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Commons Chamber

Volume 554: debated on Monday 26 November 2012

House of Commons

Monday 26 November 2012

The House met at half-past Two o’clock


[Mr Speaker in the Chair]

Oral Answers to Questions


The Secretary of State was asked—

Cadet Forces

As announced by the Prime Minister and Deputy Prime Minister on Armed Forces day, the Department for Education and the Ministry of Defence are working together to enable 100 more state-funded schools to have cadet units by 2015. The extra cadet units will be formed through partnerships with existing units, or by self-standing new units, both using third-party sponsorship funding. The departments have identified £10.85 million to meet the programme’s training and equipment costs. More than 50 schools have already registered their interest, and the joint departmental team, supported by the reserve forces and cadets associations, will work with schools to develop the most appropriate cadet option for them.

I welcome my right hon. Friend’s answer. I recently had the pleasure of attending my local sea cadets, TS Deva, which like other sea cadet groups does not receive much financial assistance from the Ministry of Defence. Has my right hon. Friend considered whether the MOD could provide more support to sea cadets?

I commend my hon. Friend for supporting the cadet movement in his constituency, which I am sure will be genuinely grateful for his support. Sea Cadets receives financial assistance from the Ministry of Defence, and as part of the memorandum of understanding it received £8 million as grant in aid from the Royal Navy. It also raises money from trusts and legacies and through fund raising events locally and more widely. We wish it every success in its endeavours.

In my constituency of Erewash we are lucky enough to have fine cadets across all the armed forces, learning skills and providing exemplary services to the community. Does my right hon. Friend agree that the best way of promoting cadets is to support the community work they undertake across the country?

I am happy to agree with my hon. Friend’s assertion. Activities such as those offered by the cadets and inviting armed service leaders into the classroom help to instil qualities such as confidence, self-discipline and responsibility, while developing team work and leadership skills. Experience from the military and education sectors has demonstrated how those core values can help pupils reach their academic potential and become well rounded and accomplished adults, fully prepared for life beyond school. The Government very much encourage the movement, and I am grateful that my hon. Friend gives it her personal support.

I support the Minister in what he is trying to do and draw his attention to the excellent work carried out at Walker Technology college and Heaton Manor school in my constituency. Is a core problem the way in which the BTEC in uniformed public services counts towards the evaluation of state-funded schools more generally? I know the Education Secretary is aware of that problem, and it will have to be overcome if cadet forces are to flourish in state schools.

The right hon. Gentleman knows that part of the new programme of expansion is deliberately aimed at state schools—I take it he welcomes that. I take on board the point about the BTEC. I recently met Lord Hill, the Under-Secretary of State at the Department for Education, to discuss how we can further increase the cadet movement in schools, and when we next meet I will ensure the issue is on the agenda. It would be helpful if the right hon. Gentleman and some of his colleagues used their links with the trade union movement to ensure the fullest possible participation among trade unions in helping to support cadet units.

Will the Minister join me in congratulating the air cadets of 2344 (Longbenton) Squadron on being made the Newcastle Evening Chronicle’s children and young people’s champion 2012 for their outstanding work with young people? Does the success of that exemplary cadet squadron show how important it is for the Minister to increase the number of cadet forces across all our communities?

I am glad to add congratulations from the Dispatch Box to those of the hon. Lady, and I hope they will appear prominently in her local newspaper. She might be aware that the cadet movement has more than 140,000 members, of whom at the latest count 35,700 are members of the Air Training Corps. As the House has heard, the Government are trying to increase those numbers further because we appreciate the values that cadets bring to our society.


The UK and the international community are committed to Afghanistan for the long term. As part of our enduring legacy in Afghanistan, UK troops will support the continuing development of the Afghan national security forces by mentoring trainers at the Afghan national army officer academy. In addition, it is likely that some troops will remain in a non-combat role after the end of 2014 to complete the recovery of our equipment. Beyond that, no decisions have yet been made about any longer-term UK mission in Afghanistan, but detailed planning with NATO and other allies is ongoing. We are clear, however, that we will not be involved in a combat role after 31 December 2014.

Speaking for the United Kingdom, it is not our intention to remain in a combat role after the end of 2014. That would include combat drone strikes.

Does my right hon. Friend agree that international support for Afghanistan beyond 2014 must be sufficient to send a clear message to insurgents that they cannot wait us out?

There are two audiences in this matter: the Afghan national security forces, to whom we need to send a clear signal that they will have the continuing support of the international community as they take over responsibility for security in their own country, and the Taliban—the insurgents—who need to understand that they cannot simply adopt a policy of trying to wait us out, and that we will not abandon Afghanistan but will support it as it takes over responsibility for its own security and for containing the insurgency beyond the end of 2014.

Will the Secretary of State join me in congratulating 12th Mechanized Brigade on the degree of transition that it achieved over the summer? He will know that it will be marching to Parliament later today. How far are we are down the road to the total transition that we need to achieve by the end of 2014, and what impact is the current spate of “green on blue” attacks having on our ability to carry out that transition?

I am happy to join the right hon. Gentleman in congratulating 12 Mechanized Brigade on the considerable advances that have been made over the past six months. For all that we read in the media, and for all the siren voices attempting to tell us something different, the evidence on the ground is that steady progress is being made. Incidents of violence continue but are increasingly outside the population centres, and life in much of Helmand is increasingly returning to normal, with bazaars reopening, schools operating and health centres being constructed. Of course, the current spate of “green on blue” attacks has a significant impact, but I am confident that we will not allow it to deter us from our mission.

The Royal United Services Institute reported in September, after it had met some senior Taliban people, that the Taliban were prepared to do a deal for the continuing presence of American troops after 2014, but not prepared to do a deal with Karzai because they regard him as weak and corrupt. That would mean a return to Taliban rule in parts of Afghanistan. What is the Secretary of State doing to prepare the British public for that eventuality?

The hon. Gentleman will know, having been present at most of these exchanges, that in the 13 months for which I have been in this job I have repeatedly said that although the military dimension is important, a lasting solution in Afghanistan necessarily involves political reconciliation. As we in this country know perhaps more than anyone else in the world, reconciliation in war-torn, strife-torn countries invariably means some compromise with the people we have been fighting. There will have to be a compromise in Afghanistan if we are to get a sustainable solution.

Further to the question asked by the right hon. Member for Coventry North East (Mr Ainsworth), the Secretary of State has already reflected on the ugly and demoralising nature of so-called “green on blue” attacks. What else can be done to minimise them over the years that lie ahead?

Our commanders on the ground have already taken a significant number of steps to reduce the risk of “green on blue” attacks—to reduce the number of opportunities for the perpetration of such attacks. As we go through the cycle of transition, we will expect there to be mentoring and assistance at increasingly higher levels of command. There will be fewer and fewer instances of mentoring at tolay and even kandak level as the situation proceeds, which will in itself reduce the opportunities for such attacks.

Joint Strike Fighter

The UK took delivery of its first joint strike fighter aircraft in July and its second in October, both of which are both operating from Eglin air force base in Florida, where they are undergoing operational testing. A third aircraft is due in the second quarter of 2013. Decisions on the overall order for joint strike fighters will not be made until the strategic defence and security review in 2015.

When will the Minister be able to tell the House precisely how much the Government’s U-turn to procure the F-35B rather than the F-35C, which the SDSR committed to, will cost the taxpayer?

The hon. Lady should recognise that the decision to change the configuration of the aircraft carriers and the aircraft operating on them will save the taxpayer money.

The previous Government entered into the joint strike fighter agreement without securing the source access code to allow British manufacturers to make British products for our planes without having to go via the American prime contractor. Will the Minister update the House on what progress has been made in acquiring the very important source data?

My hon. Friend is well aware that the arrangements entered into whereby the UK became a tier-1 partner in the JSF programme mean that 15% of the aircraft’s components are manufactured in this country, securing more than 25,000 jobs.

Reserve Forces

15. What support he has received from major employers for the proposals set out in his reserves Green Paper. (129614)

The Government are fully committed to delivering reserve forces that are integral to and integrated with the regular forces, and we are investing an additional £1.8 billion over the next 10 years to meet that aim. Our aspirations, as set out in the “Future Reserves 2020” Green Paper, will require a closer relationship with employers, based on partnering and on giving greater predictability and certainty to the employer, the reservist and the Ministry of Defence.

What specific support have the Government put in place for small and medium-sized enterprises to employ reservists, given that SMEs will face the greatest struggle to achieve this?

When we mobilise a reservist we already provide financial assistance to employers, to help both with recruiting an additional employee and to pay some marginal additional costs for their employment in certain circumstances. We are examining this area extremely closely in the context of the Green Paper and if we have further proposals to announce to strengthen things even further, we will make them plain in the White Paper in the spring of next year.

I have told the House that we provide some financial support to employers when we mobilise a reservist. We are examining this closely in the context of the Green Paper, but I encourage my hon. Friend to submit any specific suggestions to the Green Paper process. I should also add that companies such as BT, Carillion, Serco, the Automobile Association and BAE Systems have shown their support to our reservists in the consultation process, but clearly we would like to see more contributions from SMEs, too.

Earlier this year, the Government announced quite radical changes to our reserve forces. I understand that the recruitment campaign has already begun. What confidence does the Minister have that those recruited will have their employment rights protected without a change in the law? Will he update us on where the Department is with the review of Defence Estates?

I take a close interest in this matter. I spent the best part of a day at Army HQ last week going in detail through proposals to increase the size of the reserve forces. We are considering the issue extremely closely. The Green Paper asks employers and others whether we might need primary legislation to change some of the terms, but as the consultation has only just begun it is perhaps a little rich of the hon. Gentleman to ask me what the answer is.

Departmental Contracts

6. What steps he is taking to enable small and medium-sized enterprises to bid for procurement contracts with his Department. (129603)

As set out in the White Paper published earlier this year, increasing opportunities for SMEs in defence procurement is an important strand in our open procurement policy. We have set up an SME forum, which I chair, precisely to identify barriers to participation. Specific measures include standardising and simplifying procurement systems, promoting opportunities for SMEs through e-procurement mechanisms and marketplace events, and working with our prime contractors to boost opportunities for smaller businesses in the supply chain.

