also say that in the hon. Lady’s constituency per-pupil funding is higher than almost anywhere else in the country. A substantial amount of money is already going into her constituency, therefore, as well as a significant amount of money through the pupil premium, which will rise to £2.5 billion nationally by the end of the spending review period. I would therefore encourage her to ask her schools how they are spending that money, and I would be very pleased to hear the detail of some of the best practice being followed by them.
My hon. Friend rightly sets out the benefits of the pupil premium. Does she agree that one of them is that it targets disadvantaged pupils wherever they are in the country, unlike general funding formulas, which the Government are looking at and which under previous Administrations have, perhaps, neglected some children in some parts of the country?
Absolutely. I represent an inner-London constituency so I see very high levels of deprivation there, but there are also high levels of deprivation in rural areas, which is often unseen either because it is in pockets or because people might perceive that because an area is leafier it must also be wealthier. Many rural schools, including in my hon. Friend’s constituency, will benefit from the pupil premium and will be able to focus their efforts on raising the attainment of all their pupils.
I have written to the Minister’s colleague the Secretary of State about a specific issue relating to transient populations clustered in particular areas, such as north-east Sheffield, where as many as 25% of primary school pupils and about 15% in one secondary school do not claim the usual benefits that entitle their school to receive the pupil premium. I therefore take the unusual step of asking the Minister to come to Sheffield and to my constituency, so as to examine this issue and then reformulate the pupil premium so that such schools can be supported and helped?
Obviously, I have not seen the right hon. Gentleman’s letter to the Secretary of State, but I would be happy for either me or a colleague to come to see the specific issues in his constituency. I recognise the challenges of having a transient population and ensuring that all those families are claiming their benefits and are registered for free school meals. The Department is beginning a series of work to encourage schools to make sure that all families are signed up to free school meals.
I very much welcome the introduction of the pupil premium, but is the whole system not completely reliant on the schools correctly identifying and registering pupils who are eligible for free school meals? How successful does the Minister believe schools are in identifying these vulnerable pupils?
It varies according to area. We know that there is some tail-off at secondary school level, which is one of the reasons why our funding consultation touched on whether or not to introduce measures, including “ever” free school meals. That was about picking up children for the pupil premium who had previously been on free school meals, because there is some drop-off as they move from one area to the next. As I said, we are beginning some work to encourage parents to sign up. Not all parents want to sign up for the lunch, but they may well be keen to sign up if they know that their school will get extra money.
The facts are that the Institute for Fiscal Studies report says that in this financial year nearly three quarters of primary schools and more than 90% of secondary schools will see a real-terms cut in their budgets, even after including this so-called “additional pupil premium”. Is the Minister embarrassed about the way she has been conned by her coalition partners or was she only too willing to sell our schools short?
Perhaps I can quote the IFS report back at the hon. Gentleman, because it says that the most deprived schools are likely to see real-terms increases in funding per pupil in 2011-2012. It is perhaps sometimes worth reading the detail of a report and not merely quoting back headlines.
Broadband is important in supporting teaching in schools. The Department for Education does not collect data on broadband speeds in schools, but evidence suggests that almost all schools in England have access to broadband—speeds will vary, depending on location. Most schools choose broadband provided by local authorities or regional broadband consortiums, which are able to aggregate demand across a region, take account of rural schools and offer services suited to the needs of education.
I am grateful for that answer. In Byers Green and Binchester in my constituency there are broadband not-spots—they are surrounded by areas that are well served—and so children are told to do homework, using broadband, that they simply cannot do. Will the Minister either lobby his colleagues to ensure that broadband is accessible throughout the country or take steps to make sure that secondary schools stop requiring children to do homework that they simply cannot do?
I am grateful for the hon. Lady’s comments. A BECTA survey in 2009 showed that only 2% of primary schools and 1% of secondary schools regarded their broadband speeds as very slow. There is record spending on broadband at the moment and the Government have allocated £530 million over the Parliament for broadband, which is available to local authorities to help improve broadband in their areas.
6. If he will bring forward proposals to place schools under a statutory duty to provide high-quality and impartial careers guidance. (81760)
The Education Act 2011 places a duty on schools to secure access to independent and impartial careers guidance for pupils in years 9 to 11. This provision will commence from September 2012 and will be underpinned by statutory guidance.
My hon. Friend will know that I visited his constituency to look at the excellent work that has been done on vocational training. The purpose of the independent advice and guidance is to ensure that people get advice appropriate to their needs. For too long, we have assumed that the only route to prowess came through academic accomplishment. The Government believe that the work of people’s hands matters too, and that those with practical tastes and talents deserve their place in the sun.
The Minister knows that face-to-face contact and advice on careers is essential. Is it not the case that up and down this country schools are giving up on having a highly trained careers person in them and there is no access to an external schools careers service? Is that not sad for the kids in this country who do not have good, well-connected parents to give them the advice that they crave?
What preceded the position the Government have adopted was the Connexions service. I am not saying that Connexions did no good, but it certainly was not up to scratch. The skills commission inquiry said that it did not ensure that young people had good advice, Ofsted identified inconsistencies in provision and, as you know, Mr Speaker, Alan Milburn specifically called in his report for a national careers service. Of course face-to-face guidance matters, but it is not all that matters.
New apprenticeships have grown by 56% in my constituency over the past year and are vital to our future. Will my hon. Friend confirm that he will ensure that under any future arrangements for careers guidance in schools opportunities for apprenticeships are fully promoted?
Absolutely. My hon. Friend knows that the work the Government have done on apprenticeships has been outstanding and it is due to the support, encouragement and advice of hon. Members like him that that work is cutting through in the constituencies in the way that he describes. It is not just our constituencies: the shadow Secretary of State’s constituency has seen a 69% increase in the number of apprenticeships and I know that he will want to take the first opportunity to rise to the Dispatch Box and congratulate the Government on that.
During the passage of the Education Bill, the Minister spoke movingly of the scope for the careers guidance service to be a driver of social mobility and quoted a survey that found that 27% of state school pupils have received bad careers guidance, set against 6% of private pupils. The model he has developed for careers guidance leaves 16 to 19-year-old school leavers with only a web or helpline service and does not transfer any of the money from careers guidance to schools for face-to-face services: how many private schools is he aware of in which teenagers receive only a web-based or telephone advice service?
I welcome the hon. Lady’s question on this subject, because she, too, will want to know that in her constituency, apprenticeship numbers are also up by 69%. To answer her question directly, it is absolutely right that schools make a judgment about the mix of provision that suits their pupils. She is right, too, that private schools typically buy independent, impartial advice and that is the kind of advice that all children deserve, which is why we are changing the situation.
Rural Schools Funding
7. What steps he is taking to ensure adequate funding for rural primary schools. (81761)
The Government recognise the vital contribution made by rural primary schools to their communities. We believe that in many parts of the country, the current funding has not supported rural areas properly. Our recent consultation on reforming the funding system looked carefully at how small schools should be supported and we aim to consult further on more detailed proposals in the spring.
It is a fact that small rural primary schools cost, on average, 50% more to fund. With vastly reduced resources, that is a huge challenge for local authorities. What precisely is my hon. Friend doing and going to do to support funding for such schools given their importance in constituencies such as mine?
My hon. and learned Friend makes a good point. The current methodology was inherited from the previous Government and the funding system is based on historical and out-of-date assessments of need. The system is illogical, unfair and opaque and that is why we have had the first phase of the consultation and will be taking its findings to face further, more detailed consultation and proposals will be made in the spring. I hope that he will contribute to that process on behalf of his schools.
