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Commons Chamber

Volume 559: debated on Monday 25 February 2013

House of Commons

Monday 25 February 2013

The House met at half-past Two o’clock


[Mr Speaker in the Chair]

Oral Answers to Questions


The Secretary of State was asked—

Budget Post-2015

The defence budget for the financial year 2015-16 will be set in the current spending round, which is expected to conclude in the summer. The budget for subsequent years will be set in the next spending review. The Ministry of Defence has an agreement with Her Majesty’s Treasury that we may plan on the assumption of a 1% real-terms annual increase in the equipment budget—about 40% of the current defence budget, rising to 45%—from 2015-16 to 2020-21. Our equipment plan, which we recently published, is based on that assumption.

On 14 May last year the Secretary of State boasted that he had balanced the budget over 10 years. To prove his claims, he said:

“I have agreed with the National Audit Office that it will review the equipment plan and confirm that it is affordable.”—[Official Report, 14 May 2012; Vol. 545, c. 264.]

However, in January the NAO’s report damningly said that it could not

“offer a definitive view on the affordability of the Equipment Plan.”

Will the Secretary of State tell us how we can believe a word that this Government say on defence when their central claim to competence cannot be confirmed by the independent auditor?

I think the hon. Lady needs to go away and read the National Audit Office report carefully. To put it into context, she probably needs to read some previous NAO reports on equipment plans. For example, in its 2010 report the NAO discovered that in a single year under Labour just two programmes—Typhoon and the Queen Elizabeth-class aircraft carrier—rose by £3.3 billion in cost. In 2009, it said that

“the budget remains consistently unaffordable over the next ten years”

and that attempts to rebalance the defence budget had represented poor value for money. We are very happy with the NAO’s review of the equipment plan, which recognised the huge steps of progress that we have made and set out an affordability assessment model for the Department’s assumptions.

The Prime Minister promised real-terms growth in the post-2015 budget. Can the Secretary of State confirm that that will still be the case for the equipment budget and the non-equipment budget?

The Prime Minister has made it clear that he stands by his view that the equipment plan budget needs to increase in real terms, and we have a pledge from Her Majesty’s Treasury that we may plan on the assumption of a 1% real-terms increase. Our planning assumption is flat real-terms growth for the remainder of the budget.

I do not think that that was precisely what the Prime Minister said. Nevertheless, does my right hon. Friend the Secretary of State agree that if we possibly can we should continue to meet the NATO objective of spending at least 2% of our gross domestic product on defence?

I agree with my right hon. Friend. The plans that we have set out do indeed show that we will continue to comply with that 2% threshold.

Will the Secretary of State enlighten the House on what discussions he has had with the Treasury in the light of the Prime Minister’s most welcome announcement last week that some of the aid budget might very usefully be diverted to peacekeeping operations? The Department for International Development is to have another £2.65 billion extra this year, but how on earth is it going to spend it when the Ministry of Defence is so short of cash?

I shall leave it to my right hon. Friend the International Development Secretary to explain how DFID proposes to spend its budget. There is already a high level of co-operation between the Ministry of Defence, the Foreign Office and DFID. It makes absolute sense to look at how we spend the budgets available across those three Departments in order to achieve their objectives and secure the UK’s vital national interests.

Last May the Secretary of State announced to an outburst of self-congratulation that he had balanced the MOD’s books and, as we have heard, he even called on the National Audit Office to validate his assertion. Instead, however, the auditors have declared that his costings are “over-optimistic” and his approach “not statistically valid”. Put simply, the NAO said:

“The costings are not sufficiently robust to support the affordability assertion.”

Is it not now time for the Defence Secretary, just like the Prime Minister, finally to admit that he has failed to deliver on his boasts on the MOD budget?

No, and I am sorry that the hon. Member for West Lancashire (Rosie Cooper) has stolen the right hon. Gentleman’s thunder. We now have an equipment plan that includes £4.8 billion of centrally held contingency, £8.4 billion of contingency in the individual projects, and £8 billion of unallocated headroom. The right hon. Gentleman might have noted that the right hon. Member for Barking (Margaret Hodge) recently said that, since the election, the MOD has made

“welcome progress…particularly on the purchasing of equipment”

and “great strides forward”. That is in marked contrast to the National Audit Office and Public Accounts Committee’s assessment of what happened under the previous Government.

The Secretary of State should spare us the lecture. This is the party that sold off the Harriers, that could not decide which aeroplanes to put on the carriers, that sends our one carrier to sea without any aeroplanes and that cost the country tens of millions of pounds.

To return to the budget, we now know that when the Defence Secretary told this House that the defence budget was balanced, he meant that only 40% of it was costed. The National Audit Office looked at just £1 in every £5 of the MOD’s budget, and even then it discovered a £12.5 billion black hole in the plans. The NAO said:

“Achieving affordability is…contingent on savings being achieved elsewhere in the budget.”

Will the Defence Secretary confirm the NAO’s figure for the new black hole and that his plans to boost the equipment budget will fall on the back of further cuts to our armed forces and their welfare?

No. The right hon. Gentleman is simply wrong. The figure of £12.5 billion is from CAAS—the internal cost assessment and assurance service. It was quoted by the National Audit Office and has subsequently been reassessed at £4.4 billion. [Interruption.] No, it was by CAAS and has been reassessed at £4.4 billion. The right hon. Gentleman is simply wrong.

Labour has to decide whether it is going to engage seriously in this debate or not. At last year’s Labour conference, the right hon. Gentleman told his party that it

“must deal with the issues we would if we were in power…No smoke and mirrors, no delay in tough decisions”.

Just two weeks ago, however, he told The Daily Telegraph:

“I’m not going to say we will guarantee to overturn this cut or the other.”

Which is it to be: tough decisions or more ducking and weaving?

The 2011 independent commission acknowledged the increased cost of collectively training Territorial Army units over their regular brethren when force generation factors were taken into account. Given that the Green Paper makes clear that TA units will be more frequently used, will the Government justify their claim that replacing regular troops with reservists is cost-effective?