I welcome that statement. I was a senior contracts officer with GEC Marconi Avionics, so I would like to think I know something about the complexity of the MOD procurement process. Large companies such as BAE Systems have access to teams of expert contracts officers who can plough through the bid documents. Sadly, SMEs often do not have that luxury, which puts them at a disadvantage. Will my hon. Friend consider how the bid process can be made less complicated and more user-friendly for SMEs?

I am grateful to my hon. Friend for demonstrating his expertise and bringing it to bear on our complicated procurement processes. We recognise that smaller companies, unlike the larger ones, do not have the resources to focus on putting bid proposals together, which is why we are introducing a number of measures to make that easier for them. They include publishing on web portals all tenders over £10,000, streamlining contract processes and speeding up invoice and bill payment systems, which will make it more convenient for SMEs to receive timely payments. We are also considering requests for interim payments on procurement.

According to the MOD’s own statistics, only 2% of SME contracts are given to Scottish companies. Meanwhile, the new Defence Business Services organisation is set to have 1,672 members of staff, only 13 of whom will be in Scotland. Is the Minister not embarrassed by that track record?

The hon. Gentleman might be interested to know that I will be in Scotland on Wednesday evening to meet defence contractors precisely to encourage them to participate more in the procurement that is on offer.

The Minister has explained to the House how much has been done to make it easier for smaller businesses to do business with the MOD. One outstanding action item is publication of the audited equipment programme. A month ago, the Secretary of State told me that it would be published “shortly”. How shortly is “shortly”?

I pay tribute to my predecessor for his work in championing the role of SMEs in defence procurement. As far as his direct question is concerned, as he knows the equipment plan is with the National Audit Office, and as soon as it has finished its deliberations the Department will publish it, alongside the NAO’s review.

SMEs will be affected by any decision by BAE Systems to shut any of its three yards in Portsmouth, Scotstoun or Govan. Will the Minister update the House on behalf of the businesses and workers in Glasgow who want to know whether, if they were in an independent Scotland, they could compete for work on Royal Navy warships? Will he also update the House to address the concerns of SMEs and workers in Portsmouth who will want to know about any future order of two offshore patrol boats that could fill any production gap?

The shadow Secretary of State is well aware that under EU procurement rules any nation can direct warlike stores, such as large warships, to be built within its national boundaries. That would mean that in the very unlikely event of a Scottish independence vote leading to an independent Scotland, a new Scottish Government could place orders for Scottish warships to be built in Scottish yards, whereas the residual UK Government could direct warships to be built in their own yards, if they decided to take advantage of the EU exemption. As far as Portsmouth is concerned, the terms of business agreement entered into by the previous Government left the decisions about how the company should rationalise the ship building programme for another day. Having placed large orders that would run beyond the general election, they were not prepared to take tough decisions on what should happen to consolidate the industry.

Operation Atalanta

Operation Atalanta is one of three multinational counter-piracy operations in the Indian ocean that have played an important role in the dramatic reduction in piracy observed over the past 12 months. Operation Atalanta assesses that there are now only five vessels and around 140 hostages held captive off the Somali coast. That compares favourably with May 2011, when there were believed to be 23 vessels and about 500 hostages being held.

I thank my hon. Friend for that answer. Deterring piracy at sea is essential, but it addresses the symptoms, not the causes, of Somali criminal activity. Will he commit the Government to tackling the deeper political causes by supporting the parallel EUCAP NESTOR mission on the ground in Somalia?

My hon. Friend is right that the piracy will not be resolved entirely at sea, and EUCAP NESTOR is showing early promise of delivering effect. The subject will be returned to at the next EU Foreign Affairs Council early next year. I pay tribute to the EU training mission in Somalia, which is showing early promise and already training people to ensure that we tackle this problem at its heart and do not rely simply on our undoubted success offshore.

But what assessment has the Minister made of the links between al-Shabaab and piracy in the region, and what are the Government’s long-term plans to tackle the growth of extremism operating both within and out of Somalia?

We have seen some early signs of improvement politically and economically in Somalia. It is absolutely essential that the root causes of insurgency are dealt with at source, and that is happening. The international community is absolutely committed to dealing with this and tackling the menace that al-Shabaab poses.

European Defence Co-operation

We believe that there is scope for improved European defence co-operation focused strongly on supporting operational effect and capability. We would encourage closer co-operation through either multilateral or bilateral initiatives, such as the UK-France Lancaster House treaty signed in 2010. That is becoming increasingly important as nations face reductions in their defence budgets.

I commend the Minister for his participation in the European Defence Council last week and welcome the subsequent announcements on pooling capabilities, helicopter training and air-to-air refuelling, but with America rebalancing its defence away to the Pacific what is the future of UK involvement in the European Defence Agency?

The United Kingdom stood alone last Monday in insisting on flat cash for the European Defence Agency. I am very pleased that we did so, as we have been forced, because of the deficit we inherited, to make fairly substantial cuts to the defence budget and it would have been perverse to vote through an increase in the EDA budget. It is absolutely crucial that the EDA takes every opportunity to ensure that it extracts efficiencies from its programmes, and it will have our support in levering in effect, but the emphasis must be on effect and capability, not institution building.

On European defence co-operation, the Minister will be aware that the separatists in Scotland have recently announced that they would wish a separate Scotland to join NATO at the same time as getting rid of Scotland’s nuclear weapons—a very difficult thing to achieve. Is he aware of any discussions between the Scottish Government and NATO?

I think that it would be premature for the Scottish Government to engage with NATO, as I confidently expect the good people of Scotland—people of sound good sense—to reject independence at the forthcoming referendum.

Following the successful deployment of Iron Dome and the trials of David’s Sling, what discussions has the European Defence Agency had with Israel regarding procurement of those two vital tools?

It is important to stress that NATO is the cornerstone of our collective defence. I know that my hon. Friend would agree with that, but it is also important for the European Union to ensure that it engages with what might be called its near abroad. Colleagues—defence Ministers—across the EU keep a very close eye on developments.

One of the objectives of the UK-France defence accord was the potential jointly to develop a new unmanned combat air vehicle. Has agreement been reached with France on its development, and if not what is causing the delay?

I thank the hon. Gentleman for his question. We have agreed the assessment phase, which is under way, and we will have further to report in the fullness of time. I am very pleased that he raises the important liaison that we now have with France. I pay tribute to my right hon. Friend the Member for North Somerset (Dr Fox) for securing that in 2010 and for the two Lancaster House treaties that we now have with France. I look forward to ever closer co-operation with France, noting of course that France spends a proper amount on defence; we would like other European colleagues to follow suit.

Combat Immunity

Combat immunity is an important legal principle that the MOD is committed to defend. The courts have consistently held that a soldier involved in combat or under an immediate threat should be able to focus on the task of fighting. Constant assessment of personal liability on the battlefield could lead to paralysis across the chain of command and result in military failure and increased loss of life through operational inefficiency. Imposing a duty of care in those circumstances is not appropriate and would reduce operational effectiveness. However, there is a recognised mechanism to compensate for injury or death under existing statutory schemes.

Does the Minister agree, though, that the MOD’s decision not to make a further appeal against the ruling of the Court of Appeal in the case of the late Corporal Stephen Allbutt—I pay tribute to his widow’s courage—is a landmark in respect of combat immunity? Given that the clear consequences of that ruling are that the MOD owes a duty of care properly to equip its troops when they go into battle, does the Minister agree that an urgent review of procurement and training—never mind statutory schemes—is needed in the interests of the safety and morale of our armed forces?

You will understand, Mr Speaker, that it would be inappropriate for me to comment on any ongoing legal procedures. The hon. Lady should realise, however, that we are absolutely committed to defending the position of combat immunity. It would be very worrying if soldiers, sailors and airmen in battle were concerned about looking over their shoulders the whole time for fear of legal challenge. Of course we wish people to be properly trained and properly equipped; we are determined that that should happen and we believe that they are so.

All battlefield commanders of whatever rank are given appropriate training and advice on the legal position, from the Geneva convention onwards, and on training with equipment and the like.


Transition of security to Afghan control, as agreed at the Lisbon conference in 2010, remains on track to be achieved by the end of 2014. The Afghan national security forces are taking an ever greater role in their domestic security. They now have lead responsibility in areas that are home to three quarters of the population, including all 34 provincial capitals and the three districts that make up Task Force Helmand’s area of operations. We expect that by mid-2013 all parts of the country will have entered the process and that Afghan security forces will be in the lead for security nationwide. The progress of security transition will allow ISAF, gradually and responsibly, to draw down its forces to complete its combat mission by 31 December 2014.

I thank the Secretary of State for that response. He will know that, to date, not one senior official or political figure in Afghanistan has been successfully prosecuted for corruption or other abuses, despite the many major scandals that have taken place. Does he agree that governance and the rule of law will be more, rather than less, critical to progress in Afghanistan after the security transition, and how does he propose to ensure that it is at the heart of our engagement post-2014?

I am glad to be able to say that I absolutely endorse the hon. Gentleman’s view. As I said a moment ago, what happens in the military space is only one part of the overall equation. There needs to be political reconciliation, progress on building good governance, particularly on the eradication of the extreme corruption that is still prevalent in Afghanistan, and progress on developing relationships with Afghanistan’s neighbours.

Given the limited capacity of the RAF airbridge and the difficulty of transporting stuff overland to seaports in Pakistan, how much equipment do we expect to leave behind when we finally exit Afghanistan?

Our intention is to extract all equipment whose value to the armed forces is greater than the cost of extraction and recuperation. We hope to be able to use the southern route overland via Pakistan and we are also negotiating northern lines of communication through Uzbekistan, Kazakhstan and Russia, but in extremis we have the capacity to bring equipment out by air.

One of the key factors in ensuring a secure Afghanistan is, of course, the position of Pakistan, whose security services have given help to the insurgents and the Taliban over recent years. Will the Secretary of State update the House on what he thinks the latest position is with regard to the help and support given to the Taliban and insurgents by Pakistan’s intelligence services?