Primary School Places
This year, we have made available £1.3 billion to fund school places in England. The London borough of Barnet’s share in 2011-12 is £12.8 million.
I congratulate the Secretary of State on tackling a problem that was neglected by the previous Government and I thank him for and congratulate him on the free schools initiative, which has provided Etz Chaim with an opportunity in Mill Hill. Does he agree that London has always had a problem with school places? Recently, I had correspondence with a constituent who has found that although her son was given a place at a nursery school, he was not given the opportunity to have a place in a reception class. That means that he will have to walk more than two miles even though there are seven other primary schools in the immediate area of Hendon.
My hon. Friend makes a very good point. One of the dreadful problems we inherited from the previous Government was a failure adequately to prioritise capital to ensure that there were new school places in areas of population growth. As we know, population growth is exceeding all expectations, which is why we need to do everything possible to reform planning rules and building regulations to ensure there are more new schools.
I should like to thank the Secretary of State for following up on the grant we got from the previous Government to create extra primary school places in Slough with another grant to create more of the primary school places we need. Shortly, my constituency will face a serious shortage of secondary school places, but many children who live nowhere near Slough are educated in our secondary and grammar schools. Will he consider looking, in the school admissions code, at places that educate children from a long way away but that do not provide places for local children?
A survey of nearly 700 schools has shown that the English baccalaureate is having an immediate impact by increasing the number of pupils electing to take up a key set of academic subjects and by reversing declines in entry to subjects such as French, German and history, which we know are valued by universities and the wider public. The survey showed that 47% of pupils studying for their GCSEs in 2013 are taking academic subjects leading to the English baccalaureate, compared with just 23% entering that combination of subjects in 2011. That figure of 47% takes us back almost to the 49% who took those subjects when Labour came to office in 1997.
I thank my hon. Friend for that answer. Is he concerned that the impact of the English baccalaureate will undermine the value of excluded subjects such as divinity or religious education, which play an important part in providing students with a well-rounded English education?
Religious Education is an important part of the school curriculum, which is why it is compulsory up to age 16 and why it will remain so under this Government. The E-bac is small enough, with six or seven GCSEs, to allow time for the study of subjects such as RE, music, art or a vocational subject while also studying the E-bac combination of GCSEs that are regarded as the facilitating subjects. That will keep options open for longer and will widen opportunities.
Does the Minister recognise that the E-bac will be inappropriate for some of the pupils represented in the figures he has just read out, but that schools will have to push their pupils towards taking that approach because of the retrospective and quite sloppy way in which all this has been introduced? What message does he have for teachers who want to motivate pupils using a wider curriculum if the E-bac is not appropriate for them?
No student should be entered for a subject that is not in their best interests. The E-bac is small enough to allow schools to offer a range of options, including a vocational or other subject that is motivational for that student while still taking the E-bac subjects if they are suitable for that pupil.
School Admissions Code
The White Paper, “The Importance of Teaching”, announced that we would consult on a simplified and easier-to-understand schools admissions code to overhaul a system that is too often complex, confusing and unfair for parents. The revised schools admissions code is another contribution to our continued drive to reduce the bureaucracy facing our schools and local authorities while retaining the key safeguards that will ensure a simpler, fairer and more accessible admissions system for all parents.
Much of the local opposition to the Lindley Moor development in my constituency was based on the pressure on already oversubscribed local schools. Will my hon. Friend join me in insisting that section 106 money allocations to local schools as part of those plans really do go towards easing the pressure on local school places?
Local authorities have a duty to ensure that there are sufficient school places for all children of school age in their area and the Government are supporting local authorities in the fulfilment of that duty. Kirklees council received £17.2 million of capital for 2011-12 and a further £0.5 million as a result of the additional £0.5 billion basic need funding that was announced recently. On section 106 funding, the Government are consulting on changes to the community infrastructure levy to make it more responsive to local needs, including the need to ensure that there are enough school places.
Primary School Places
Of the £1.3 billion available to fund additional school places in England, the London borough of Enfield’s share is just under £16 million.
Enfield council recently announced a strategy to cope with the increasing demand, but it gives no specific consideration or role to free schools. What advice can the Secretary of State give to those interested in setting up free schools who face this purely ideological barrier?
It is a great pity that Enfield Labour council is not as supportive of free schools as it should be. Both the hon. Member for Liverpool, West Derby (Stephen Twigg), the shadow spokesman for education, and I have visited superb free schools in Enfield, and I hope the Labour local authority there moves with the times and supports those free schools in doing a fantastic job for children in disadvantaged circumstances in a borough that deserves better.
Inevitably, the provision of school places in neighbouring boroughs such as Enfield will have a knock-on effect in places such as Waltham Forest. The Secretary of State is aware that a quarter of all responses to his consultation on the national schools funding formula came from Walthamstow, from parents and governors in my constituency who are desperately concerned that we are facing a shortage of 1,200 places as a result of the cancellation of the Building Schools for the Future project. Will Ministers agree to meet parents and governors from my constituency to talk about the desperate shortage of places in Waltham Forest and what can be done?
As the Secretary of State knows, there is a shortage of primary school places right across the country. Does he agree that the situation is made considerably worse when the local education authority shows an inability to undertake forward planning? Thirty primary schools in Colchester have waiting lists. Will his officials please chase Essex education authority to get on with providing schools in my constituency?
Munro Review Implementation Working Group
The Government’s response to the Munro review was informed by an implementation working group convened for that purpose. We continue to work with a range of partners to take forward these important reforms. We will consult early next year on the revision of statutory guidance. More flexible assessment processes are being trialled in eight local authorities. Ofsted has consulted on new inspection arrangements and we have published a work programme on safeguarding children in the NHS.
The Minister started off well, publishing the minutes of the implementation working group on the website. Unless the working group has not met since, the last minutes are for May 2011. Will he give me an update on the report that he asked for on the funding implications of the Munro review?
I set up the implementation working group specifically to translate the Munro review recommendations into practical things that we could implement before we published the Government’s response, so they informed the Government’s response which we published before the summer. We have used members of that implementation group to inform the work that we are doing on all those aspects that I mentioned and others. My intention is to reconvene the implementation working group early in the new year to monitor the progress that we have made and see what more we need to do.
I am pleased that we have got the Secretary of State to answer the question. I am in favour of head teachers, governors and local education authorities having a real debate about how to get primary schools to improve. How will the Secretary of State take account of special educational needs and outstanding Ofsted reports? Would he or one of his Ministers meet me, the local education authority and the heads about the schools which, it seems, will be forced to become primary school academies?
I am grateful to the hon. Lady for her point. As she knows, education standards in Stoke-on-Trent have not been good enough for too long, and we particularly need to tackle underperformance at primary level. We need to find the right sponsors to help those primary schools turn round, but we can do so far better if we collaborate with the local authority and co-operate with local Members like herself and the hon. Member for Stoke-on-Trent Central (Tristram Hunt), who are passionate about change. I will make sure that a Minister makes time to talk to her and her parliamentary colleagues.
Literacy and Numeracy
Good-quality teaching is fundamental to improving numeracy and literacy. We are reviewing the national curriculum to ensure an enhanced focus on literacy and numeracy. We will recruit more high-quality graduates and ensure that all newly qualified teachers have the skills to teach well, particular in teaching reading through systematic synthetic phonics. We are supporting existing teachers, for example by making match funding available for phonics materials and training and by increasing the number of specialist maths teachers.