As my hon. Friend knows, we have allocated £1.8 billion over 10 years for additional training, infrastructure and equipment for the reserves to try to rebuild the broken trust that resulted from the previous Government’s slashing of funding for reserve training and equipment. On the economics of using reserves instead of regular forces, it is true that, when deployed on operations, reserves are more expensive than regulars, but, held as a contingency, reserves are significantly lower cost than regular forces. We are simply trying, within the budget envelope available, to create the greatest amount of military capacity it is possible to generate.

Is the Secretary of State able to give any detail as to the exact consequences of the Prime Minister’s welcome statement on the use of the DFID budget alongside the budgets of the Foreign Office and the Ministry of Defence for the future of defence diplomacy?

As I have said, we already co-operate significantly. The conflict pool is a tri-departmental pool of funding that is used for upstream stabilisation and capacity-building operations. The Prime Minister was alluding to a commitment by all three Departments to look again at how we can do more of that to support the UK’s national interests, while at the same time support the development agenda. It is a simple fact that unless there is security it is not possible to have economic development or effective poverty eradication.

Trident Replacement

2. What his most recent estimate is of costs up to 2016 of the replacement of the Trident nuclear missile system. (144302)

As the hon. Gentleman is aware, the Trident D5 missile is expected to remain in service until the 2040s. No decision on a replacement system is expected to be made during this Parliament. The estimated cost remains at £2 billion to £3 billion at 2006 prices for the missile itself, as was set out in the White Paper published by the previous Government, whom he occasionally supported.

Will the Minister undertake to report to Parliament regularly on expenditure on the missile replacement ahead of the 2016 main gate decision? Does the estimate that he has given today include the upgrading of AWE Aldermaston? Does he think that in a time of austerity it is really such a good idea to prepare to spend £100 billion on a nuclear missile system that will be our very own weapon of mass destruction, which will not help to bring about world peace?

As the hon. Gentleman knows and as I have just said, we published an update to Parliament at the end of last year and we intend to publish such updates periodically. The upgrade at Aldermaston is part of the regular routine maintenance of that site which is needed for the existing programme, irrespective of the successor programme.

17. Notwithstanding my hon. Friend’s answer, will he join me in paying tribute to the brave submariners who have ensured that the UK has had a continuous at-sea deterrent and who have been the guarantor of our country’s security for 50 years? (144320)

I am very pleased to pay tribute to the bravery of the men and women who support our submarine fleets, both the conventional fleet and the deterrent fleet. As my hon. Friend rightly says, they have done so for many decades. The deterrent is an important component of the defence of the realm and long may it stay so under this Government.

I have tabled parliamentary questions on the Trident alternatives review. The Government are refusing to tell me how much it is costing and what it is looking at. The review is blatantly the Liberal Democrats researching their manifesto at taxpayers’ expense and in secret. Will the Government release the details of the Trident alternatives review?

The right hon. Gentleman should be aware that the coalition agreement made it clear that the Liberal Democrats were allowed to produce their own alternative review. It is up to the Liberal Democrats to decide as and when they wish to publish the review’s findings.

Talking of alternatives, does my hon. Friend agree that the few percentage points of the defence budget that will be spent on replacing Trident give far better value for money than the alternative of putting nuclear cruise missiles on Astute class submarines, as has been recommended by the Liberal Democrats, almost all of whom are unaccountably absent from the Chamber today?

My hon. Friend is a stalwart defender of this country’s nuclear deterrent. I applaud him for that and for the debate that he called on this subject at the end of last year. It remains to be seen what costings are attached to the alternative plans that our coalition partners may or may not publish in due course.

The majority of Scottish MPs at Westminster have voted against Trident renewal, just as the majority of Members of the Scottish Parliament have voted against Trident renewal, and just as the Scottish trade unions, the Scottish Council for Voluntary Organisations, every single faith group and the majority of public opinion are against Trident renewal. Why are the Government ignoring the democratic majority in Scotland and wasting billions of pounds on something that could never be used, rather than investing in conventional defence?

The hon. Gentleman should address his remarks to the workers of the Rosyth area and see how they feel about whether we should retain a nuclear deterrent in this country. Decisions about this country’s nuclear deterrent are made in this Parliament, as they were in 2007, and they will continue to be made here.

DNA Samples

3. What consideration he has given to routinely storing DNA samples for all members of the armed forces. (144303)

I congratulate my hon. Friend on taking a close interest in this matter. As the Minister responsible for defence personnel, veterans and welfare, my right hon. Friend the Member for Rayleigh and Wickford (Mr Francois), told him in November, it is MOD policy

“to offer all military, deployable MOD civilians and other entitled personnel the opportunity to provide reference samples suitable for DNA analysis.”—[Official Report, 26 November 2012; Vol. 554, c. 18.]

That is on entirely a voluntary basis, complies with the Human Tissue Act 2004, and is to enable identification post mortem if required.

The Minister may recall the case of my constituent Emma Hickman, who had difficulty in demonstrating paternity because of a dispute over the ownership of DNA. That case was resolved, and I thank him for his help in that, but we need routinely to require all active soldiers to have DNA taken so that, as in the case of armies such as that of the United States, samples can easily be made available. By what time scale might we do that?

The policy is under review, and it will certainly include reviewing practice in other countries, notably the US, where, as my hon. Friend says, there is mandatory testing on enlistment. That clearly needs to be within UK legislation, particularly the 2004 Act, and I anticipate the result of the current review being available in late spring.

Armed Forces Covenant

4. What steps he is taking to encourage other Government Departments to support the armed forces covenant. (144304)

As stated in December in the first formal annual report on the armed forces covenant, by enshrining the principles of the covenant in law and establishing a Cabinet-level Committee to oversee progress, we are embedding the covenant across Whitehall. The Cabinet Sub-Committee on the Armed Forces Covenant, led by my right hon. Friend the Minister for Government Policy, was formed in February 2012 to oversee the covenant programme of work and ensure that momentum is maintained. It provides a forum where Ministers can discuss the commitments owned by their Departments. It met four times in 2012 and has already met this year, a meeting that I attended.