I am glad to say that relationships between Afghanistan and Pakistan are improving significantly. The recent visit of the High Peace Council to Islamabad marked an important step forward in building collaborative relationships in the region. Both countries understand the threat that the Taliban and other insurgent organisations pose to their security, as well as the benefits of collaboration in dealing with that threat. We are making significant progress, but the hon. Gentleman will know that Pakistan is not a simple country, that the situation is complex and that the issue will require a lot of effort for many years to come.

The Secretary of State will be aware that British troops preparing for deployment to Afghanistan undertake important training at the British base in Laikipia in Kenya. Will he join me in paying tribute to those who make sure that those troops receive the necessary training for Afghanistan? Will he also look into the absence of navigation aids at Laikipia air base, which means that British troops are prevented from flying directly to the training area and instead have to travel the long route via Nairobi?

I will indeed join my hon. Friend in paying tribute to those who make possible that valuable training facility in Kenya. He has raised an issue that I was not previously aware of; I will look into it and write to him.


I thank the Minister for that reply. After the first Gulf war, Her Majesty’s Government recovered £2 billion from Kuwait and other countries to help to cover the cost of our operations there. Is he able to tell us that the Secretary of State will be unyielding in his demands of the oil-rich Libyan Government to help to cover the £200 million cost underwritten by the British taxpayer for the Libyan intervention?

I thank my hon. Friend for his question; I know that he takes a deep interest in these matters. It is important to emphasise that Libya’s security is our security, and this was a mandated operation. We will not seek to recover costs from Libya; that would not be the correct course of action. I look forward to Libya rejoining the international community of nations and to the UK and Libya proceeding on that basis.

What assessment has the Minister made of the security of UK staff in our diplomatic buildings in Libya following the attack on the US embassy?

That is primarily a matter for the Foreign Office, but I will try to reassure the hon. Lady. When I was in Tripoli recently, I visited UK staff, both uniformed and civilian. We have a small presence of staff embedded in the interim Government to assist them. Our staff are, of course, protected according to the risk assessment on the ground.

12th Mechanized Brigade

13. Whether he has met the commander of 12th Mechanized Brigade following its return from Afghanistan. (129611)

My right hon. Friend the Secretary of State for Defence met the commander of 12th Mechanized Brigade, Brigadier Doug Chalmers, during his last visit to Afghanistan in September. On 23 October, the Secretary of State and I were pleased to meet the commander in Parliament when he briefed both Houses and all parties on the brigade’s deployment on Operation Herrick 16.

I hope that the Minister for the Armed Forces, other Ministers and all Members of the House are aware that some 20 minutes from now, there will be another opportunity to meet Brigadier Doug Chalmers and the 120 soldiers of 12th Mechanized Brigade as they march, led by the band of the Grenadier Guards, through the gates of Parliament and down to the north door of Westminster Hall. As we welcome them, I hope that hon. Members will remember not only those who have not come home with the brigade, but those who have come home with life-changing injuries and the families who support our soldiers, sailors and airmen as they go off to operations in Afghanistan.

I pay tribute to my hon. Friend for setting up the march-ins at Parliament. They are a valuable and tangible sign of the respect that we owe our armed forces when they go to war on our behalf. He has done a great deal to organise them. I share his sentiments about those who have not returned, the families of the bereaved and those who have come back with life-threatening illnesses. I shall be at the march-in at some stage this afternoon or this evening, and the Secretary of State hopes to be there as well.

I shall be here, but I hope that the hon. Member for North Wiltshire (Mr Gray) will pass on my respect and appreciation, which I would have preferred to convey in person.

I echo the Minister’s comments on the massive contribution of 12th Mechanized Brigade.

I recognise what the Secretary of State has just said about the importance of the message that we send to the Taliban and the Afghan army, but what message will be sent by the reduction in the size of the Afghan army in respect of the security of Afghanistan?

The total size of the Afghan national security forces is approaching 352,000. It is for Afghanistan to make decisions for the future. We continue to support the democratically elected Government of Afghanistan, as do the Opposition.

Defence Equipment and Support

14. What plans he has for the future of Defence Equipment and Support; and if he will make a statement. (129612)

Our evaluation of how best to improve the delivery of procurement and support is progressing well. A soft market testing of the potential for a Government-owned contractor-operated model is due to conclude before Christmas, and the outcome of the value-for-money comparison is expected shortly. Subject to those conclusions, we are on track to make decisions on how we intend to proceed in the new year. In the meantime, we continue to drive efficiency and improvements within Defence Equipment and Support.

Defence procurement is a key part of an active industrial strategy. Defence firms need certainty to plan and invest for the long term. There has been far too much uncertainty over the future shape and direction of Defence Equipment and Support. Notwithstanding what the Minister has said, the position is still vague, with promises made about the new year. Will he provide further clarity and, in so doing, help British businesses to invest for the long term?

The single most effective answer to the hon. Gentleman’s question is that this Government have removed the overspend in the defence equipment budget that we inherited from Labour. By narrowing the spend for the next 10 years into a £160 billion envelope, it is now clear that some 95% of that money is committed and the contractors know that the programmes will be delivered. That was not the case under the previous Government.

The success of the future structure of Defence Equipment and Support lies at the heart of our ability to deliver Future Force 2020. The concerns raised by the industry about exactly how a Government-owned, contractor operated model would work therefore need to be taken seriously. The Minister’s predecessor, the hon. Member for Mid Worcestershire (Peter Luff), also highlighted the delay to the announcement on the equipment programme. My hon. Friend the Member for Hartlepool (Mr Wright) was absolutely right about the Department for Business, Innovation and Skills perspective—it is vital that the defence sector has certainty. Will the Minister undertake to come to the House at the earliest possible opportunity in the new year to set out the detail of the GOCO model and give us a definitive list of the projects that will be overseen by it?

I thank the hon. Lady for her question. This Government are engaging with industry more proactively than has been the case in recent times. We have just announced the defence growth partnership in conjunction with the Department for Business, Innovation and Skills to drive forward how we support defence contractors in growing the economy in this country. Once we have made the decision, we will make an announcement to Parliament in the usual way.

Armed Forces Pensions

17. What comparative assessment he has made of the value and terms of armed forces pensions and other public sector pensions. (129616)

The Minister of State, Ministry of Defence (Mr Mark Francois): There are currently two armed forces pension schemes in operation, known as armed forces pension scheme 75 and armed forces pension scheme 05. These are due to be superseded in 2015 by what is currently referred to as the future armed forces pension scheme. That scheme was born out of the recommendations of Lord Hutton’s independent public service pension commission report.

As a member of the armed forces parliamentary scheme, I often have the opportunity to discuss pension provision with serving members of the armed forces. Surprisingly, not only those coming to the end of their term of service but young soldiers too raise the issue. What steps are being taken better to communicate to service personnel the future terms and conditions of their pensions?

When I was in Camp Bastion two weeks ago for the remembrance celebrations, I had the pleasure of meeting a dozen or so regimental sergeant majors, who impressed upon me—at close range, shall we say?—a number of questions about pensions. Perhaps I could help to reassure them and my hon. Friend. John Moore-Bick, who heads the Forces Pension Society, which is expert in this matter, has said that the new pension scheme is

“as good as it gets”.

We are redoubling our efforts to explain that to serving personnel, including by developing a new pensions calculator from the middle of next year, so that they can plug in all the details on how pensions will affect them and get a clear answer.

Last week, the Secretary of State announced plans to allow serving personnel to access their pension funds early to buy a house. Will the Minister confirm that an individual who takes up that offer will therefore receive lower pension payments in future?

Lord Hutton’s report confirmed that the armed forces pension schemes in general stood up very well compared with others in terms of benefits to members. We should bear it in mind that, unlike many other schemes, the armed forces scheme will remain non-contributory and that the normal pension age will be lower than it is for most other schemes. Personnel will also qualify for an early payment at age 40. We are looking at incentives to assist servicemen to purchase their own homes. That is actively being worked on but no final decisions have been taken.

Topical Questions

My first priority is, and will remain, the success of the operation in Afghanistan. Beyond that, my priority is to deliver the military tasks for which the Ministry of Defence is mandated.

The MOD is also engaged in a major project of transformation to ensure the behavioural change needed to maintain the budget in balance and deliver the equipment programme so that our armed forces can be confident of being properly equipped and trained. With the benefit of a balanced budget to build on, we now need to focus on the future, and in particular on building the trust and confidence of the people who make up defence. Over the next few weeks, we will publish—jointly with the Foreign and Commonwealth Office—the defence engagement strategy, and I will announce the decisions emanating from the review of Army basing in the UK as we bring our troops home from Germany.

Has my right hon. Friend received any evidence from the Scottish Government on the economic and employment prospects of people in Gairloch if Scotland becomes independent and if a non-nuclear defence policy is announced?

I have received no evidence whatever, but this is not simply about people in Gairloch: the impact of the 6,000-plus jobs at Her Majesty’s naval base in Clyde is felt throughout the entire west of Scotland. The removal of those jobs or any erosion of their numbers would be a devastating blow to the Scottish economy.

The veterans interview programme aims to get private sector employers to guarantee job interviews for unemployed veterans. This scheme was designed by the Labour Opposition and is today being rolled out nationally by Jobcentre Plus. For months, Ministers have been asked to do something similar in the public sector. Will a Minister—any Minister—update the House on the progress made in getting public sector employers to guarantee job interviews to suitably qualified unemployed veterans?

I am not sure from the right hon. Gentleman’s tone whether he is pleased or saddened by the news today. He does not sound very joyous about it. The Department for Work and Pensions is rolling out a programme to ensure that veterans leaving the services are guaranteed interviews. I should have thought that he would be rather pleased about that.

Let me make a further point. Any suggestion that people leaving the services are unable to get work would not do them any favours. More than 90% of people leaving the services have found work within six months, and more than 97% within 12 months. I would have thought that that was rather a good record to build on.

T3. May we have an update on the Government’s policy towards Syria and a commitment that British ground troops will not be sent there? (129625)

I can tell my hon. Friend that our policy in relation to Syria remains that we believe that a diplomatic and political solution is necessary to deliver a sustainable solution to the crisis. While we pursue such a solution, we will not rule out any option that is in accordance with international law and might save innocent lives in Syria and prevent the destabilisation of a region that is of critical importance to the United Kingdom.