I agree completely with my hon. Friend’s comments. That is why we have announced that, from September 2012, a person must pass a literacy and numeracy skills test before starting teacher training and will be allowed only two resits, rather than being able to take the test an unlimited number of times. From September 2012 we will also raise the pass mark and carry out a complete review of the test’s contents to ensure that we are properly testing the literacy and numeracy of those teaching in our classrooms.
The top-performing countries in maths, such as Singapore, hardly use calculators at all in primary schools. Britain uses calculators more than any other country and is ranked 28th in the world in maths. Does the Minister think that there is a correlation?
I read my hon. Friend’s article in The Sunday Times this weekend with great interest. She made some very important points. She has championed the importance of high-quality maths teaching in our schools and knows the importance of maths not just for an individual’s ultimate opportunities, but for the economy as a whole. I hope that she will continue to contribute to the national curriculum review of maths.
Sure Start Children’s Centres
Local authorities have a duty under section 5A(1) of the Childcare Act 2006 to ensure that there are sufficient children’s centres to meet local need. Many local authorities are reviewing their provision, and they must consult before making any significant changes. The situation changes constantly and it is not possible to predict accurately the position at the end of the 2012-13 financial year. The early intervention grant provides enough funding to retain a network of Sure Start children’s centres.
The Minister recently visited Little Stars children’s centre in my constituency and was impressed by the quality and commitment of staff to the service. Will she commend the Labour council leader for prioritising Sure Start, despite the savage cuts handed to it by the Government, and urgently reconsider the Government’s decision to remove ring-fencing?
I very much enjoyed my visit to Hull and was extremely impressed by much of the work being done on the ground, particularly the innovative and fascinating work that a number of centres have been doing to link children’s services with health. As I have said already, I commend local authorities that are prioritising children’s services on the ground. That is certainly the message that we have given out clearly to local authorities.
A recent newspaper article suggested that the Minister’s Department did not know what impact there has been on the services provided within children’s centres. I hope she will agree that services are more important than the centres themselves. What research will she carry out on that, and will she ensure that good practice is publicised?
The Department has commissioned an ongoing evaluation of children’s centres in England, so any changes that are made as a result of Government policy, particularly the move to payment by results and changes in other services offered by children’s centres, will certainly be picked up by the evaluation.
Last week the Department finally admitted that the Government’s damaging cuts to early years are resulting in services being withdrawn and children’s centres being decommissioned and having to close their doors to parents, but we all know that those figures are just the beginning. Councils are now looking ahead to the next financial year, with the reserves drained and the easy cuts having already been made. How many centres will have to close before this out-of-touch Government and out-of-touch Secretary of State admit their mistakes and save our Sure Starts?
Our survey suggests that there have been six closures and 124 mergers since last year, out of a total that started at 3,631, so there has been a 3% change in the number of Sure Start children’s centres, demonstrating that most local authorities are not only doing the best in what are, I recognise, very difficult circumstances, just as they are for the Government. Those authorities are prioritising services on the ground and that is certainly what we are encouraging them to do, as we ask them to publish the information on what they spend, under the new transparency requirements that the Government have introduced. Similarly, payments by results will focus them much more on outcomes.
Trends in Education and Schools Spending
I refer the right hon. Gentleman to the answer I gave a wee while ago.
The report says that spending on 16 to 19-year-olds’ education has fallen by more than 4%. At the same time, an Association of Colleges report shows that half of all colleges have seen a significant drop in enrolment by 16 to 19-year-olds, including in some cases a drop of up to 15%. Does the Secretary of State think that the two are by any chance related?
I absolutely do not, given that the changes in 16 to 19-year-old funding do not affect colleges. They primarily affect schools, as schools are brought into correlation with colleges. The good news is that the very best colleges—those that are outstanding—are recording an increase in the number of students, and overall that is part of a very happy picture of rising participation.
National Citizen Service
The pilots that have been run this year and will be run next year are funded through the Cabinet Office, and we will discuss with it and the Treasury how the scheme is then rolled out to the 60,000 and 90,000 places that we have forecast for subsequent years.
A recent Education Committee report highlighted the alarming disappearance of youth services throughout the country. Does the Minister accept that replacing long-term youth services, which were particularly good for most disadvantaged children, with an eight-week programme does not constitute a strategic vision for young people? What will he say to those young people who feel absolutely betrayed by the decision that his Government have taken?
Of course the hon. Lady is completely wrong in her premise. The national citizen service, as I have just described, has been funded from a completely separate source from that of youth services—coming through local government and the Department for Education. She knows my concerns about how certain local authorities are treating youth services as a soft target for some of their cuts, and this Government will publish shortly our “Positive for Youth” policy, which will send out some very strong messages about the value of well-targeted, quality youth services run in partnership and under new models, because for too many years they were just not reformed under her Government.
The Minister of State, Department for Education, my hon. Friend the Member for Brent Central (Sarah Teather), recently announced that we will spend more money to ensure that all disadvantaged two-year-olds have access to 15 hours of pre-school learning. Consultation is now taking place to ensure that the most deserving children get the best possible start in life, and I encourage all Members to contribute.
Over the past year there has been a 10% increase in the number of children in reception classes in the London borough of Croydon, with further increases predicted in September 2012 and September 2013. I warmly welcome the almost £8 million that my right hon. Friend announced last week, but at the risk of sounding like Oliver Twist I also hope that there will be further such tranches of money in future.
My hon. Friend not only sounds like Oliver Twist, but displays a sense of “Great Expectations” about what I can get out of the Chancellor—[Hon. Members: “‘Hard Times’!”] Well, really it is a “Tale of Two Cities”: the City of London under Labour, under-regulated and, sadly, not paying the taxes that it should have; and the City of London under the Conservatives—at last getting the resources into the Exchequer which, I hope, on a serious point we can give to the children in Croydon, who do need more school places.
T4. Has the Secretary of State yet woken up to the depth of anger among teachers, illustrated by a head teacher in my constituency, just coming up to retirement, who tells me that she feels cheated by a Government who want her to work longer for less, when she has already delivered her half of the bargain? (81749)
First, I say to the right hon. Gentleman that if the head teacher in his constituency is coming up for retirement, she will be pleased to know that, under the coalition Government’s proposals, she will be not be affected by any change to her pension whatsoever.
T2. Leicestershire county council is currently reviewing the availability of school walking routes, including the one to Humphrey Perkins high school from Sileby to Barrow in my constituency. The county council considers that route to be reasonably safe, but the head teacher, the parents, the pupils and I do not. Will the Minister tell me the Government’s view on when safety becomes more important than the simple availability of a route? (81746)
I am aware of my hon. Friend’s interest in this issue. I recently met the Under-Secretary of State for Transport, my hon. Friend the Member for Lewes (Norman Baker), with another hon. Member and one of his councillors who were raising the same point. I simply point out to my hon. Friend—I am very sympathetic to this point—that local authorities are under a duty to make travel arrangements where the nature of the route to school is such that the child cannot be reasonably expected to walk in reasonable safety. Councils should not be re-designating roads without having done a safety check, and we should be asking some questions.
T5. Research suggests that continuous teacher training offers the surest route for school improvements. What steps is the Secretary of State’s Department taking in conjunction with the Department for Business, Innovation and Skills to ensure that university departments are opening up to local schools, so that teachers are up to speed with the latest scholarship and can inspire their pupils? (81750)
That is a typically acute point from the hon. Gentleman. One of the things we are doing is to invite the new group of 100 teaching schools that we have designated to play a closer role in collaboration with universities. Just last week, I was talking to the Royal Society about how important it is that universities and learned societies ensure that the best teachers can become accredited as masters in their field so that they remain up to speed with developments in their subject.