I thank my right hon. Friend for that answer. What further work is being done to reinforce at local level the need to address veterans’ issues, for example through work with housing associations, many of which have tenants who are veterans, some of whom are in a vulnerable position?

More than 250 local authorities have now signed community covenants, and housing is one issue that is often covered in them; it is covered, I believe, under section 4 of the Swindon community covenant. If veterans have particular problems with housing, as well as contacting their local council and housing associations they can contact the Ministry of Defence’s veterans welfare service, which is part of the Service Personnel and Veterans Agency and can assist them with their inquiries.

The Government have been tested on how seriously they take the armed forces covenant by the issue of the bedroom tax, and they have failed that test. The right hon. Gentleman has finally admitted, in a letter to my hon. Friend the Member for Scunthorpe (Nic Dakin), that some armed forces families, including those of reservists, could be affected by the bedroom tax, but he does not know how many. Now that we know that some armed forces families will be punished by the bedroom tax, why does he think the families of prisoners and of students should have a year’s exemption, but not armed forces families?

It is believed that very few, if any, full-time service personnel will be affected by the new policy of the Department for Work and Pensions as the overwhelming majority will be living in service accommodation provided by the Ministry of Defence. I have met Lord Freud at the DWP to discuss the issue in detail, and we believe that the number of service personnel who will be affected, either regular or reserve, will be really quite small.

Service Personnel Families

We recognise that the mobile lifestyles of service personnel can create a particular difficulty for working partners who may have to give up their own jobs. The Government are committed to addressing such disadvantages, including through Jobcentre Plus armed forces champions to assist service families in finding employment, and through easier access to several Jobcentre Plus benefits and services, such as early access to the Work programme of the Department for Work and Pensions. However, we would like to do more. The new employment model that we are currently developing is intended to create a more stable family life, which in turn should help family members find work.

I spoke to a service wife this morning who told me that she and other wives at their base believe that they are at a real disadvantage when looking for work. They worry about saying what their husbands do, and even about giving their address. These are special people to whom we owe a debt of care. What more can we do to help them?

My hon. Friend raises an important issue, and the armed forces covenant report 2012 points out that for spouses and partners

“despite the generally difficult economic situation, we have seen increased levels of full time employment—from 34% in 2011 to 38% in 2012—and the number of partners reporting difficulty finding a job because of employment history has decreased from 25% in 2010 to 16% in 2012.”

In addition, the Government plan to make an announcement shortly on regular Army basing, which should help to provide greater stability in future for service families.

Has the Minister considered having a Jobcentre Plus at each service accommodation site to ensure that service families are not disconnected from the services they require to help them get back into work?

I understand the hon. Gentleman’s question, but we already have a network of armed forces champions in DWP districts and a number of jobcentres. We attempt to meet the requirement by doing things that way round, and we believe that it works.

Non-equipment Budget

The defence budget was set for this Parliament in the spending review conducted in 2010. As I have set out, the budget for financial year 2015-16 will be set in the current spending round, which is expected to conclude in the summer. The MOD’s planning assumption is that the non-equipment element of the budget, about 55% to 60% of the total, will grow in line with inflation—that is, will remain flat in real terms—over the 10-year planning horizon that the Department uses for budgeting purposes.

The National Audit Office has called into question the Secretary of State’s projections, and MOD analysis shows that capability gaps could arise in some areas, particularly the Army. Will the Secretary of State publish the analysis to which the NAO referred, and will he guarantee to all future, current and past members of the Army that their livelihoods will not be cut to pay for miscalculations within the Department?

I can tell the hon. Gentleman that we have right-sized the Army to the budgets we have available, and having taken tough decisions we are in the process of drawing the Army down to its future size of 82,000. That size will allow us to equip and protect properly our service men and women when we ask them to go out and do a very dangerous job on our behalf, and we believe that is the right approach.

Given that the National Audit Office did not confirm the affordability of the equipment plan, will the Secretary of State commit to publishing a more detailed summary of the plan with individual funding lines for individual programmes?

I remind the hon. Lady that the question is about the non-equipment defence budget. For the equipment budget we have published a plan that is more detailed than anything published previously, and certainly more detailed than any equipment plan published during the 13 years of the Labour Government. We have gone as far as we believe we can without compromising either national security or taxpayers’ commercial interests in negotiating with defence contractors, and I am afraid I cannot offer her any more detail than that already published without compromising those things.

Although Ministers rightly never comment on funding for our special forces, does my right hon. Friend agree that the current operational capability of our special forces, in terms of both equipment and manpower, is a huge national asset?

Our special forces are a huge national asset, and their capability has been expanded very substantially in response to the needs of Operation Herrick in Afghanistan. It follows that as we draw down from our operations in Afghanistan we will want to review some of the supporting infrastructure put in place for that specific operation. As my hon. Friend will know, however, the MOD never comments publicly on the details of special forces numbers, funding or disposition.

Last week I met trade union representatives from Defence Support Group Sealand who are obviously concerned about the future of the maintenance budget. What future plans does the Secretary of State have for the maintenance budget, and in particular on whether DSG might be privatised?

The current intention is that DSG will be privatised, and we are in the process of achieving that objective. On the equipment support budget, one important innovation—hon. Members might have thought that this was standard practice, but it has not been until now—is to ensure that no equipment is allowed into the programme for procurement unless we also clearly have a budget to support that equipment over the 10-year horizon to which we budget. Achieving that will ensure not only that our equipment will be first class, but that we can maintain it in first-class condition.

On an all-too-frequent basis, we hear of cyber-attacks on global businesses and Government Departments globally. Last month, the Select Committee on Defence published its report on defence and cyber-security, which appears to highlight a number of failings. Bearing in mind that cyber-security cuts right across the Government, does the Secretary of State recognise the need for even more investment in it? What percentage of any additional governmental spend will go to his budget?