T2. Given the Government’s plans to impose the bedroom tax on the parents of serving soldiers, will the Secretary of State at least undertake to invest the Department’s forecast underspend in forces’ welfare, rather than returning it to the Treasury? (129624)

I, too, have seen speculation in the media that the Department will be underspending and returning money to the Treasury. It is our policy to operate a prudent approach to our budget, but—unlike the previous Government—it is also our policy to work closely with our colleagues in the Treasury to ensure that we deliver the equipment programme and support the armed forces in the most cost-effective way possible, and over a number of years, not just over a single year.

T5. Following recent international cyber-security incidents such as the Flame and Shamoon viruses, what recent steps have been taken to secure MOD systems and critical national infrastructure? (129627)

My hon. Friend will understand that I would not wish to go too deep into security systems. What I can say is that we take the threat of cyber-attack very seriously. That applies both to the commercial world and the public sector in the UK, including defence. We are pursuing this issue with other organs of Government and we are also ensuring that we have niche capabilities within defence that can assist us in protecting against cyber-attack.

T4. Does the Secretary of State agree that he should make an assessment of the contribution made by UK armed forces and related MOD contracts to Scotland’s economy? I am a member of the Scottish Affairs Committee and our inquiry, although not yet complete, would seem to suggest that the contribution is immense and the implications of separation would be devastating. Do any of the Ministers agree that the loss of jobs and investment is simply too high a price to pay if the MOD and UK armed forces leave Scotland? (129626)

The hon. Gentleman will not be surprised to know that all MOD Ministers agree with what he said—not just “any” of them. Furthermore, probably all Members in the Chamber at present would agree with him.

T6. I have had the opportunity to visit a number of living quarters as a member of the armed forces parliamentary scheme. What investment are the Government making to improve the quality of both single and family accommodation for our armed forces? (129628)

I assure my hon. Friend that we take the issue of accommodation very seriously. Within a week of my appointment, I attended an Army Families Federation conference where one corporal in particular raised with me the issue of his quarters at Aldershot. Two weeks later I went to knock on his door to see them for myself. I hope that that counts as taking it seriously. We have recently put £100 million back into the budget for accommodation. We anticipate further announcements on this subject in the context of the basing review.

In his exchanges with my hon. Friend the Member for Barnsley Central (Dan Jarvis), the Secretary of State agreed about the need to deal with corruption in Afghanistan. I understand that the first prosecutions in relation to the Kabul bank scandal are taking place. Is the Secretary of State convinced that there are any prisons in Afghanistan at the moment that would be secure enough to hold anybody convicted?

Strictly speaking, this is not a matter for the Ministry of Defence. However, the working of the Afghan justice system does concern us, not least because our normal practice until recently has been to transfer UK detainees into the Afghan justice system to allow them to them to be processed. There is a great deal of work to be done to get the Afghan justice system into a satisfactory state.

T7. Some weeks ago in Prime Minister’s Question Time I raised an issue relating to my constituent Emma Hickman, whose fiancé had died in Afghanistan and who was having difficulty determining a paternity because a DNA sample had not been released by the MOD. May I thank the Minister of State for the work he has done on this case, which is almost resolved? Will he consider asking the Army to hold DNA samples routinely for those on active duty, as happens in France and the United States? (129630)

I thank my hon. Friend for his kind remarks. It has been a long journey, but I believe we are nearly there. On his wider question, it is current Ministry of Defence policy to offer all military deployable MOD civilians and other entitled personnel the opportunity to provide reference samples suitable for DNA analysis. This is entirely voluntary and is to enable identification post mortem, should that unfortunately be required. The policy is under review, and I can confirm that the United States position is being considered. I expect this work to be complete by spring 2013.

The Army cadet forces outreach programme aims to reach troubled youngsters and deter them from a life of crime. Will the Secretary of State commit to expanding this programme?

We certainly support the expansion of cadet forces. Earlier, a colleague talked about the programme already in place to deliver an additional 100 cadet forces. I cannot give the hon. Gentleman a commitment at the Dispatch Box that we will be able to go beyond that, because of the resource implications. However, we are certainly reviewing it all the time, with my right hon. Friend the Secretary of State for Education.

T8. In Harlow, we are fortunate to have a strong Royal British Legion that has raised more than £45,000 for ex-servicemen so far this year. Harlow and Essex have now signed up to the Royal British Legion’s community covenant, but 200 local authorities have not done so. Will the Minister urge them to sign up today and back the Royal British Legion? (129631)

I thank my hon. Friend for his question. May I take this opportunity to place on record our gratitude for everything that the Royal British Legion does in support of our servicemen and women, and of course our veterans and their families? I was in Essex when Harlow, among others, signed the community covenant. It is wonderful that more than 200 local authorities across the United Kingdom have signed the community covenant, which helps to give effect to the armed forces covenant at local government level. I recently wrote a joint letter with Sir Merrick Cockell, chairman of the Local Government Association, congratulating councils that have signed the community covenant and gently urging those that have not to do so. We would like every local authority in the land to sign it, if possible, and that is what we are working towards.

Warm words alone are not enough when it comes to enabling small businesses to compete in the defence supply chain. Will the Minister confirm that he will take the action needed to create a level playing field, so that small businesses can compete?

The Ministry of Defence is determined to increase the participation of small and medium-sized enterprises in the supply chain. To that end, we are holding a marketplace next week, on 3 December, which the hon. Gentleman is welcome to attend, to show off the innovation coming out of our SMEs to the prime contractors.

May I take the right hon. Gentleman back to the issue of Syria? Will he tell the House in what conceivable circumstances he would think it appropriate for British troops to intervene in a civil war?

As I have already told the House, our clear intention is to pursue a diplomatic path towards a political solution in Syria, but it makes no sense to take any options off the table in such an uncertain situation, where future developments are not yet clear.

Order. I am sorry. Colleagues know that ordinarily I like these sessions to be very full, but we have an important statement, and we must now proceed.

Bank of England

I would like the House of Commons to be the first to know about the future leadership of the Bank of England, and the identity of its next Governor.

Sir Mervyn King has served as Governor with great distinction and unquestioned integrity for almost a decade, five years of which have been during the most difficult period of economic policy making of the modern age. He will continue to do his vital work until 30 June next year, and there will be opportunities then to thank him for his service to our country.

Today’s task is to appoint his successor in good time and in good order. We have, for the first time in the history of the Bank, advertised the post, invited applications and put together an experienced panel to interview potential candidates. I want to thank my permanent secretary, Sir Nicholas Macpherson, and the chairman of the court of the Bank of England, Sir David Lees, for conducting this new, open process in a very professional way.

I also want to thank the many individuals who put themselves forward for the job. I have myself interviewed in London all the very distinguished candidates shortlisted by the panel for the job, any one of whom would have made a good Governor. I have made my recommendation to the Prime Minister, who in turn has made the same recommendation to the Queen, and she has today approved the appointment.

I can tell Parliament and the public that the next Governor of the Bank of England is to be Mark Carney. He is currently Governor of the central Bank of Canada and chair of the world’s Financial Stability Board. He is quite simply the best, most experienced and most qualified person in the world to be the next Governor of the Bank of England and to help steer Britain’s families and businesses through these difficult economic times.

Britain needs the very best at a time such as this, and in Mark Carney we have got him. Mr Carney is unique among the potential candidates in combining long experience of central banking, huge international credibility in economics, deep expertise in financial regulation and first-hand experience of private sector financial institutions. He is acknowledged as the outstanding central banker of his generation, and I believe he will bring the strong leadership and external experience that the Bank of England needs as it takes on its heavy new responsibilities for regulating our banking system.

In that respect, Mr Carney will bring a fresh new perspective. During his five years as the Bank of Canada Governor, Canada was acknowledged to have weathered the economic storm better than any other major western economy. Bank bail-outs have been avoided and sustained growth has returned, and it says something of Mark Carney’s abilities and the regard he is held in that he was chosen by his fellow central bank governors and regulators around the world to be the chair of the FSB—the body tasked with strengthening and co-ordinating global financial regulation. That gives him the experience to bring better regulation to the world’s largest global financial centre here in London and other financial centres across the UK.

Subject to the views of other members of the board, he could expect to remain chair of the FSB until 2018. While the appointment as Governor will be for eight years, Mark Carney has indicated that he intends to serve for five years and to stand down at the end of June 2018. That will align with the timing of his role at the FSB, and reflects the fact that by then he will have served for 10 years as a central bank governor. I have spoken to my opposite number in Canada, Finance Minister Jim Flaherty, and the Prime Minister has spoken to the Canadian Prime Minister. I am grateful for the constructive way they have handled this transition, as Members would expect from one of our closest friends and allies.

Mark Carney will continue as central Bank Governor of Canada until the end of May next year. My statement today is matched by a simultaneous announcement in Ottawa at a press conference currently being held by Mr Carney and the Canadian Finance Minister. Mr Carney will be answering questions about his decision to take this new job, but he has made it clear that he will not be commenting at length on British economic policy until he takes up his new post on 1 July 2013. There is one exception to that: Mr Carney has said to me that he would like to appear before the Treasury Select Committee at a mutually convenient time for a pre-commencement hearing, where he will of course expect rigorous questioning about British monetary and financial policy. This will be the first time ever that a new Governor has appeared before a Committee of this House before their term of office begins.

Mr Carney’s pay and benefits are a matter for the non-executive members of the court of the Bank of England. The chair of the court, Sir David Lees, has today confirmed that Mr Carney will be paid a total pay and pension package that is broadly equivalent to the current Governor’s salary and membership of the now closed pension scheme available to the current Governor and deputy governors. The package is also lower than that of other senior regulators, such as the recent chief executive of the Financial Services Authority—even though the Bank now takes on many of that organisation’s responsibilities—and is less than that of the current chief executive of the Financial Conduct Authority. As Mr Carney is moving from Canada with his wife and four children, the non-executive members of the court of the Bank of England have said that they will consider in addition a relocation and accommodation package, which one would expect with such moves.

Mark Carney is not a British citizen, but he is a subject of the Queen. His wife is British, his four children have dual British citizenship and he has lived, worked and studied in Britain for a decade. Although not required of the role, he will apply for British citizenship in the normal way, with no special favours. Let me also say something about—[Interruption.]