T3. The Minister has made great headway in ensuring that looked-after children are not sent beyond their local authority boundary. However, 30 children from Greenwich have been placed in South Thanet in addition to the number it has placed before, and the number from Lewisham has increased by 15 in the past six months. I wonder what more we can do. (81748)
I am well aware of my hon. Friend’s genuine interest in that matter and she has been to see me with other colleagues. When we brought in the new guidance earlier this year, I wrote to every director of children’s services to remind them of their obligations to house looked-after children as close to home as possible. I have taken the matter up again with the office of the Mayor of London and will be making further representations to those London boroughs that particularly impact on south-eastern seaside resorts such as her own. They should not have to take such large pressure.
T8. According to the Institute for Fiscal Studies, Wolverhampton will be one of the biggest losers from the Government’s new national funding formula. Schools in my constituency stand to lose 10% of their funding, whereas schools in Buckinghamshire will gain 10%. Why is the Secretary of State so determined to take from the poor to give to the rich? (81753)
The Institute for Fiscal Studies projections were based on its guesses. However, something it has said about reality rather than the future is that, at the moment, this Government are ensuring that schools educating the poorest receive the most, because our pupil premium will be worth £2.5 billion by the end of this Parliament. That is something the Government the hon. Lady supported last time round never did.
T7. Is the Secretary of State aware that many, many parents of children with special needs who were struggling to find a suitable school will be very pleased that he has decided to extend the free schools programme to special schools? How many special schools does he estimate will be free schools within the next few years and how many children does he estimate that will help? (81752)
I am very grateful to my hon. Friend for her point. We need to ensure that all children who have special needs are better educated and we particularly need to ensure that the energy and enthusiasm of people in the third sector are galvanised. At this stage, I cannot give her a firm figure on how many students and schools are involved; all I know is that a small bridgehead will expand over the course of this Parliament.
The Secretary of State will no doubt be delighted to hear that, on Friday, I visited the university technical college in Walsall and, credit where it is due, it was fantastic. He will also be pleased to hear that tomorrow I am meeting Lord Baker to discuss my campaign to bring a UTC to Dudley. Sadly, only one of the 70-odd UTCs that will open nationally is currently in the black country. Will the Secretary of State meet me too, so we can discuss how we can open a UTC in Dudley and deal with the urgent need to drive up vocational standards and bring new jobs and industries to the area?
So many members of the Cabinet, including the Prime Minister and Deputy Prime Minister, owe their start in life to private education. Many other European countries have many more bridges between private and state education, with, for instance, the state paying the salaries of teachers in private schools. Will the Secretary of State confirm that he has not ruled out new, imaginative ways of helping ordinary people to access private education?
I try never to rule anything out; life is too short. To return to the Oliver Twist metaphor that we had earlier, I want to ensure that we do not just save Oliver and leave the Artful Dodger and the rest of Fagin’s gang to the wolves, but ensure that every child in poverty is helped. It is therefore important that we all put pressure on independent schools to live up to their charitable foundation by sponsoring academies and doing more for all children in need.
The findings of the Institute for Fiscal Studies on Rotherham metropolitan borough indicate that secondary school education will take a spending cut of between 11.8% and 13.4%. Given that Rotherham is still in the highest 20% of deprived areas in this country, what has happened to the concept of “We’re all in it together”?
As a deprived area, Rotherham will, over the lifetime of this Parliament, benefit increasingly from the pupil premium. The report to which the right hon. Gentleman refers is a projection—a guess. The IFS is a fantastic think-tank, but it is speculating, not stating.
Let me point out that every single question from Opposition Front Benchers during the course of this Question Time was a plea for more money; not a single question was about the case for reform. In a nutshell, there we have the problem with today’s Labour party: an outstretched hand demanding more cash but not a single thing to say about raising standards.
Here is a question about reform, not extra cash. With early adopter schools that are well equipped to convert to academies already on the pace in becoming free-standing academies, what extra support, advice and guidance can my right hon. Friend give to the middle area of schools that are considering moving to being an academy but have not yet got up the nerve to make that change?
All I would say is this, “Come on in. The water’s lovely.” In Bedford and Bedfordshire, schools that have converted to academy status have already seen their standards increase, and their head teachers have been able to ensure that money is spent on the pupils’ priorities, not the bureaucracies’ priorities. I am looking forward to working with my hon. Friend and all Bedfordshire MPs to ensure that more schools convert to academy status and, in so doing, raise standards for all children.
On academies and capital expenditure, the Secretary of State will recall that I was recently in touch with him, yet again, about Woodlands school in Coventry, which, having narrowly missed out on Building Schools for the Future, has turned into an academy in its desperation for some support from the Government and now finds that it is still not eligible for any further capital expenditure. Will he look at that and do something about it?
The Priority School building programme exists specifically to help schools like Woodlands. At the moment, we are inviting bids from schools across the country and assessing those bids against each other. In due course, there will be an announcement about additional capital support for the schools in the worst condition.
Now that the Education Act 2011 has Royal Assent, the Minister will be looking at criteria for determining whether a school causing concern should be taken over by the governing body of another school. Can he assure me that these decisions will be made on the basis of the most up-to-date assessment of a school’s progress?
That is a very fair point. We want to make sure that we target our attention on schools in the greatest need. If a school has had a historically poor record but, for example, a new head teacher or a new chair of governors has turned it round in the past 12 months, of course we will interpret the criteria flexibly.
The Secretary of State did not answer the question from my right hon. Friend the Member for Rother Valley (Mr Barron), which was about the distribution of funding under the Secretary of State’s direct funding plans. Rotherham secondary schools are set to lose out by £12 million in an area where we already have high and rising deprivation. This is simply wrong. Will he give a guarantee to local parents, students and teachers that they will not lose out like this?
I am grateful to the right hon. Gentleman, but I should say that this matter is under consultation at the moment. I should also say that the Association of School and College Leaders, the National Association of Head Teachers and every representative of head teacher opinion says that the current funding system needs to be reformed. Once again I say to him—now that he is, sadly, no longer in the shadow Cabinet—that it is not enough for Labour Members simply to ask for more; they have to push for reform as well as demanding more cash.
On that note, school children in my constituency of Bromsgrove will receive £1,000 less per head this year than those in neighbouring Birmingham. Does my right hon. Friend agree that that is because under the previous Government school funding was allocated on the basis of party politics and not need?
In an earlier answer, the Under-Secretary of State for Education, the hon. Member for East Worthing and Shoreham (Tim Loughton) again deferred to Magic Breakfast, an excellent charity, to plug the massive funding gap that has been left by the Government taking away extended schools money. Magic Breakfast provides 200 schools with free breakfast, yet 3,000 breakfast clubs have been closed across the country and thousands more are under threat. What are the Government going to do about that?
Let me have another go. Just a few weeks ago, I met the former chairman of Greggs who set up the breakfast club. That company did so not on the basis of how much money the Government were or were not putting into it or because of Government policy, but because it thought that it was the right thing to do, it was in a position to do it and it was good corporate social responsibility. The company did it and it did not take Government money to ensure that companies could step up to the mark and do their bit.
As the Secretary of State knows, support in the community of Brandon for the Breckland free school is extremely strong. Will he assure me that all expressions of interest from parents, both on official forms and on the forms from the free school, will be taken into account when he makes a decision on whether that free school should go ahead?
I had the great pleasure of meeting the parents behind that free school application. They were a fantastic model of citizen action. The Department will do everything possible to ensure that their bravery, courage and energy in ensuring that their children get the best possible education are supported to the full.