Cyber-security is a cross-Government agenda led by the Cabinet Office, but the Ministry of Defence is heavily involved in the programme. The hon. Gentleman is right to draw attention to the increasing frequency and severity of attacks on industrial and civilian infrastructure targets not just in the UK but throughout the western world. The arrangements the Government have put in place for a quinquennial strategic defence and security review give us a framework within which to review our responses to cyber-threats and to make any adjustments in priority that we need to make for the next five-year period. The allocation of costs across Departments would be a matter for the next spending review.

Core Equipment Programme

Having established the core equipment programme in planning round 12, as I announced on 14 May 2012, we are now concentrating on delivering that core programme. We will, however, continue to keep under review candidate projects for inclusion in the core programme in the future, bearing in mind that we have £8 billion of uncommitted headroom in the programme. However, before we include any further projects, we will need to be satisfied, first, of the capability need and, secondly, that we have sufficient room within the budget to see projects through to completion and sustain them in operation. Thirdly, decisions will be required to meet proposed in-service dates.

The National Audit Office has identified a £12.5 billion black hole in the Department’s equipment plan. Will the Secretary of State say how he will fill that black hole?

We have done this one before. As I explained to the right hon. Member for East Renfrewshire (Mr Murphy), the £12.5 billion quoted by the NAO is a CAAS figure, based on its assessment of early summer 2012. In October, CAAS reported that it had downgraded its assessment of the contingency requirement to £4.4 billion, which is rather less than we have allocated in the budget.

This is my opportunity not to ask a question on the defence equipment programme that I believed I would have to ask for a fourth time at Defence questions, but instead to congratulate my right hon. Friend on the programme’s publication. What has been the reaction from industry and elsewhere to the welcome detailed information in the equipment plan, and to its clean bill of health from the NAO?

I am grateful to my hon. Friend, who is an aficionado of NAO reports. Anybody who reads NAO reports regularly will recognise that, in context, the report was supportive and favourable. However, it does not make us complacent—we still have a great deal of work to do. I can tell him that the response from industry has been favourable. I chaired a meeting of the defence suppliers forum the week before last, which commented favourably on the report and the guidance it gives in directing its investment in future capability.

In a written answer on 11 February to my hon. Friend the Member for Coventry South (Mr Cunningham), the Under-Secretary of State for Defence, the hon. Member for Ludlow (Mr Dunne), who has responsibility for defence equipment, said:

“This Government will not blindly pursue projects, ignoring new information about defence equipment acquisitions.”—[Official Report, 11 February 2013; Vol. 558, c. 442W.]

That is obviously vital in core programmes, but the Defence Committee report on defence acquisition suggested that that was exactly what the Government have done. It concluded that decisions were

“rushed and based upon incomplete and inaccurate policy development…and…without the MoD understanding how the change could be implemented.”

Was the Committee wrong to question the Government’s competence?

The reference that the hon. Lady cites is specifically to decisions made in 2010. We have received the Committee’s report, we are studying it very carefully and we will publish our response in due course.


Defence has committed an additional £1.8 billion investment over 10 years, starting last year, into the reserves, including for training, equipment and recruitment. Reservists will receive the kit and the challenging individual, collective and command training they need to enable them to contribute as part of a fully integrated force.

Army reserves will be trained and be able to routinely deploy at up to sub-unit level and, at times, unit level. This operational requirement will drive improvements in training and equipment, and provide sustainable command and development opportunities both for officers and other ranks. It will also reinforce unit ethos and identity. There will be more structured and focused training up to sub-unit level, and company level overseas training exercises have already started; these will increase in number significantly by 2015.

I thank the Minister for his answer. Is it wise to scrap regular battalions, such as 2RRF—2nd Battalion the Royal Regiment of Fusiliers—before our reservists are fully recruited and trained?

Many years ago, I served in the same regiment as my hon. Friend, and he raises a good point. Nobody would pretend that we wish to reduce the regular Army, but unfortunately we are in a dire financial position left by the last Government. We are quite confident that we will be able to recruit up to the 30,000 trained reserves that we want, and we are making good progress.

Timely and financially prudent training of reservists who will be able to deploy at short notice alongside regular personnel will require the Ministry of Defence to have accurate figures on how many reservists it has, how many it is recruiting on a monthly basis and how many will actually turn up for training. Will the Minister agree to supply, on a monthly basis, figures that show the number of new recruits to reservist forces?

I will not agree to do that on a monthly basis, because I do not think it is necessary. However, I will give the hon. Lady some figures. In 2000, under the last Government—whom she supported—the number in the Territorial Army was more than 40,000. We inherited approximately 25,000, and we are very hopeful that we will get the figure up to 30,000, which is what we want to see. The figures will be obvious and we will put them in the Library on a regular basis, but not monthly.

In the future, the Army’s composition will mean that it is more reliant on reservists, with more reservists being enrolled. In the interests of leading by example, how many civil servants in the Ministry of Defence will be called up as reservists?

It is not a question of calling people up, because all reservists, like all regular forces, are volunteers. However, we are encouraging people in the Ministry of Defence to join the reserves. My hon. Friend will know that, among others, the Lord Commissioner of Her Majesty’s Treasury, my hon. Friend the Member for Milton Keynes North (Mark Lancaster), is a reservist, and my hon. Friends the Members for Portsmouth North (Penny Mordaunt) and for Filton and Bradley Stoke (Jack Lopresti) have served on operations. We certainly believe in leading by example.

Aircraft Carrier Programme

While I am on my feet and with your indulgence, Mr Speaker, I wish to correct the impression that I may have given in answer to a previous question. The thousands of jobs in Scotland supporting the deterrent are, of course, in Faslane. The other thousands of jobs in Scotland supporting the construction of the QEII class of aircraft carrier—the subject of these questions—are at Rosyth.

There are now more than 30,000 tonnes of ship in the dock at Rosyth. The forward and aft island structures, containing the ship’s bridges, funnels and radar masts, will be fitted in the coming months, followed by the final hull and flight deck sections. The ship will be largely structurally complete by the end of this year and she will be floated off next year. Construction of HMS Prince of Wales is also well under way, with all the lower block units in build.