Order. These are very serious matters. I am pleased that the House is hearing about it first, but the House will hear only if it wishes to hear—and it should wish to hear. Let us hear what the Chancellor has to say.

Let me also say something about the deputy governor for monetary stability, Dr Charlie Bean, whose term in office expires at the same time as Mervyn King’s. Charlie Bean is a world-class macro-economist and a powerful voice on the Monetary Policy Committee. To ensure a smooth transition next year, he has agreed to my request that he serve for one more year as deputy governor. I am most grateful to Charlie Bean for his continuing service.

The role that the Bank of England plays in our economy cannot be overestimated. It is tasked with keeping prices under control; it sets interest rates, which affect what home owners pay for their mortgages and businesses for their loans; and, following this Government’s reforms, it plays a lead role in keeping our banking system safe. My job brings with it many responsibilities, but few are greater than ensuring that the next Governor of the Bank of England is a person of real quality. Mark Carney is a quality Governor. He is the outstanding central banker of his generation, with unparalleled expertise in financial regulation. He will bring a fresh perspective. He has got what it takes to help British families and businesses through these incredibly challenging economic times. My responsibility was to get the best for Britain, and with Mark Carney we have got that. I commend his appointment to the House and to the country.

I thank the Chancellor of the Exchequer for notice of today’s statement—although not of its content. I join him in thanking the outgoing Governor of the Bank of England, Sir Mervyn King, for his public service and I wish him a long and happy retirement. I commend the Chancellor on his choice of successor, Mr Mark Carney, to be the third Governor of the Bank of England since our decision to make it independent in 1997. We on this side of the House look forward to working with him closely in the coming months and years.

I have known Mark Carney for a number of years and have worked with him closely. He has a long and distinguished record of public service, great financial expertise and a track record of handling tough and complex challenges. He follows in a tradition established in 1997 when the first appointments to the Monetary Policy Committee included Willem Buiter and DeAnne Julius, neither of whom were British citizens at the time. In my view Mark Carney is a good choice and a good judgment, and his experience will be invaluable.

The Chancellor has made a short statement today, but this is a decision of great significance. With the leave of the House, I would like to ask a number of questions of the Chancellor concerning Mr Carney’s appointment and the role that the new Governor will step into.

At a time of economic stress, the new Governor will need to get to grips with a new and massively enlarged central bank that has new, onerous and complex responsibilities in prudential and consumer regulation as well as its role in monetary policy and financial stability. That is a near impossible job for one person, but in our view it is made harder by the way in which the Chancellor has drawn up the Financial Services Bill, which is still being considered in the other place. We remain disappointed that he is continuing to resist the amendments tabled by the Chair of the Treasury Select Committee and ourselves that would enable the complex new arrangements for the Bank of England to be properly scrutinised. In our view, the new Governor would be strengthened and enhanced, not weakened, by greater transparency. Will the Chancellor think again about that matter?

The Chancellor also needs to clear up the deep confusion at the heart of the new arrangements about who is responsible in a crisis, which he has not managed to clear up to our satisfaction under the current Governor. The Bill heaps far too much power on the new Governor, who, when dealing with the Chancellor, will be able to internalise and suppress the inevitable conflicts within the Bank of England between financial stability on the one hand and monetary stability, fiscal risk and moral hazard on the other. It makes no sense that the deputy governors, including the deputy governor who heads prudential stability, will have no undisputed right to put their views directly to the Chancellor, whether or not the Governor agrees. That is neither stable nor sensible. There is obfuscation in the Bill, and it is not good enough simply to have a memorandum of understanding with ad hoc committees. If the new Governor is to have a fair chance of success, the flaws in accountability and crisis management must be resolved. Will the Chancellor agree to sit down with the new Governor and sort this out?

The new Governor of the Bank of England also looks set to inherit a difficult external economic environment, a global economy that still has serious imbalances, the eurozone in continuing crisis, and, here in the UK, challenges to our banking system, to growth and to fiscal policy. So let me ask the Chancellor a further question about the relationship between the Treasury and the Bank of England that the new Governor will inherit.

Given the blurring of the relationship between monetary and fiscal policy following the recent decision to transfer £35 billion from the Bank of England’s quantitative easing programme to the Treasury coffers—a move that is set to reduce short-term Government borrowing and increase the longer-term burden on the taxpayer—I very much hope that the new Governor and the Chancellor will agree with the Institute for Fiscal Studies, which has stated today that they should

“exclude the impact of this change from all figures when assessing compliance with the fiscal targets”.

Is that a matter that the Chancellor has discussed with the present Governor, the new Governor, the Office for Budget Responsibility or the Office for National Statistics? Can he reassure us that the IFS’s recommendations will be taken on board?

Writing in the Financial Times earlier this year, I began an article by saying:

“Wanted, a new governor of the Bank of England. Only superhumans need apply.”

Superhuman or not, the new Governor of the Bank of England, Mr Mark Carney, is well qualified to take on the role at what will be a very difficult time. I am sure that I speak for the whole House when I say that we wish him and his family well.

Given the many fierce exchanges that the shadow Chancellor and I have across the Dispatch Box, it is only right for me to acknowledge my real gratitude to him today for welcoming this appointment. He knows Mark Carney, and he knows that he is an outstanding candidate for the job. I shall certainly cherish the words “I commend the Chancellor”, because I will probably never hear them from the right hon. Gentleman again. I sincerely thank him for that.

One of the important things about the independence of the Bank of England, which the right hon. Gentleman helped to establish with the previous Prime Minister, is that it commands cross-party support—it did not at the time; it does now—and we must try to keep the appointment of the Governor out of the day-to-day partisan debate. The right hon. Gentleman has certainly played his role in doing that today. Let me answer specifically his questions about the new role of the Bank of England.

First, on the shadow Chancellor’s point about the new responsibilities, the Bank has heavy new responsibilities because, in our judgment, the tripartite system did not work and was not properly co-ordinated. Indeed, the Select Committee of the last Parliament, which was chaired by Lord McFall—John McFall as he was then—said that it was not clear who was in charge. By insisting that the Bank of England is in charge of macro-prudential and micro-prudential regulation, we bring those things together.

It is also important, secondly, that we recognise that the Government have an important role. When there is a material risk to public funds, there is a clear responsibility in the Bill for the Bank of England to inform the Treasury, without deluging it on a day-to-day basis with everything that is happening and not differentiating the things that are significant and really important. We have taken in the Bill the power of direction that did not previously exist. In the memoirs of my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), he made it clear that at one point he was considering using the almost nuclear power of direction in the Bank of England Act 1946, which no one had ever used, but that he backed away from it because he did not have a more targeted instrument. We now have that targeted power of direction, which the elected Government can use.

Thirdly, we have discussed the role of the deputy governors. Although it is incumbent on any good Governor and any good Chancellor of the Exchequer to try to make sure that views are heard, ultimately the Bank has to reconcile its internal differences rather than, as I have said, allowing the internal differences to be expressed externally without any attempt to resolve them internally. I make it my business in doing my job to see the deputy governors and to make sure that their views are heard.

Finally, let me deal with the asset purchase facility coupons. This was done with the support and acceptance of the Governor of the Bank of England and the Monetary Policy Committee, which discussed it and agreed that that was a more transparent way of accounting for the quantitative easing coupons and how they will affect the public finances through the coming years. I can confirm for the right hon. Gentleman that when the Office for Budget Responsibility produces its report next week for the autumn statement, it will clearly show the impact of the APF coupons on the public finances, both before and after.

May I begin by thanking Mervyn King for his outstanding public service and hard work through the appalling financial crisis with which he has had to grapple? I support what appears to be the appointment of an extremely talented and experienced Governor, who has already been welcomed on both sides of the House. I welcome the fact that the Chancellor has come out in support of the Treasury Committee’s holding a hearing prior to the appointment of the new Governor and of the reporting of its conclusions to the whole House. Does the Chancellor agree that the legitimacy of the appointment would be further bolstered by giving the House an opportunity to debate that appointment in the light of our findings?

These days, of course, the House of Commons can choose what it wants to debate through the Backbench Business Committee, while the Opposition are always able to table motions, too. I do not think it would be sensible to try to divide the House on something the appointment of the Governor of the Bank of England. One of the advantages of the Bank of England, as I was saying to the shadow Chancellor, is that there is an agreement that it should be kept out of party politics and the like; we have achieved that today. Mr Carney said clearly in my discussions with him that he did not want to talk about British economic policy at any great length at his press conference today or, indeed, while he continues as the Governor of the Bank of Canada, but that he did want to talk at length to my hon. Friend’s Committee. At a mutually convenient time, he will do that.

Is the Chancellor aware that this may be the first occasion under his chancellorship at which we can wholeheartedly welcome his decision? I hope he will extend to Mark Carney, the prospective Governor, a warm welcome to these shores. We also hope that he will get his citizenship before his term of office expires.

I welcome the hon. Gentleman’s support. Perhaps we could bottle this cross-party consensus and use it on future occasions, but I doubt it.

Mark Carney will apply for British citizenship, but he is absolutely clear that he should do so in the normal way—the same way in which anyone else would apply for it. One thing that I have learned from the last Government is that Ministers of the Crown should be very careful about becoming involved in citizenship decisions.

I welcome the appointment of someone who should bring new thinking to troubled banking and monetary policy in the United Kingdom. Will the Chancellor confirm that, when he has studied the subject, Mr Carney will be free to change our monetary and banking policy in ways that could promote a more sustained and favourable economic recovery?

I thank my right hon. Friend for his support for the appointment. We have now united all points on the spectrum.

The Governor of the Bank will chair the Financial Policy Committee, the body that will be responsible for macro-prudential regulation. In other words, he will set overall guidance on issues such as capital and liquidity, about which I know my right hon. Friend has spoken powerfully. Any decision on the framework of the inflation-targeting regime and the like will be made by the elected Government and not by the Governor of the Bank.

I am sure that this is a question that the Chancellor has considered. Will he explain how Mr Carney will handle any conflicts of interest that arise during the period between now and his taking up his post in London?