A few minutes ago, the Minister for Further Education, Skills and Lifelong Learning talked about the increase in the number of apprentices in various parts of Britain. In Bolsover, that started three years ago when the working neighbourhoods fund was used to increase the number of apprentices in our area. Now, with the 28% cut for the local authority and the working neighbourhoods fund due to finish next spring, there will be a loss of apprenticeships in that part of Britain. Will he have a word with his colleagues to sort that out?
As the hon. Gentleman knows, this Government have produced the largest number of apprenticeships in modern history. I am very happy to look at his constituency, but I have to tell him that according the latest statistics—not my statistics, but the official figures—apprenticeship numbers in Bolsover are up by 65%.
Once again, I am grateful to my hon. Friend. I stress that it is an important civil right to be able to withdraw one’s labour. I also stress that this Government understand the widespread anxiety and anguish of hard-working public sector professionals, who deserve a decent pension. However, let me also make it clear that it is wrong for teachers and head teachers to withdraw their labour, to deprive children of a day’s education and to make life more difficult for working parents—wrong, wrong, wrong.
It is reported that youth services are taking a 25% cut on average and we know that some youth services are disappearing altogether. Will the Minister tell us how many youth projects have closed, how many youth workers have been made redundant and what he will do to ensure that local authorities fulfil their statutory responsibilities?
I cannot tell the hon. Lady how many but I will tell her that this Government are funding 63 myplace centres, the latest of which I opened in Bognor Regis just last Friday. In the next few weeks, the Government will produce their “Positive for Youth” policy, which will point to the future of new partnerships, new forms of funding and new ways of working together to ensure that our young people get decent youth services and a decent offer up and down the country. Reform needs to come to youth services in this country because the model under the previous Government was not sustainable.
With permission, Mr Speaker, I would like to make a statement about Northern Rock. As the House will be aware, on 15 June this year the Chancellor of the Exchequer announced that Northern Rock had been put up for sale. Last week, he announced that he had agreed the sale of Northern Rock plc to Virgin Money. I am grateful for the chance to update Parliament on those events.
As hon. Members will be aware, the collapse of Northern Rock four years ago foreshadowed a crisis that was to engulf the global financial system. The queues of people outside branches of Northern Rock—the first run on a British bank in more than a century—remain to this day a lasting image of the crisis. It was a sorry result of the inadequate regulation and irresponsible banking that the previous Government presided over, and it was a crisis that led to a range of Government interventions in the financial sector. The sale of Northern Rock to Virgin Money is an important step towards normalising the Government’s role in the financial sector and getting the Government out of the business of running the banks.
The deal with Virgin Money is expected to be completed on 1 January 2012, pending European Commission merger clearance and Financial Services Authority approval. Let me reassure the House that the sale route represents the best value for money for the taxpayer. United Kingdom Financial Investments and its independent advisers looked exhaustively at all potential exits, including stand-alone remutualisation, combination with an existing mutual and initial public offering, but ultimately advised that a sale would generate the best value for money for the taxpayer.
Furthermore, under the terms of the state aid agreement entered into by the previous Government, we have to transfer control of Northern Rock to a new owner by the end of 2013. That limits the window for getting Northern Rock plc back into the private sector. Combined with the fact that the bank is likely to be loss-making well into 2012, a sale to Virgin Money now is the best option measured against taxpayer value for money. We have also carefully assessed the impact of the sale on competition and financial stability.
Let me set out the details of the deal. The cash elements are as follows. Virgin will make a cash payment of £747 million to the Treasury on completion, which is expected to be on 1 January, conditional on regulatory approvals. We also expect about a further £50 million once we know the actual final net asset value of Northern Rock plc at the end of 2011. In addition to the cash payment, the Government will hold a capital instrument in Virgin Money, with a par value of £150 million and paying interest at 10.5%. Furthermore, we have ensured that the taxpayer will get a share of any upside. In the event of a profitable sale or initial public offering by Virgin Money, an additional cash consideration of between £50 million and £80 million will be paid to the Government.
By way of comparison, our shareholding in Northern Rock is valued at £1.2 billion on the Treasury’s balance sheet, because the previous Government injected £1.4 billion of capital into the loss-making bank at the start of 2010. By the end of this year, that value will have decreased further due to the losses that Northern Rock currently makes. Despite all that, we have sold Northern Rock plc at a price-to-book multiple of about 0.8. Given that other UK banking stocks are trading at multiples of around 0.5, that is a good outcome for the taxpayer. Of course, when we consider the final position we will need to look at both Northern Rock Asset Management and Northern Rock plc to see the final outcome for the taxpayer.
This is also a good deal for the economy of the north-east, with the potential to create new growth and new jobs in the area. Virgin Money has committed to there being no further compulsory redundancies beyond those already announced for at least three years. It will also make Newcastle the operational headquarters of the new, combined business. It will retain the total number of existing branches, with the highest concentration in the north-east, and with plans to expand as the business grows.
We are pleased that Virgin Money has also committed to extending the current financial agreement with the Northern Rock Foundation to the end of 2013. We all know that the Northern Rock Foundation plays a vital role in tackling disadvantage in the north-east and Cumbria. Virgin has also committed to exploring how Virgin Money Giving and the foundation could work together in the future.
This deal will create almost immediately a new, credible competitor in our retail banking sector, thus increasing choice for consumers. The Government are clear that more competition is needed in the banking sector. A competitive banking sector ensures that the economy benefits from banking products and services at efficient prices. Competition is also a spur to innovation and economic growth, but choice has diminished in recent years as a number of high street banks and building societies have disappeared or merged. As set out in this Government’s coalition agreement, we are committed to promoting competition in the banking sector and to the return to the private sector of the Government-held stakes in banks, of which this measure is a key part.
The Virgin brand has a strong reputation for growth and innovation and I am confident that its entry into retail banking will provide a real challenge and improve diversity in the banking sector. I want to be clear that for current Northern Rock customers, it is business as usual. They will not need to take any action as a result of the announcement. Virgin Money also plans to offer personal current accounts and small business banking products in due course.
I know some would have liked to see Northern Rock re-mutualised, but no final bids were made by mutuals and no workable plans for stand-alone mutualisation were put forward. None the less, the Government remain committed to promoting mutuals, which is why we are working with the mutuals sector to support its ambitions and ensure that it is not disadvantaged compared to bigger established banks—all to foster diversity and create a more competitive banking industry.
Of course, the sale of Northern Rock is only one step to a new banking sector—it is not simply a return to business as usual. The last crisis cost the taxpayer billions of pounds, and we cannot afford to repeat that. That is why this Government are pursuing ambitious reform of the financial sector at home and abroad, ensuring that we embed a competitive, successful but secure financial sector, and one that supports growth across the entire economy without jeopardising its stability; why we are fundamentally reforming the failed tripartite system, entrenching a much greater and much-needed focus on macro and system-level risks; why we are leading the international agenda for full implementation of the Basel III standards, to ensure that our banks are resilient to ongoing market turbulence; why we support in principle the recommendations of the Independent Commission on Banking to ring-fence better-capitalised high street banks, reduce taxpayer exposure through powers of bail-in, and increase competition in banking; and why we have secured commitments from the UK’s biggest banks to provide £190 billion of new credit to businesses across the country this year, lending £76 billion to small and medium-sized enterprises this year alone, which is £10 billion more than banks lent to them last year.
The sale of Northern Rock to Virgin Money is an important milestone in this Government’s efforts to return state-owned banks to the private sector. It represents good value for the taxpayer and provides an economic boost to the north-east region. For consumers across the board, it means greater diversity and choice in financial services.