The Select Committee on Defence says that the coalition’s double U-turn on aircraft carriers has cost taxpayers £100 million-plus, and we face years without carrier capability. With Hull considering a bid for the decommissioned HMS Illustrious, is the Minister aware that even Hull might soon have one more aircraft carrier than the Royal Navy?

As the hon. Lady has heard already today, the National Audit Office criticised the previous Administration for introducing a delay to the aircraft carrier that cost the taxpayer £1.6 billion, so the Government will not take lessons on how to run a major procurement programme.

Will the Minister confirm that the Government’s plans on whether a second aircraft carrier will be deployed will be based on the unit cost of the joint strike fighter, which is still unknown due to budgetary uncertainty in America?

As the hon. Gentleman should know, decisions on the deployment of the second aircraft carrier will be made in the 2015 strategic defence review.

I welcome my hon. Friend’s commitment to this programme. Will he confirm that the aircraft carriers will be the largest in British history, and can I urge him not to let anyone put him off building them?

My hon. Friend is a redoubtable champion for all matters to do with the armed forces. He is aware that the 65,000 tonne aircraft carriers that will form the Queen Elizabeth class will be not only the largest aircraft carriers ever built in this country, but the largest naval ships ever built in this country.

Defence Estate (Bicester)

The Ministry of Defence continues to rationalise its estate and dispose of surplus sites such as RAF Bicester, where a preferred purchaser has been selected and disposal is expected to be completed by the end of the financial year. We have been preparing the Graven Hill site for disposal by submitting a planning application for new homes and commercial redevelopment.

I appreciate that a lot is happening with the MOD at Bicester, with surplus land being sold and investment in new logistics and new warehousing, which is good news, because it will mean new opportunities and new jobs. Will my right hon. Friend assure the House, however, that while all that is going on, he will ensure that the existing work force are kept properly informed about what is happening and what is being planned?

I agree with my hon. Friend that that is extremely important. I believe that we will do what he asks, and if we do not, I am sure he will bring it to our attention. Since I first went to the Ministry of Defence nearly three years ago, he has been a doughty exponent of the need for the development of commercial and residential estates on old MOD sites. I pay tribute to him for his work on behalf of his constituents.

Armed Forces (Gay People)

A wide range of support is available to lesbian, gay, bisexual and transgender members of the armed forces, including LGBT forums and an employee network site, Proud2Serve, which provides them with a key communication tool. In addition, all members of the armed forces are supported by a network of equality and diversity advisers, who are trained to provide support on a range of equality and diversity issues.

At the turn of the millennium, the previous Labour Government ended the ban on homosexual men, lesbians and transgender personnel serving in our armed forces. Given that only one of the Minister’s Defence colleagues voted in favour of equal marriage, can he explain what message he thinks that sends about this Government’s commitment to equality in our armed forces?

I remind the hon. Gentleman that that was a free vote. With regard to the other issue he raised, we intend to introduce an option for members of the armed forces to record their sexual orientation on our joint personnel administration system if they so wish. I take it that that is a change he would welcome. In the meantime, we have expanded our recruit trainee survey to give personnel the option of providing their sexual orientation if they wish to do so.

Defence Procurement

Reforming defence acquisition and support so that it provides the right equipment to our armed forces at the right time, while driving better value for money from the budget, is a key element of the defence transformation programme currently under way. This is one of my top priorities, which will reverse more than a decade of mismanagement by the Labour Government. Through the materiel strategy work, we have concluded that only significant reform will solve the problems that have for years beset defence procurement. We expect to make decisions on the next steps of that work soon.

Does the Minister agree that the need to ensure that the UK defence industry has encouragement and a sense of continuity is also important to the small and medium-sized businesses that supply the defence industries? What steps is he taking to ensure that they can play a major part?

In 2012, 40% of new contracts placed by the MOD were with small and medium-sized enterprises; they are at the heart of the innovation within the supply chain for defence contractors. My hon. Friend may be interested to know that next week I will be addressing an NDI conference in Manchester on the very subject of encouraging SMEs into the defence supply chain.

Please can the Minister tell me what knowledge he and his Department have of weapons procurement by the Syrian opposition funded by the Saudis and supported by the Americans?

Part-time Nuclear Deterrent

14. What assessment he has made of the credibility and effectiveness of a part-time nuclear deterrent. (144317)

As stated in the 2010 strategic defence and security review:

“The Government will maintain a continuous submarine-based deterrent and begin the work of replacing its existing submarines.”

A deterrent works only if it is credible and available. All the evidence points to a continuous at-sea deterrent, based on Trident, as the best way to deliver the UK’s deterrent effect. A part-time deterrent—for example, where we do not have a submarine permanently on patrol—would make us vulnerable to a pre-emptive strike, and the act of deploying the deterrent in a period of tension would risk escalation at a potentially critical moment.

One of the key elements of our nuclear deterrent has been its uninterrupted nature. Does the Minister agree that it is vital that we not only maintain that continuous deterrent, but refrain from conducting defence policy with an idealistic, flip-floppy, Lib Dem view of the world?

My hon. Friend draws me to make some disparaging comments before the by-election. I shall refrain from doing so, but I most certainly agree with him.

Topical Questions

I call Siobhain McDonagh. Not here—[Interruption.] We are never going to be troubled for any length of time, any more than the right hon. Member for South Leicestershire (Mr Robathan) is.

Our 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 MOD is mandated. The MOD is also engaged in a major project of transformation to bring about the behavioural change that is needed to maintain a balanced budget and to deliver equipment programmes, so that our armed forces can be confident of being properly equipped and trained. To deliver that project, we need to complete the rebasing of the Army from Germany, secure our target level of trained reserves and restructure the Defence Infrastructure Organisation and Defence Equipment and Support. In parallel with the defence transformation project, I am focused on the steps we need to take to restore confidence in the future to those who serve in the armed forces after a period of turbulence and uncertainty.