There should not be any conflicts of interest, because he is very clearly the Governor of the central Bank of Canada, will remain so until the end of May, and will fight Canada’s corner as we would expect him to do. However, he is also the chair of the Financial Stability Board, of which we are a member. He is already heavily involved in international financial regulation and in decisions that have a real impact on our financial services. Moreover, Canada is a G7 country, and is probably one of our closest allies: it is difficult to think of a closer ally than Canada. We already work incredibly closely with the Canadians. Incidentally, the fact that we co-ordinated the press conference in Ottawa and the statement in the House of Commons today and the news did not leak in advance shows that the two Governments work together and trust each other.

On behalf of the Liberal Democrats in the coalition, I welcome Mr Carney to his post. Although he will not take up his position until next summer, no doubt his views will be keenly studied in expectation of his doing so. Does the Chancellor agree that one thing that all our constituents will want to hear from him is a clear indication that he will expect the very highest professional standards in the banking industry, so that bankers can be seen to be working in favour of taxpayers and consumers and not just with self-regard?

Mr Carney has been pretty tough in Canada, and Canada has a much better record than this country of avoiding bail-outs and keeping Canadian banks safe. As chair of the Financial Stability Board, he has been very keen to secure international agreement on new, tougher rules on pay, risk-taking and the like in order to ensure that individual financial centres do not try to out-compete each other for less and less regulation. I should also make clear that he supports the John Vickers reforms that will be introduced in the Financial Services (Banking Reform) Bill, including the ring-fencing of retail banking, which is the really major reform of banking that the coalition Government are bringing about.

I am so excited about this appointment that I could jump up and down—but I won’t.

Does my right hon. Friend agree that at some point during the next year he should have a chat with Dr Carney about the ground-breaking bank revolution that would ensue from bank account portability, and about the fact that that could be the very first thing that he did as the new Governor of the Bank of England?

I hope that my hon. Friend will contain her excitement when she has a chance to question Dr Carney, when he appears before her Select Committee. As she knows, from next year we will have full account-switching, which means that people will be able to switch their bank accounts, including direct debits and so on, within seven days. That will make switching much easier. My hon. Friend has advanced strong arguments for going further and introducing account portability, and we are studying that idea closely. There are pros and cons, which the Vickers commission considered, but she has put her case very powerfully.

The father of the hon. Member for South Northamptonshire (Andrea Leadsom) is a distinguished constituent of mine. I do not know what he would make of it if I allowed her to jump up and down in the Chamber. It scarcely warrants contemplation.

The present Governor has commented on the dire state of the economy. The new Governor has international commitments, will face European commitments, and new regulations going through the other House give him many other responsibilities. Will the Chancellor please genuinely reconsider the number of posts that the new Governor will be forced to hold under the new arrangements? The grimness of the economic situation demands his full attention, and the posts are far too many for one person.

The one thing that we have learned is that regulation of banks and managing of demand in our economy cannot be separated; they are part of a continuum and that is one of the things that went wrong. Of course the Bank of England takes on heavy responsibilities, and the new Governor will have to manage the Bank in a very effective way to manage those new responsibilities. Mervyn King has already said that there needs to be a chief operating officer in the Bank, and there will be three deputy governors: for macro-prudential, micro-prudential and monetary policy. They too need to shoulder the burden, as indeed they currently do.

One thing that attracted the panel that interviewed Mr Carney, and me when I interviewed him, was his management experience in Canada. He is well regarded for having run a good bank in Canada as a manager, as well as for the international credibility he has earned for his economic and financial policies.

I welcome my right hon. Friend’s announcement and wish Mr Carney the very best. Will my right hon. Friend reassure me that women were encouraged to apply for this role? If he is looking for someone superhuman, often it is women who fit that category.

There were some excellent female candidates but—I will be absolutely candid with my hon. Friend—it was rather disappointing that there were not more female candidates of the highest quality. Both I and my predecessor faced that issue with appointments to the Monetary Policy Committee, and I would like to work constructively with people who have ideas on how we can encourage women in the economics profession to aim for a career in public service, the MPC, or central banking. We must do more to encourage that because, as I said, both I and my predecessor found that we did not have as wide a range of female candidates for the MPC as we would have liked.

There are good reasons for the Chancellor to appoint the Governor of the Bank of Canada. As he said, Canada weathered the crisis well and was the first G7 country to restore employment and GDP to pre-crisis levels—a stark contrast with our own position. Will the Chancellor discuss the Canadian experience with the new Governor in order to get lending moving? He will know that initiatives such as Merlin have not worked, and unless we get lending flowing to the real economy we will not get the recovery that we all want.

Canada had the advantage of going into the crisis with properly managed public finances, and it avoided the large bank bail-outs that we had in this country—RBS was the biggest bank bail-out in the world—because its banks were better regulated. Hopefully, Mr Carney will bring some of that experience.

The right hon. Gentleman makes a serious point about lending in the economy. The Bank of England has created the funding for lending scheme, and we see the impact of that in new products that banks such as Santander and Lloyds have launched. He is right to say that that is one of the things we have to be on in terms of economic management. The de-leveraging in our economy is still one of the real headwinds to recovery.

My right hon. Friend, if I understood him aright, has just said that Dr Carney supports the ring-fencing arrangements recommended in the Vickers report. May I ask him to bear in mind that Sir Mervyn King made it clear last week that he does not support them and nor do Mr Paul Volcker and the Archbishop of Canterbury-select? And nor do I.

My right hon. Friend has read out an extremely distinguished group of individuals. What he did not say was that, as I understand his position, he would like the banks split entirely in a Glass-Steagall-like separation. Over the past couple of years we have constructed a consensus on ring-fencing. We appointed John Vickers and his very experienced commission to do the job, and they looked explicitly at ring-fencing and came forward with their proposal. That proposal has now been discussed in this Chamber and commands consensus across the system. If we were suddenly to back away from it now and say that we wanted to start all over again with some other approach, that would delay everything. That would not be the right approach, and it would destroy the consensus that exists on ring-fencing.

I do not want to strike a dissonant note, but is it not a little surprising that in practically the leading banking nation on earth we could not find a British candidate for the job? We have chosen a Canadian, who I am sure was a good candidate. Normally, the overlap between the retiring Governor and the new one would be longer. Is that not a worry, even with Dr Bean staying on an extra year?

As I said, there were excellent British candidates, any of whom would have made a good Governor. In my judgment, though, Mr Carney was a better candidate. He was the only one who combined central banking experience, economics, experience of financial regulation and experience in the private sector. It says something about Britain that we have the self-confidence to go and get the very best in the world to serve as our Bank Governor.

I welcome this bold announcement. The Chancellor is rightly concerned with the stability of the transition and has extended Dr Bean’s term, but does he wish the immensely able Paul Tucker to continue as deputy governor?

The very short answer is yes. Paul Tucker has been an excellent deputy governor, and I hope he continues to do his excellent job at the Bank of England.

Mervyn King’s predecessor Eddie George said that the single currency should be kicked into the long grass and left there. Will the new Governor continue to support the independence of Britain’s currency?

I will not speak for the new Governor, but I am sure he could be asked that question. I am pretty clear that he would support the pound, because he has seen at first hand through the Financial Stability Board some of the problems that have arisen in the euro. I reassure the hon. Gentleman that any decision to ditch the pound would be one for the Government of the day and the House of Commons, and while this Government are in office we will keep the pound.

In Mr Carney, we have a man with unprecedented experience of financial stability. We also have an Office for Budget Responsibility that publishes transparent, independent numbers, and we now have a structural and regulatory plan for the banking system and a Government committed to restoring faith in the public finances. Does the Chancellor agree that the risk of boom and bust is therefore diminished?

I will not make the mistake of the last Prime Minister and claim to have abolished boom and bust. I do not know which young adviser of his put that idea into his mind. [Interruption.] With transparent and independently audited public finances, an excellent central bank Governor and new responsibilities for the Bank of England, we have a better framework than the one that we inherited.

Is it not the case that Mr Carney ruled himself out some months ago? So what does the Chancellor think changed his mind—could it have had anything to do with Labour’s new lead in the opinion polls and the new Governor’s long-standing friendship with the shadow Chancellor?

The risk with quantitative easing is higher inflation and a weaker currency. Will the Government use this appointment to re-examine whether QE actually encourages better or higher economic growth?

The Monetary Policy Committee has not requested additional headroom to conduct QE. As I have said, I think QE has been the right instrument to try to keep yields down and support demand, but any questions about Mr Carney’s view of QE in the British context will be ones that the Treasury Committee can direct at him.

I welcome this appointment and, in particular, Mr Carney’s willingness to come before the Treasury Committee as his first duty. What discussions has the Chancellor had with the Office for National Statistics and the Office for Budget Responsibility about the £35 billion asset purchase facility coupon scheme? Does he accept that it will be an exceptional item in the Government accounts?

Crucially, I discussed this matter with the Governor of the Bank and he discussed it with the Monetary Policy Committee, and they thought it was a sensible move. As I have said to the shadow Chancellor, when the OBR produces its fiscal forecasts next week it will make very clear—I requested this—the distinction between the public finances with and without the APF move.

May I applaud the Chancellor for making his statement to the House of Commons first, and urge him to use that as a precedent for any future statements he may wish to make? What particular experience of recent Canadian economic performance will be of most use to Mr Carney in his new role as Governor of the Bank of England?

First, I am glad to have been able to make this announcement to the House of Commons, and I commend all those involved in the process for keeping the information secret. I want to pay tribute to the Canadian Government for also keeping this information secret until we could simultaneously make this announcement to the House of Commons and to the Canadian people in the Ottawa press conference. Sorry, I have forgotten the second bit of the question—

The Canadian economy did better than any other major western economy in weathering the financial crisis. Its public finances were in better shape, its banks were better regulated and the Bank of Canada was able to take Canada through this period in a way that in Britain and in many other western economies we wish we could have emulated.

When the Chancellor speaks to the new Governor, will he discuss the Engineering Employers Federation’s comments that further austerity will not help the British economy because it is too weak and that the policy should be for growth and not cuts?