I firmly believe that Virgin Money will have a hugely beneficial impact on the banking landscape in the years to come, providing better outcomes for customers and businesses. Of course, this is only one step towards a reformed banking landscape. The Government will continue to work hard to remedy the regulatory failures of the last decade, to promote a more competitive sector, and to ensure that we embed a stable and successful financial system that serves and not jeopardises the economy. I commend this statement to the House.
I apologise to the hon. Gentleman for inadvertently demoting him. I had been advised that this statement was to be made by the Exchequer Secretary to the Treasury, but I realise that the hon. Gentleman is a still more senior man, serving the Government as Financial Secretary.
Thank you very much, Mr Speaker. I was simply making the point that the Chancellor ought to have been here today because there are so many questions to answer about this deal. Obviously it is right that Northern Rock should be leaving public ownership, just as it was right to take it into public ownership in 2008 to avoid a catastrophe, but the decision to sell at this time and in this manner raises some very serious questions. Will the Minister confirm the net loss to the taxpayer from the sale, and that the proceeds will be used in their entirety to pay down the national debt?
On the sale’s timing, I read in the papers, and the Minister said again today, how the Government are blaming Europe and Labour—I am surprised that they have not blamed the civil service yet. These are weak excuses that just will not wash. He should start taking responsibility for some of his own decisions, and he should be doing what is right for the British taxpayer, not hiding behind EU rules. If he felt constrained by the EU requirement to sell by the end of 2013—let us remember that it is still only 2011—why did the Government not try to change that? If he is now suggesting that it was a bad deal for the taxpayer and that he would rather have waited, why did he not ask the European Commission for an extension? With the economy flat-lining, bank shares in decline and a deepening crisis in the eurozone, he could easily have made the case that circumstances had changed. Or does this fire sale suggest that they think that conditions will get even worse?
The Government have a duty to ensure that the deal is good for taxpayers, the economy, the new company and its customers and staff, so why is he scared to issue an initial public offering for Northern Rock? With about £700 million of excess equity on its balance sheets, why on earth is he selling it privately for 66p in the pound? Contrary to the headlines, this deal is funded not principally by Richard Branson, but rather with £250 million from US financier Wilbur Ross, a stake from an Abu Dhabi sovereign fund and—wait for it— £250 million of Northern Rock’s own money, using its existing capital assets in a complex financial swap deal. Is the Minister not a little troubled that the company’s assets are being stripped even before it changes ownership?
What is Northern Rock’s current core tier 1 capital position, and what does the Treasury anticipate it will be in three years? We know that the Financial Services Authority has voiced its anxieties about such a substantial removal of capital. What safeguards will it be given if these capital buffers are to be thinned out so dramatically? The Financial Times reports that Wilbur Ross has paid about 80% of the book value for Northern Rock, yet he is quoted as saying that he would have
“to sell out a few years down the road for 1.5 times book value.”
That is 150%. Is the Minister comfortable with the news that the Government have sold to an individual actively planning to dispose of the bank quickly and nearly double his money? Does that not indicate that the Treasury might be selling prematurely and at the wrong price?
I am amazed that the Minister has agreed to underwrite a further £150 million of the buyers’ payments? I have heard of vendor financing, but agreeing to accept £150 million of debt so deeply subordinated as to be basically unsellable takes the biscuit. Is it not possible that the subsidy will be regarded as further state aid, and is he presumably seeking EU Commission approval for that? Will he at least guarantee that the Treasury will receive a payment every year on that £150 million, and that we will get it all back by the end of this Parliament?
The coalition agreement promised to promote mutuals and financial services, yet no apparent consideration was given to the mutualisation of Northern Rock. Why did Ministers not try harder to develop that option? Will the Minister publish the analysis on the basis of which they dismissed a member buy-out? The concerns about the decision to run down £250 million of Northern Rock’s capital reserves are not just an issue for the taxpayer; they also reduce Northern Rock and Virgin Money’s ability to provide significant credit in a market crying out for mortgage finance. Despite the new owners’ reported assurances, there are no contractual guarantees that branches or jobs will be retained. Savers in Northern Rock will also need reassurance that their new bank’s depleted capital reserves will not bring repeated anxieties if another banking crisis occurs.
The Chancellor opposed the original decision to rescue Northern Rock, saying:
“I am not in favour of nationalisation, full stop.”—[Official Report, 19 February 2008; Vol. 472, c. 186.]
Is this not a golden opportunity for him to hold up his hands and admit that he made a mistake, and do not the growing question marks lingering over this giveaway deal also suggest that his judgment is as wrong now as it was then?
That was a lame response to my statement. The previous Government presided over the failure of financial regulation and an irresponsible banking culture that led to the collapse of Northern Rock. Now we have to deal with their legacy, and that includes the agreement that they struck with the European Commission requiring Northern Rock to be sold by 2013. Given the hand we were dealt by the previous Government, we had to do three things: get the best deal for the taxpayer, for the consumer and for Northern Rock and the north-east. The deal that we announced last week did just that.
The hon. Gentleman asked about proceeds. As we have said, this is a one-off transaction, and the proceeds will go towards paying down the debt. He asked whether it would have been better to hold on to Northern Rock longer. The reality is that Northern Rock is currently loss-making, and it is expected to make losses in the first part of next year. The best outcome for Northern Rock is to be acquired by somebody who wants to use the base in Gosforth to expand the business and offer a better deal to consumers and the staff of Northern Rock. David Fleming, the Unite trade union official, said:
“The treasury’s decision to sell Northern Rock to Virgin Money marks a significant moment in the history of this north-east based financial institution. After three years of turmoil and upheaval for the workforce at Northern Rock, Unite hopes that today will be the start of a secure future.”
Let me deal with Virgin Money’s capital position, which the hon. Gentleman raised. Virgin Money has clearly set out to be a strong and dependable partner. Its core tier 1 capital ratio is 15%, which is much higher than that of many existing high street banks, which averages about 10%. Of course the FSA will approve the capital structure and will have to give its approval of the transfer of ownership, and hon. Members should welcome that support.
On mutualisation, I made it clear, as did the Chancellor, that we were open to offers from existing mutuals to buy Northern Rock for a stand-alone remutualisation, but no firm bids were made in the final round. No one came forward with a well worked-out plan on how Northern Rock could be remutualised on a stand-alone basis, and that is why we took the decision we did. It was in the best interests of the taxpayer, the consumer, the north-east and Northern Rock to sell the business to Virgin Money.
In the Treasury Committee’s recent report on competition in retail banking, we argued strongly that competition, and not just short-term revenue maximisation, should play a major part in the sales of the nationalised banks. Have consumer interests influenced the Treasury’s decision to sell Northern Rock now, and does the Minister agree that increasing competition should be central to future divestments?
My hon. Friend makes an important point. We have studied the Treasury Committee’s reports on competition carefully. We agree with him that competition is vital to improve outcomes for consumers, whether they be business or personal; and, to the extent that divestments of banks help to deliver improved competition, that is something to be welcomed and borne in mind. There are other areas where we can look to improve competition in the banking sector. The Independent Commission on Banking has made its proposals, and we will respond to them in due course.
Is the Financial Secretary not aware that this is an appalling deal, and at quite the wrong time for the British taxpayer? Is he not aware that the European Commission cannot sanction the imposition of that date? The worst time to sell a company is when it is loss-making and when—as in this case—it has prospects of profits to come. He should have waited. It is the timing that is being opposed, and which has nothing to do with the European Union, but everything to do with the collapse of this Government’s economic policy.