Why do the Government think it right that the pension age for firefighters in the defence fire and rescue service is to be aligned with the civil service pension age, rather than with the age for civilian firefighters, given that the job done by those serving in our defence services is no less dangerous, and certainly no less physically challenging, than that done by other firefighters?

Lord Newby has been leading negotiations on behalf of the Treasury as the Public Service Pensions Bill has gone through another place. We are now working with our colleagues in the Cabinet Office and the Treasury to understand the implications of the amendment made to the Bill in the House of Lords, which I believe is at the heart of the hon. Gentleman’s question. We are currently considering how to respond.

T3. My hon. Friend will be aware of recent problems caused by former military personnel accessing the MOD estate. Will he tell the House what measures he is going to implement to deal with this matter? (144328)

I am grateful for this opportunity to announce a comprehensive set of measures implemented in the MOD by the Secretary of State to ensure that both former and current employees are clear about the rules and restrictions on access.

For the first time, a list of all ex-MOD personnel who are subject to lobbying restrictions under the rules of the Advisory Committee for Business Appointments will be available for all MOD staff to see. The MOD permanent secretary has written to all former MOD personnel who are subject to business appointment restrictions to remind them of their duties under the advisory committee, and to the Association of Defence Suppliers to ensure that industry members are aware of the rules. Transparency measures have been radically increased, and since the review the permanent secretary has removed nearly 2,500 passes allowing access to the MOD’s main building to ensure that only members of staff who require regular access to the MOD are granted it. Passes that have not been used for 60 days have been disabled, and there will be an ongoing audit of those who are granted visitor passes.

When Ministers were last asked about the need to double the reserve force numbers, they dodged the question, instead talking about the increase in Territorial Army inquiries. Today we have heard from Ministers that they are hopeful that the policy will be a success. However, a policy that the country needs to be a success is being totally mishandled, with missed targets and too few businesses aware of the Government’s plans. Instead of talking about inquiries, will Ministers now place on record the fact that recruitment targets are being missed? Surely, in relation to this important issue, accepting that there is a problem would be the first step towards dealing with the problem.

Let me say to the right hon. Gentleman that the way in which we will not increase confidence in the Territorial Army, and will not increase reserve numbers, is arbitrarily cancelling its members’ training, cutting their kit and relegating them to the second division, which is what his party did in government. [Interruption.]

Order. The right hon. Member for East Renfrewshire (Mr Murphy) is assuming that there is an automatic link between what he says and what the Secretary of State says, which is itself the creation of a notable parliamentary precedent. However, it is not for the right hon. Gentleman to yell from a sedentary position. He asked the question; whether he likes the answer or not, he is getting an answer, and he owes the Secretary of State the courtesy of hearing it.

That is certainly not a precedent that I noticed during my 13 years of opposition.

Let me say this to the right hon. Gentleman. We know that we have set ourselves a substantial challenge in increasing the size of the Army reserve to 30,000. We have a number of measures in train, including a new recruiting campaign which started only 10 days ago. We expect to start to make significant progress this year. We will be publishing details of recruitment and retention figures, and as my right hon. Friend the Minister for the Armed Forces suggested earlier, we will do that periodically and regularly—not, I think, monthly, but probably on a quarterly basis.

T4. I understand that it costs about £14 million a year for HMS Bulwark’s sister ship, HMS Albion, to sit in Portsmouth doing not very much. Given the Prime Minister’s new-found enthusiasm for spending on our armed services, may I suggest that some of the money be used to put this wonderful ship to sea—if for no other reason than to help the Department for International Development? (144329)

The Prime Minister has always been enthusiastic in his support for defence, but as my hon. Friend knows, in October 2010, as part of SDSR 2010, we outlined plans to place one of our two landing platform dock vessels at extended readiness, while holding the other at high readiness for operations. HMS Albion entered a period of extended readiness in late 2011, and according to current plans will remain at Her Majesty’s naval base Devonport until her upkeep is completed in 2016. At that point, HMS Bulwark will go into extended readiness and HMS Albion will be placed at high readiness for operations.

T8. Bearing in mind what the Minister said about the military covenant and the Liberal Democrats’ 2010 campaign for a fair deal for our troops, will he now publish the impact assessment—which I am sure he undertook—of the effect of the bedroom tax on the armed forces, and the actual numbers affected? (144333)

I have to say to the hon. Lady that I believe that she and some of her parliamentary colleagues are becoming over-excited about this. We have discussed it with the Department for Work and Pensions, and we believe that a very small number of service personnel will be affected, but we will continue to keep the matter under review.

T5. Since 1990, the Army has been reduced by about 40%, but officer numbers are down by less than 30%. Indeed, there are more colonels now than there were then. Is there more that we can do to ensure that the cuts are proportionate? (144330)

We are committed to reducing—and, indeed, are reducing— the star count in the Ministry of Defence by 25%, which means those with the rank of brigadier and above. It is true that the number of colonels is higher than in 1990, but it has fallen by 80 since 1 April 2010, and some of the jobs that those officers do are specific to NATO or to defence engagements. For instance, some are defence attachés. We need all those jobs, and that is why we employ those people. However, my hon. Friend has raised a very good point.

T9. The Minister for defence personnel will know that for the past two months I have been trying to secure a meeting with him to discuss the financial losses faced by Army officers who are being made redundant shortly before their immediate pension point. To date, he has not agreed to such a meeting. Will he do so today? If not, can he tell me how members of our armed forces should raise their concerns with this Government about broken promises on their conditions of service? (144335)

I recently wrote back to the hon. Lady on this precise subject. I hope she has received the letter—she is nodding, and says that she has. I have also written to Ms Jayne Bullock, who wrote to me originally, and to a number of other servicemen’s wives who have campaigned on the matter. I remind the hon. Lady and others who support the so-called taper model, which a number of people have argued for, that we used that model for redundancies up to 2005-06, when the previous Government abandoned it.