Fiscal policy is the responsibility of the elected Government and the House of Commons, but I would say that all the business organisations have supported our plan to deal with the deficit because they know how important it is to securing low interest rates and stability. Frankly, I have yet to hear what the current alternative is from the Labour party. I will save this for next week, but the Opposition used to have a five-point plan and I have no idea whether they are still committed to it. They claim that they want to be responsible with the deficit, but they have absolutely no plans to cut the deficit. I am just getting warmed up for next week, but we will wait a week to have those arguments.

Will the Chancellor and the new Governor examine the possibility of bringing in depositor preference with a view to reducing the risk of bail-outs and nationalisations of UK banks in future?

Depositor preference does not exist in the UK, but it does exist in countries such as the United States and Switzerland. It is something that we are planning to introduce and it was one of the recommendations of the Vickers commission.

I thank the Chancellor for his announcement and associate myself with the warm words of welcome from both him and the shadow Chancellor. He has already mentioned the ring fence between investment and retail banking. Will he go a little further and tell the House what specific conversations he has had with Dr Carney about the ring fence?

I think that that would breach the confidentiality of the interview process, but Mr Carney will come before the Select Committee and will no doubt be asked about his views on the Vickers reforms. As I have said, he supports them and it is important—this comes back to a point made by my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell)—that we now have consensus across our regulatory system. John Vickers has provided that consensus. We will introduce a Bill next January. Let us get on and make that important change. We are leading the world and, interestingly enough, a lot of the rest of the world is thinking of following us in that direction.

Mark Carney’s actions have played a major part in helping Canada to avoid the worst of the financial crisis. Will the Chancellor reassure the House that he will be given the necessary freedom to take the required action here in the UK —something that the current Governor did not always enjoy under the last Administration?

I will leave the accounts of what happened under the previous Government to the various memoirs and the like. Of course, Mark Carney has independence in monetary policy and will have to work with the Government on financial stability, which is a crucial issue in which the elected Government are also involved when public money is put at risk. We will work closely together to secure the British recovery and ensure that we have something more of the Canadian experience here in Britain.

European Council

With permission, Mr Speaker, I would like to make a statement on the European Union Council last week.

Last week’s Council was unable to reach agreement on a seven-year budget framework. This Government rejected a proposal that would have risked UK taxpayers paying for unaffordable increases in the EU’s annual budgets. We did so together with like-minded allies from a number of countries. As net contributors to the EU, those countries, like Britain, write the cheques and together we had a very clear message: we are not going to be tough on budgets at home and then sign up to big increases in European spending in Brussels.

Let me explain to the House the proposal we rejected, why a deal is still doable, why it is still in our interests to work to achieve that deal and why throughout these negotiations I will continue to protect the UK’s rebate. Our objective for EU spending in the seven years to 2020 is clear: we want to see spending reduced and will insist on at least a real-terms freeze. As the House knows, the actual EU budget is negotiated annually. What we were negotiating in Brussels last week, and will return to again next year, is the overall framework for the next seven years, which includes the overall ceilings on what can be spent. During the last negotiation, which covered the period 2007 to 2013, the last Government increased the payments ceiling by 8%. The commitments ceiling was effectively set at €994 billion, well above the level of actual spending. It was a bit like having a credit card limit far above what one can afford and it was an open invitation to the EU’s big spenders to push for higher and higher spending every year. We are still paying the price for that decision.

This year, 2013, the Commission and the European Parliament are attempting to grow the annual budget by another 6.8%. I am determined to get the ceilings down in line with what we can afford. Prior to the Council, the Commission produced a ludicrous proposal to increase the commitments ceiling still further to more than €1 trillion. We said no. The Cypriot presidency produced a slightly lower total, and going into this Council, the President of the Council, Herman Van Rompuy, produced a new proposal, this time with a ceiling of €973 billion.

As you can see, Mr Speaker, we were making progress in getting the ceilings down, but as I and other leaders made clear, it was not enough. We set out a number of very reasonable ways in which the seven-year ceiling could be reduced even further, by tens of billions more. What was disappointing at the Council was that having heard those proposals, the presidency offered a new proposal that failed to reduce significantly the previous total and simply redistributed money to buy off different countries. In a seven-year budget of almost €1 trillion, the idea that there are no real savings to be found is simply not credible. For example, when it came to the bureaucratic costs of the European Commission, not a single euro in administrative savings was offered—not one euro. We need to cut unaffordable spending. The deal on the table was not good enough and that is why we and others rejected it.

But we do believe that a deal is still doable. There is absolutely no reason why we should not be able to reduce the seven-year ceilings down to the level needed. There is plenty of scope for significant savings in the common agricultural policy and the structural and cohesion funds, but there are also savings to be had in the rest of the budget. For example, freezing the ceilings for security, justice and external spending would allow €7.5 billion of additional savings. There are some programmes, such as Connecting Europe, which have enormous proposed increases in their budgets that could be radically scaled back.

As I have said before, there is simply no excuse for not taking a much tougher approach towards the EU’s administrative costs. The EU institutions have simply got to adjust to the real world. A 10% cut in the overall pay bill would save almost €3 billion. Relaxing the rules on automatic promotion, which they have at the EU Commission, would save €1.5 billion. Reducing the extraordinary generosity of the special tax rules for Brussels staff—the levy—could save around another €1 billion, and changes to pension rights could save another €1.5 billion. All these are perfectly reasonable proposals. That is why a deal is still doable. We will push hard for these reductions when negotiations resume next year.

Let me briefly be clear about why we want a deal. If no deal is reached, the existing ceilings are simply rolled over and annual budgets are negotiated on a year-by year-basis, taking account of those ceilings. Crucially, we would not get the reduction we need in the seven-year budget ceilings negotiated by the last Government. The credit card limit would stay beyond what is affordable, tens of billions of euros higher even than the deal we rejected at this Council. It is therefore in our interests to get a deal, but it must not come at any cost. We must not lock in unaffordable ceilings for the next seven years, so if necessary we may have to galvanise a coalition of like-minded countries to deliver budgetary restraint through annual budget negotiations each year.

Finally, let me say a word about the UK’s rebate. As well as ensuring fairness in the overall size of the EU budget, it is also essential to ensure fairness in the net contribution that each country makes to that budget. At this Council, we faced, as ever, determined pressure from many sides for our rebate to be slashed. The changes on the table, in the proposal in front of us, would have cost the UK more than €1 billion every year. I was clear that all of that was completely unacceptable. Britain more than pays its way in Europe. On a per capita basis, Britain is the eleventh richest nation, yet as a share of our national income we are the third largest contributor, and that is with the rebate—or what remains of it after so much was given away by the last Government. Without the rebate, we would have the largest contribution in the European Union, double that of France and almost one and a half times as large as Italy’s or Germany’s. That would be completely unfair. It is why Margaret Thatcher was right to fight so hard to win the British rebate, why the last Labour Government did this country such a disservice by agreeing to give part of it away and why no Government I lead will ever put the British rebate back up for negotiation.

We put down a marker at this Council. We stood up for the taxpayer. Together with like-minded allies, we rejected unacceptable increases in European spending, and we protected the UK’s rebate. We are fighting hard for the best deal for Britain, and that is what we will continue to do. I commend this statement to the House.

I thank the Prime Minister for his statement. Clearly, this is not the first EU budget negotiation to go into a second round, and no doubt it will not be the last. The real question remains what deal will eventually be delivered. I want to ask about the budget level, what the budget will be spent on and the Government’s negotiating position.

On the budget level, I was surprised by one omission in the Prime Minister’s statement. Somehow, he forgot to thank this House for sending him into the talks with the strongest possible mandate in the negotiations: a vote supported by Members on both the Government and Opposition sides. At the time of the vote, the Deputy Prime Minister, who I notice is absent, said that what was voted on was a completely unrealistic position and that there was no hope of getting a deal—a tell-tale sign that the opposite might be true.

Given that the Prime Minister now says that there is widespread support in Europe for a tough settlement, can he say what prospects there are for meeting the call of this House of Commons for a real-terms cut in the EU budget? Does he now regret not seeking to build alliances for a real-terms cut in spending at the outset of negotiations?

Looking ahead to the deal that still needs to be done, can the Prime Minister confirm in precise terms what he means by a real-terms freeze? There are obviously many different definitions around, but we have the Government’s definition set out by the then Economic Secretary in her memo of 16 July 2011. That was for a European budget of €885 billion in actual payments over the seven-year commitment period. The Prime Minister has been somewhat coy on this point, so can he confirm that that remains the position as set out by the former Economic Secretary to the Treasury?

Next, may I ask the Prime Minister about the composition of the budget, which is as important as the budget level itself? We need to reshape the budget so that it supports jobs and growth with investment in infrastructure, energy and research and development. He said as he arrived in Brussels that

“it is not a time for tinkering”,

and at his press conference on Friday he said:

“Already being contemplated is a big cut in agricultural spending”—

something that is supported in all parts of this House. However, what is the big cut in agricultural spending that he is talking about? Will he confirm that the proposal on the table sees agriculture spending remaining on average at 38.3% of the European budget—almost exactly the same level as it is now? Does he really believe that that is the major reform that is required in the spending of the European budget? Does he agree that what is even worse is that to keep the subsidies high, money is being taken from much-needed investment in energy and other infrastructure? I think that part of that comes from the Connecting Europe budget. Did he object to this part of the proposal?

As we anticipate the further negotiations in the months ahead, the wider stance of the Government towards the EU will also have an impact. The Prime Minister has said repeatedly that he is in favour of Britain remaining a member of the European Union. Why, therefore, is he allowing his colleagues to take the opposite position? Last month, the Education Secretary briefed that he is open to leaving the European Union. On Saturday, the chairman of the Conservative party said that we should threaten to leave if we did not get a good deal. Now we have the new vice-chair of the Conservative party—we think it is great to see him in his place—touring the studios, talking not about a budget deal but about a deal with the UK Independence party. Does the Prime Minister believe that such divisions help or hinder our national interest in delivering a good budget deal? Why, at a time of continuing negotiations over the budget, is he allowing members of his Cabinet openly to undermine his position on membership of the EU? It is no wonder that everyone, from British business to our European allies, believes that we are drifting towards the exit door.