The hon. Gentleman is well known for his business experience, but what we need is to get the best deal for the taxpayer and Northern Rock. The advice that we received from our independent advisers indicated that this was the best time. As I mentioned in my statement, we got a price-to-book ratio of about 0.8, which compares with other banks, which are currently trading on a price-to-book multiple of 0.5. That sounds to me like a good deal for the taxpayer.
I welcome my hon. Friend’s confirmation that this is the best value for the taxpayer and injects a new competitive force into the high street. He said that this was a milestone in the Government’s journey of returning the other state-owned banks to the private sector. Will he agree to continue to work with me and others who have imaginative ideas in this area to ensure that all citizens benefit from that rather larger transaction?
My hon. Friend has championed particular ideas about the distribution of shares in RBS, and we listen to those views carefully. It is absolutely right to see this as a milestone towards the normalisation of the banking system. It requires a significant reform to regulation and to the structure of banking, which is a course that we are embarked upon.
But is it not a scandal to sell off Northern Rock unnecessarily at this time at a cost to the taxpayer of up to a £500 million loss, especially when, in addition, the bad debts of Northern Rock Asset Management, which, significantly, the Minister did not mention, will be dumped on the taxpayer when the £50 billion of mortgages it still holds begin to default as interest rates rise?
Clearly, there are two parts to the Northern Rock business that the previous Government nationalised: the business that we are selling—Northern Rock plc—and Northern Rock Asset Management, which holds a lot of the old mortgage book. The previous Prime Minister assured the House that both would make a profit for the taxpayer.
I hope that Sir Richard Branson can turn this business into a profit-making, growing business, generating more jobs and paying some tax. Will the Minister remind us how much this bank has lost in state hands, which accounts for the fact that it is no longer worth what the Labour party paid for it?
The previous Government injected £1.4 billion-worth of capital into Northern Rock plc. That has gone down to £1.2 billion because of the losses incurred, and we expect further losses in this financial year and in the next. The challenge for Virgin is to use the platform it will have in Gosforth to grow the business, attract new customers and use its reputation for challenging incumbents.
It is a matter for Virgin Money and Northern Rock Foundation to discuss. Virgin Money has said as part of its agreement to acquire the business that it will extend existing arrangements to the end of 2013. It is keen to work closely with Northern Rock Foundation so that it can continue its excellent work in the north-east and Cumbria.
The big plus here is that from January we will have a strong challenger retail bank. Will my hon. Friend assure me that in taking forward the Vickers proposals, he will get on with creating other challenger banks, not least as alternative sources of support for small businesses?
My hon. Friend is right. From 1 January we will see a strong challenger on the high street from a business that has a reputation for taking on incumbents and offering a better deal for consumers. That is one of the great attractions of Virgin Money in this transaction. We want to take more action to improve competition on the high street. We are working closely with challenger banks to find ways of removing barriers of entry to the market so that they can grow their market share. One of the Government’s key commitments is to improve competition on the high street for both business and retail customers.
What this deal does is preserve jobs in the north-east. Virgin is committed to not going beyond the existing management’s plans for compulsory redundancies. The growth of Northern Rock will come off the back of how well Virgin Money does in exploiting new markets and new opportunities. I think this is a good deal for the employees of Northern Rock. That is why staff cheered when the deal was announced on Thursday at Northern Rock’s offices in Gosforth. They wanted an end to the uncertainty that has hung over the business for the past four years. We have delivered that for them.
I accept that any Government should, in the Minister’s words, be looking to “get out” of the business of banking. Presumably, the fact that we have done this deal now rather than wait until the end of 2013 is due to the expectation of a considerable deterioration in the value of all the banks, including RBS and Lloyds banking group, where we have far more significant holdings. Will the Minister give an indication of the time period during which we might be getting out of the business of those two banks?
The decision to dispose of Northern Rock was taken in isolation from consideration of other banks. A particular set of circumstances appeared, which enabled us to sell while providing a good deal for the taxpayer, a good deal for the future of Northern Rock and a new competitor on the high street. That is why we sold Northern Rock to Virgin Money. I think it is a good deal for everyone concerned.
I welcome the end of some of the uncertainty that has been blighting many of my constituents’ lives, and Virgin Money’s commitment to keeping Northern Rock’s headquarters in Newcastle, but the people of Newcastle and the country want a return to a longer-term, more responsible form of banking to ensure that this never happens again. Given that the Government ignored the possibility of mutualisation, choosing a complex financial arrangement instead, what confidence can the people of Newcastle have that they will achieve that aim?
No one put forward a workable plan for a stand-alone remutualisation of Northern Rock. No mutual came forward in the final round with a bid to acquire Northern Rock. There is no point in hoping for a white knight to appear to remutualise Northern Rock when the reality is that none was forthcoming. I hope that the hon. Lady shares the view of Councillor Nick Forbes, leader of Newcastle city council, who said that he was
“delighted that the future of Northern Rock has now been decided with its sale to Virgin Money”.
I too was in Newcastle last week, when the foundation, local people, the Labour party and the cheering staff members in Northern Rock’s building in Gosforth were confirming—as were the unions—that this was a great deal. Is the Minister surprised that no mutual came forward, and will he explain once more why none would be willing to do so in the circumstances?
We went out of our way to encourage that. We spoke to various organisations that are keen to promote the idea of mutuality, but none of them could produce a workable model that would enable us to give money back to the taxpayer, and, as I have said, no mutual came forward with a bid in the final round. That was not for want of trying on our part. Clearly there was not the interest in the mutual sector in acquiring Northern Rock that people assumed to exist.
Of course my constituents in Newcastle welcome news that appears to offer some job security to many local people in the short to medium term, but will the Financial Secretary tell us what financial guarantees have been given to ensure that Virgin Money delivers on its promises?
Indeed. Councillor Nick Forbes, whom I quoted earlier, also said:
“The decision by Virgin Money to make Newcastle their home sends a message of confidence in our city and the wider North East.”
Virgin Money backed that up by saying that it would not make any compulsory redundancies beyond those already announced by management for the next three years, and I think that that provides a good level of assurance for Northern Rock’s staff.
When I visited Northern Rock on Thursday and talked to some of its staff, they were clearly pleased that the uncertainty that had hung over the business for the last four years and acted as a brake on its development had been removed. They look forward to its continued growth under Virgin Money.
The deal that the Minister has announced represents the best value that can be obtained for the taxpayer at this time, and for as long as financial crises continue to abound. We have secured the jobs of people in the north-east, hence the good cheer that is felt there. Does my right hon. Friend agree that the good news is here, and that the reason people may look po-faced is that, once again, we are clearing up a hell of a mess?
My hon. Friend is absolutely right. Since we came to office, we have reformed the failed tripartite arrangements that were introduced by the Labour party. We are changing the nature of banking in this country by establishing the Independent Commission on Banking, whose proposals on ring-fencing will mean higher levels of capital and better levels of liquidity for businesses. We are tackling the mess that Labour left behind, and the disposal of Northern Rock is part of that story.
This is a three-year deal by Mr Goody Two Shoes, Mr Branson. [Interruption.] That is what he is: Goody Two Shoes. What will happen to the people in Newcastle? Will he come to London, or will he go offshore after three years? Where is the guarantee for those workers?
I think that there is a better guarantee of jobs under the current proposal than there would have been if Northern Rock had continued as it was. The problem with Northern Rock was that its cost base exceeded the business that it was writing, and that posed a long-term—[Interruption.]