T6. Last year, with colleagues, I visited the British peace support team in Nairobi. Does the Secretary of State agree that the valuable work it does at the international mine action training centre and in training peacekeepers from the east African armed forces plays a vital role in helping to bring about the stability that is essential to economic, social and political development? (144331)

I certainly agree with my hon. Friend and pay tribute to the work done by the team, which, as the House will note, is broadly in peacekeeping, ending conflict and mine clearance. We should all pay tribute to that work and we very much value our defence engagement in Kenya.

Will the Secretary of State tell the House how many jobs will be lost at Faslane nuclear base if Scotland separates from the United Kingdom?

As the House will know, the Government are confident that the Scottish people will decide in the referendum that the benefits of union far outweigh anything else on offer and will make the right decision. The hon. Gentleman is right to observe that significant numbers of jobs, not just in the immediate vicinity but across the whole of the west of Scotland—thousands of jobs—depend on the operation at Faslane. When I was last at the base, I made a specific inquiry about the geographical location of workers. People come to the base daily from the east coast, so such a change would affect the whole central area of Scotland.

T7. Constituents of mine, including Councillor Jenny Purcell, have raised with me the worrying case of soldier Harry Killick, who suffers from post-traumatic stress and has received recent press coverage. What steps is my right hon. Friend taking to provide support for personnel with post-traumatic stress disorder, such as Harry? (144332)

The case of Corporal Killick is still before the court, with sentencing deferred pending advice on his mental health. I hope that the House will appreciate that it would therefore not be appropriate for me to comment further today. However, in general terms, when on operational deployment members of the reserve forces, such as Corporal Killick, have access to the same extensive range of mental health counselling and treatment as their regular colleagues, including access to mental health professionals in theatre and treatment in military-run departments of community mental health, if necessary. This issue is a priority for the Government, who have invested £7.2 million in it.

In response to my hon. Friend the Member for Gateshead (Ian Mearns), the Secretary of State said that he had “right-sized” the Army in line with the defence budget. How would he rebut the suggestion that that sounds like the strategic defence review was not strategic but budget-driven?

It sounds like a Government who are rejecting the previous Government’s policy of sending people out to do a dangerous job without the kit, equipment and support that they need and deserve. We have a moral obligation not to put people in harm’s way unless they are properly equipped, and setting the size of the armed forces at a level the taxpayer can afford to support and equip properly is the morally correct and appropriate thing to do.

I would like to ask the Secretary of State whether it is the case that when service personnel are accused of breaking the law their pay is stopped with immediate effect, which can cause real hardship to service families who are left unable to meet the costs of rent, bills and food, as well as of independent legal advice. If that is so, what is the justification for that and will he review the situation?

The hon. Lady raises a very important point, but I am pretty certain that that is not the case, although I will write to her if it turns out that I am wrong. Nobody has their pay stopped until and if they are convicted of a criminal offence or at a court martial. If I am wrong I will let her know.

Products from Belted Galloway beef cattle reared and slaughtered on the Falkland Islands travel 30 miles to the NAAFI shop at Mount Pleasant. To be used in the kitchens, I am told by the Falkland Islands Government, the beef travels 8,000 miles back to the United Kingdom, is rebagged and goes back. Is that smart procurement?

Food for our armed forces on operations, including in the Falklands, is supplied under a contract with Purple Foodservice, which undertakes supply to our forces wherever they are stationed. The hon. Gentleman raises an interesting point and I will look specifically, and write to him, as to whether there is any possibility of shortening procurement lines for beef in the Falklands.

In Portsmouth and the surrounding area, we have world-leading maritime infrastructure, including dockyards, port facilities, marinas, protected and controlled waters, Europe’s largest hydrodynamic tank and a host of high-end maritime electronics system design and integration facilities. As well as maintaining the 200,000 tonnes of warship that will soon be in the harbour, ought we not to be capitalising on those assets too?

My hon. Friend is right to highlight the wide range of world-class defence-based skills around the maritime industry in Portsmouth. We will continue to capitalise on the capabilities offered around Her Majesty’s naval base, providing vital defence jobs for thousands in Portsmouth and the surrounding area, including along the M27 in Eastleigh.

Given the earlier answer about equipment for our armed forces and given the plight of the remaining Remploy factories, will the Minister use his good offices to ensure that Remploy factories are the first preference for providing equipment and other procurement within the remit? The Remploy factory in my constituency has a long-standing relationship with the MOD, and if the MOD would commit to continue it, the factory may—just may—be secure.

The Ministry of Defence does not give long-standing commitments for any individual sources of supply; they need to be competitively tendered. But I will be happy to look at the point the hon. Gentleman raised, if he writes to me with details.

My hon. Friend has worked hard on the award of the Arctic Convoy Star medal to veterans of the second world war Artic convoys. He will appreciate that time is of the essence, so will he pledge to complete the necessary processes as soon as possible so that the remaining Arctic convoy veterans can receive their hard and bravely earned recognition?

I thank my hon. Friend for that pertinent question. I am pleased to tell the House that since the Prime Minister’s announcement, considerable progress has been made on the introduction of the Arctic star. I hope to make an announcement very shortly on the design, eligibility criteria and application process for the new award. Similarly, I hope to make an announcement about the Bomber Command class at the same time. Both categories of men served their country with great distinction and it is right that we recognise them.

Economic Policy

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on the UK Government’s economic policy following the loss of Britain’s triple A credit rating.

This rating decision is a stark reminder of the debt problems built up in Britain over the last decade, and a warning to anyone who thinks we can run away from dealing with those problems. We on the Government side of the House will not do that.

I can report that we have not seen excessive volatility in the markets today. Ten-year Government gilts are broadly flat—trading at 2.1%—within the trading range of the last week, and near the very lowest rates of borrowing in our history. The FTSE 100 is currently up.

The credit rating is an important benchmark for any country, but this Government’s economic policy is tested day in, day out in the markets, and it has not been found wanting today. Families and businesses see the benefit of that in these very low interest rates.