As we look ahead to the next round of budget negotiations, is not the reality of the situation that the Prime Minister has a divided party on Europe? Instead of confronting the issue—[Interruption.] They say that they are not divided, but half of them want to leave the EU, and that is not the position of the Prime Minister—so we gather. He has a divided party on Europe, and instead of confronting the issue he is just letting the problem get worse. He spent his statement talking about the deal that he did not do; what matters is what he delivers for Britain. For as long as he allows his party to drag him towards the exit door, he will find it far harder to build lasting alliances and far harder to deliver for the national interest.

First, let me answer on the right hon. Gentleman’s specific points about figures. He asked about the scale of the cut that was envisaged for the common agricultural policy. In terms of tier 1 of the CAP, the proposal, to be fair to pillar one—to be fair to the Council and to the Commission—was to cut it from €336 billion to about €270 billion. So a cut was proposed for the CAP, but we made the point that even with that, we could go ahead and reach a good budget settlement. We said that without doing even more on the CAP we could reach a deal by looking at administrative savings and Commission savings, and also by looking at some of the programmes that are, quite rightly, being expanded, but expanded far too much. For example, Europe spent €8 billion on the Connecting Europe proposal in the last financial period, and it was proposed that that was increased to some €36 billion, so we could make significant cuts in that proposal and still land a sensible deal.

The right hon. Gentleman referred to the memorandum that we put in front of this House, which referred to the 2011 situation and the 2011 budget. What I have said is that, yes, we want a cut, but we should settle, at worst, for a real-terms freeze—and of course that freeze would be across the period 2013 to 2020.

The right hon. Gentleman asked why we had not built any alliances. I am happy to tell him that the Dutch, the Swedes, the Danes, the Finns and the Germans all very much backed our position. I might ask him about his alliance, as he is in alliance with the socialists in the European Parliament, whose position was to favour a 5% increase in the ceilings, not a cut. They wanted to end all rebates and to introduce a financial transactions tax of up to €200 billion. If he does not believe that, he should listen to the leader of the European socialists and democrats, Mr Hannes Swoboda, who said:

“Regarding the additional cuts, it is unacceptable that the majority of member countries are letting themselves be blackmailed by David Cameron”.

That is the view of the socialists.

The right hon. Gentleman has made his approach in this Parliament, but if he had been at the Council he would have heard a lecture by the socialist head of the European Parliament, who told the whole Council that anything that was a cut to what was being proposed would be completely opposed by everyone in the socialist group in the European Parliament, including his MPs. If the right hon. Gentleman wants to get a good deal for Britain, he might start by talking some sense to his socialist friends.

Given the fact that, over the past 20 months, we have had about as many economic summits, and they have gone nowhere, given that Mrs Merkel is now saying that she wants the European Commission to be the European government and given the statements that have been made by Mr Barroso about a federal union, does my right hon. Friend not think that the time has now come to establish a lead on the question of a fundamental change in our relationship with the European Union and to do what the British people want, and get on with it as soon as possible, before it is too late?

I agree with my hon. Friend about the number of European Councils. That is undeniable; there has been a huge quantity.

I agree with my hon. Friend that there is an opportunity for a change in Britain’s relationship with the European Union. That is why I have talked about a new settlement and fresh consent for that settlement. Where I think I disagree with him is that we need to show some patience while the eurozone sorts itself out, and as the eurozone integrates I think there will be opportunities for that. As for his comments about the Germans, I hope that he is a regular reader of Der Spiegel online, because after the Council it said:

“Danke Grossbritannien…you’ve given hope to many people suffering under the terror of EU bureaucracy”.

A hundred thousand Syrian refugees have entered Turkey in the past year and 16,000 have applied for asylum in the EU, having crossed the border between Greece and Turkey. No matter what the Prime Minister’s negotiation position is in respect of the overall budget, will he give an assurance that he will protect the budget for Frontex, which protects the external limits of the EU, which must be in Britain’s best interests?

The right hon. Gentleman makes an important point. Frontex does good work and we have supported its budget, but like any Government, what we are asking the European Commission and European Council to do is attempt to do more for less. They have to look across each budget area, work out where the pressures are and, obviously, direct resources in that way, but they also have to try to find savings elsewhere, as every Department of Government has had to do.

As someone who supported my right hon. Friend in the Lobby a fortnight ago out of conviction, may I offer my congratulations to him on the alliances that he appears to have formed in Europe? Is that not an eloquent illustration of the principle that engagement is always more effective than detachment?

I am very grateful for my right hon. and learned Friend’s support. It has been important to have these alliances on behalf of countries that want a sensible settlement. We now have to work very hard to keep that alliance together so that we can land a deal that is in the interests of British taxpayers and, I would argue, taxpayers across Europe.

The Prime Minister said that he wanted to galvanise a coalition of like-minded countries and referred in another answer to the Netherlands, Sweden, Denmark, Finland and Germany. Is it not a fact that, while they may have tactically agreed in this summit, there are very large differences between all those countries and his party’s position?

Actually, I think that the hon. Gentleman is wrong about that. The countries on the list that I read out are our classic allies that we put together in almost every year’s budget negotiations to try to ensure a reasonable outcome. The problem is that annual budgets are decided on a qualified majority basis, so we can be outvoted. The multi-annual financial framework is subject to unanimity, so we can put our case vigorously. The point that I made in my statement is that if we do not achieve a new framework, we will need even more than today to keep the tough budget discipline together for the annual budget negotiations that follow.

Far from being isolated, I congratulate my right hon. Friend on consolidating the alliance with Germany, Sweden, Holland and Denmark. Are there any signs that that new grouping will work with us on further reforms and, in particular, on reform of the single market?

The countries on the list that I read out tend to be fairly strong allies on much of the single market agenda. We are also joined in our support of the single market by the Italians and, to an extent, with the Spanish now that Mariano Rajoy is Prime Minister. We need to try to win the argument with large net contributors, such as Italy, that the best way to protect the interests of their taxpayers is to restrain the overall budget, rather than simply to measure their receipts under the CAP or the cohesion policy.

Isn’t this scenario getting a bit boring? When the Prime Minister went to Europe fighting alone, he came back with nothing. He has now formed alliances with all the dodgy people he referred to and he has still brought nothing back. Even John Major came back with two opt-outs—even John Major.

I will tell the hon. Gentleman what I have managed. The last Government put us into the bail-out fund; I got us out of the bail-out fund. The last Government gave away part of our rebate; I am keeping our rebate. We are making progress, but obviously we will have to do a little more to satisfy him.

Does my right hon. Friend agree that the bloated Brussels bureaucrats are talking balderdash when they refuse to offer a single cut, despite the fact that more than 200 Commission staff earn more than he does and that they apparently have up to 93 holiday days a year?

I think that it is perfectly possible to save money in the Commission’s budget. Its staff have things such as automatic promotions, very generous pension arrangements and expatriation allowances for living in Brussels, even if they have been there for 30 years. It is time to have a clear-out of such things and the Commission needs to be convinced of that. Part of the point of building the alliance is to say to the Commission, “You really have to look at your own budget.” That is not the whole answer, because administration makes up only 6% of the total, but it can make a contribution.

I am concerned that the Prime Minister says that there are savings to be made in cohesion and structural funds. He is aware that many areas of the UK, such as west Wales and the valleys, enjoy receiving such payments. Is he saying that he can foresee a cut in that support?

There is a need for cuts in the overall cohesion and structural funds budget of the European Union, given the fiscal constraints that the net contributors are operating under. We should be frank and honest as a country in saying that, although there are regions of the UK that still benefit and should go on benefiting from structural funds, such funds should, on the whole, be for the poorest regions of the poorest countries. Britain’s negotiating position is different from that of many countries in that we do not go to Brussels and simply defend every penny that we receive; we try to seek an outcome that is right for the whole European Union. We cannot for ever argue for restraining the budget if we want to keep hold of structural funds for countries that are better off than most.

The Prime Minister will know that he is supported by those on the Liberal Democrat Benches in being robust in Brussels and in ensuring that the European Union understands that we live in a time of austerity in which it has to restrain its spending, as we are restraining ours. Although he is working satisfactorily with our allies on this matter, will he confirm that there is no truth in the rumour that we are trying to get an opt-out on the common market for financial services? If we are to prevent tax evaders, criminals and terrorists from using our country or any other to hide their assets, we need a common market for financial services. Will he confirm that we will lead in arguing for that objective?

We support the single market in all its forms. We are trying to ensure that when the banking union proposals, which include a proposal for a single supervisor under the European Central Bank, come through, they do not damage the interests of those countries that are in the single market but not the single currency. As I have already said, part of our G8 presidency next year will be targeted on cracking down on tax evasion, tax avoidance and the rest of it.

What will the Prime Minister do if he does not get a real-terms freeze? Is he prepared to use his veto? Will he also make it clear that he is quite happy for decent, respectable people in my constituency to be members of UKIP?

I am very happy for anyone to join any political party—it is a free country. On the budget, we have a clear position. We are trying to get the ceilings down and cuts are already proposed. We want the ceilings down to such an extent that we achieve the real-terms freeze at worst, or a cut at best. I am convinced that we should achieve that if we keep the force of our arguments and keep the coalition of like-minded countries together.

My right hon. Friend the Prime Minister will have been fortified by the solid alliances he built in the interests of dealing with the budget. Does he agree that those alliances are particularly serviceable when it comes to driving ahead with the growth agenda in Europe? Will he not allow that to slip below the radar?

My right hon. Friend is absolutely right. We will keep pushing forward the growth agenda, based on completing the single market in digital, services and energy. It is also important to recognise that the budget, even with the reductions I propose, would still be a growth budget, because it would transfer funds from agriculture into growth areas such as supporting research and investment, from which Britain is quite well placed to benefit.

Does the Prime Minister believe that the rising tide of unemployment and poverty across western Europe is a price worth paying in order to save the euro?

The rising tide of unemployment across Europe is clearly a tragedy, but we need to look across Europe and ask why some countries are doing so much better than others at tackling unemployment, and particularly youth unemployment. Youth unemployment is far lower in, for instance, Holland and Germany than in Spain, Italy and—yes—the UK. There is more to learn about welfare reform, apprenticeships and education standards. We can apply those lessons here to ensure that we keep unemployment falling.