Order. As I said to the hon. Member for Reading West (Alok Sharma), I understand that there are very strong feelings and effects on constituencies on these occasions, but the hon. Member for Blyth Valley (Mr Campbell) must not chant a chorus from a sedentary position—or even, for that matter, from a standing position. We are grateful to him for his views when he is called to speak.
Is not the argument that we should hold on to Northern Rock for a few more years in the hope that the price will go up just a punt on the stock market, and is that not exactly the sort of attitude that got us into this mess in the first place?
I want to be reassured that this is the right time to sell Northern Rock. I presume that the Treasury took into account the situation in the eurozone. If the Prime Minister currently believes the European Central Bank should be the bank of last resort and should therefore buy Italian bonds, why does the Financial Secretary think that back in 1976 a Labour Government did not instruct the Bank of England to buy British bonds but instead called in the International Monetary Fund?
I was, indeed, intrigued about the role Northern Rock might play in bailing out the eurozone economies. It is essential that action is taken in the eurozone to tackle the fundamental problems it faces. The banking system must be recapitalised, the fiscal crisis in Greece and a number of other member states must be resolved, and a firewall must be put in place to ensure that the turbulence in the eurozone comes to an end. We are all working towards achieving that, and it is in our long-term interests to do so. The fact that we were able to dispose of Northern Rock against that backdrop is a good sign of what is happening here in the UK.
I, for one, would like to thank the Financial Secretary and his colleagues for this deal, as I believe it is a good deal for the taxpayer and it offers a good future for the employees of Northern Rock. Does the Financial Secretary agree with the shadow Chancellor, who unfortunately is not in his place but who said in 2006 that the tripartite committee provided robust supervision of risks to financial stability?
My hon. Friend makes an important point. The reality is that Northern Rock’s problems and ultimate failure as an institution were a consequence of the architectural flaws in the system of tripartite regulation, under which no one body was monitoring, and could respond to, the build-up of an asset price bubble, and no body was able, or prepared, to challenge Northern Rock’s business model which led to its being over-dependent on money borrowed in the wholesale markets. That was the cause of Northern Rock’s problems, and we are putting in place measures that will tackle some of them.
The Financial Secretary will remember the discussions we had in the summer and spring about this potential sale and the guarantees we were seeking about the Northern Rock Foundation. He said at the time that he could not give any guarantees about the foundation as he had to get the best deal for the taxpayer. Having failed to achieve that, will he go back and see whether he can get a further deal on the foundation beyond the one year that has been guaranteed?
There is a good deal for the foundation. There was no obligation on Virgin Money to continue the deal beyond 2012, but it has agreed to extend it to 2013, and it wants to ensure that Virgin Money Giving works with the foundation to enable it to continue its work. One of the challenges for the hon. Gentleman and his colleagues from the north-east is to work with Virgin Money and to persuade it of the merits of continuing to fund the foundation.
My constituents who have worked for Northern Rock, and people throughout the north-east who care about the new institution having its headquarters there, will be astonished at Labour’s opposition to the deal, as it is designed to give a future to a bank that failed on Labour’s watch, when guarantees were not worth the paper they were written on.
My right hon. Friend makes an important point. As someone who was born and brought up in the north-east, I understand how important Northern Rock is to the fabric of the region, and how important it is as an employer and as a sign of prosperity. That is why I was keen to ensure that we got a good deal, not only for the taxpayer but for Northern Rock and the north-east. I am disappointed that so few voices from the Labour Benches have spoken up in support of what is a good deal for Northern Rock and its employees.
It is amazing that the Government find the ability to mutualise public services but not to remutualise a former mutual. Will the Minister put evidence in the House Library over the next 25 months proving that this was, indeed, a good deal for the taxpayer now?
I have made it very clear that we acted on the advice that we had received from our independent advisers. They put forward the case that it was better for Northern Rock to be sold to Virgin Money than for us to sit on it or have it remutualised in one form or another, and I think that that is the best outcome for Northern Rock and its employees. I also think that Labour Members should recognise their role in the circumstances that led up to the failure of Northern Rock and show some contrition about the regulatory system that they left behind.
I have always taken the view—I think my hon. Friend will agree with me on this occasion—that these things are better run in the private sector than in the state sector. I think we will see good management and good leadership from Virgin Money, which will provide a long-term foundation for a credible competitor in the retail financial services sector.
My question is about the timing and sustainability of this deal. I wonder whether the Minister will answer a question that my hon. Friend the Member for Nottingham East (Chris Leslie) asked earlier about the reported recapitalisation—what we would refer to as “an asset strip”—whereby almost a third of the purchase price is reportedly coming from the bank’s current capital base. Does the Minister not feel that this would put the bank at greater risk in the future if the capital base is not quickly rebuilt?
This transaction is subject to regulatory approval by the Financial Services Authority, which will carefully examine a range of issues, including the capital position of Virgin Money. I have made the following point before, but it is worth repeating. Virgin Money’s core tier 1 capital ratio is about 15%, whereas most of the UK high street banks are operating at about 10%, so is strongly capitalised. This deal is subject to regulatory approval, and that should give all of us confidence in the future of Northern Rock.
I can indeed. One of the commitments given by Virgin Money was to maintain Northern Rock’s existing branch structure, particularly the branches based in the north-east, and as it grows and expands the services I suspect that it will want to open more branches, so that more people can access the deals that it is offering.
If this is the best time to sell Northern Rock—a time when it has made a loss, with the implication of what the Minister has said being that it has already made a loss for part way through next year—does that not show what the real story here is? It is not about the bank, but about the fact that the Government are tacitly agreeing today that the economy will be no better, or worse, in the next two years than it has been in the past year and a half, under their stewardship?
I do not agree with that at all. If the hon. Gentleman had spoken to Northern Rock employees over the past few months, as I have, he would have found that they clearly have the capacity to expand their services beyond what is currently on offer; they can cope with a bigger flow of savings and mortgages. That is good news, because it will enable Northern Rock to cope with the volumes that should flow from the acquisition by Virgin Money. If we did not sell Northern Rock now, the risk is that there would be further job losses to try to cut the cost base in line with the current business book. That would not be a good outcome for Northern Rock or its employees. The prospect of moving to Virgin Money has lifted the uncertainty from over the heads of Northern Rock employees. As one of them said to me on Thursday, “This is like an early Christmas present.”
In contrast to the Opposition’s blind prejudice against the private sector, does the Minister agree that Sir Richard Branson’s undertaking that there will be no compulsory redundancies and no branch closures in the next three years shows that Virgin Money is a decent company that will bring benefits to Northern Rock’s savers and employees, and to the north-east generally?
My hon. Friend is absolutely right. What is impressive about Virgin Money has been the way it has sought to engage with stakeholders in the north-east and to understand the importance of Northern Rock not just to the employees but to the wider community in the north-east. It has put forward a business plan that seeks to focus its operations in Gosforth in a way that will help to protect and grow the operation there. That is why the news of Northern Rock’s sale to Virgin Money has been greeted positively by most people, but, sadly, not by those on the Opposition Benches.
Earlier this year, UKFI ruled out remutualising Northern Rock on the grounds that that would represent the gifting of shares to members of a new mutual. Aside from the fact that mutuals are not premised on gifting, can the Minister explain how using £250 million of existing equity within Northern Rock to finance this deal is anything other than gifting?
The deal we have agreed with Virgin Money involves the receipt of £747 million in cash now and further receipts in the future. I think that offers much better value for money than the remutualisation route, which would have involved the free transfer of shares to members and would have had no certainty of return to the taxpayer. It is in the long-term interests of the Northern Rock business for this deal to go ahead as it is.