If we accept the outcome of the rating agency’s decision, we must accept the reasons given for that decision. Moody’s points to the combined impact of what it describes as

“slow growth of the global economy”

and the necessary

“domestic public- and private-sector deleveraging process”—

in other words, the process of winding down the huge debts that built up in our society over the last decade. That is the environment that we are operating in. We are dealing with the very high deficit and debt trajectory that this country had, coming out of the financial crisis, and that was made more difficult by the economic environment abroad.

On the same day as the rating decision, the latest European forecasts showed the eurozone deep in recession, and weaker growth than ours in key economies such as France and Germany. Crucially, Moody’s says that the UK’s creditworthiness remains extremely high because of our

“highly competitive, well-diversified economy”

and a

“strong track record of fiscal consolidation”—

what it calls the “political will” to “reverse the…debt trajectory.” Its message to this Government and this Parliament is explicit: the UK’s rating could be downgraded further if there is a

“reduced political commitment to fiscal consolidation.”

Hon. Members will not get that reduced commitment from this Government. We will go on delivering on the economic plan that has brought the deficit down by a quarter, that has helped to secure 1 million private sector jobs, and that continues to secure very low interest rates, not just for the Government, but for families and businesses in this country.

Ultimately, that is the choice for Britain. We can either abandon our efforts to deal with our debt problems, and make a difficult situation very much worse, or we can redouble our efforts to overcome our debts, make sure that this country can earn its way in the world, and provide for our children a very much brighter economic situation than the one we inherited from our predecessors. That is what I will do, and what this Government will do.

The downgrading of Britain’s credit rating is, in the Chancellor’s own words, a “humiliation” for this Government. Let me remind the House what he promised at the general election. He said:

“the British people will have eight clear and transparent benchmarks against which they can judge the economic success or failure of the next government”.

Point 1 says:

“We will safeguard Britain’s credit rating”.

The first economic test he set himself has been failed by this downgraded Chancellor. Yet as we have seen today, he remains in complete denial, offering more of the same failing medicine, even though Moody’s now agrees that “sluggish” growth is the main problem. Does he not now regret using the rating agencies as cover for his accelerated tax rises and spending cuts—an economic course he was warned was bound to fail?

The plan has failed. Businesses, families and pensioners are struggling. Our economy has flatlined, and as a result, Government borrowing is set to be £212 billion higher than the Chancellor planned, but despite all that, he spent the last year saying, “I must stick to my plan to keep the triple A rating.” Now that it is clear that his warnings of disaster—of rising mortgage rates and market mayhem—if we downgraded have not come true, what other excuse does he have for sticking to the plan? Over a weekend, he went from saying that he must stick to his plan to avoid a downgrade to saying that the downgrade is the reason why he must stick to the plan. He used to say that a downgrade would be a disaster; today he says it does not matter, but he still warns that a downgrade in future might be a problem—until it comes along; then he will have the same excuses. It is utterly baffling and completely illogical. He is just making it up as he goes along.

No wonder the Chancellor is now besieged by calls from right, left and centre to kick-start the recovery with infrastructure investment and tax cuts. Even the economic adviser to his great political rival, the Mayor of London, has today called for

“more spending by the Government on infrastructure and construction.”

In conclusion, the Chancellor needs to get out of his denial and get a new plan on growth, jobs and the deficit that will work, or else the Prime Minister will need to get a new Chancellor. Does the Chancellor not see that it is his first duty not to put his own political pride first, but to put the national economic interest and families and businesses in this country first?

The shadow Chancellor finds himself in the contradictory position of seeking an urgent question on a rating decision which he says we should ignore, about a debt burden that he admits he would add to, in order to attack a Government who are sorting out the mess that he created. What exactly is his policy? Six times on the radio he was asked this weekend whether the answer to too much borrowing is to borrow even more, and he would not answer the question. It is an economic policy that dare not speak its name, from a shadow Chancellor who refuses to be straight with the British people. Finally, he was confronted on the radio by the simple statement:

“I, Ed Balls…would borrow more”

and he admitted,

“Yes, that is what I would do.”

Does not that admission completely undermine his entire argument today? A deliberate decision to borrow more—[Interruption.]

Order. Government Back Benchers, whatever their intentions, are in danger of shouting down their own Chancellor. Mrs Perry, calm yourself. There is always another day.

Government Back Benchers are as baffled as I am by the shadow Chancellor’s economic policy, which he has just had a few minutes to explain and still there is no explanation. His answer to a debt crisis is to borrow more. His answer to too much borrowing is to add to it. That is the problem he has, ultimately—that he is responsible for the mistakes that got Britain into this economic mess. This is the verdict from the leading Citi economist, Michael Saunders, today:

“In our view, the underlying causes of the UK economy’s weakness—and hence the rating downgrade—stem from the surge in private credit and public spending during 2000-2007.”

Who was in charge of economic policy during that period? The right hon. Gentleman is the architect of the mistakes that gave Britain its debt problem. He ignores the solution to that debt problem. He is condemned to repeat those mistakes and, as a result, his party is condemned never to be trusted with the public finances again.

The truth is that any Government would need a credible deficit reduction plan, and the plain fact is that the markets are telling us we have one. Does the Chancellor agree with the shadow Chancellor, though, as he pointed out only the day before yesterday, that what the rating agencies have to tell us, given their dismal forecasting record, is of very limited value?

I would say that the credit rating agencies are important, but they are one test—[Interruption.] It is the shadow Chancellor who wants to say that the rating agency’s decision is not important, but we should still have a debate on it in Parliament. It is a completely contradictory position. It is important, but it is just one test of the Government’s economic credibility in the markets, and that is tested by the gilt yields, by the value of sterling, by the rates of the stock market and all sorts of other things, and as I say, today we have not seen excessive volatility. I say to the shadow Chancellor and to my hon. Friend and the Treasury Committee that we have to convince the world that we can pay our way in the world, and that is what this Government are going to do.

If the Chancellor did not want this to be the test, he should not have set it up to be the test. Does he agree with himself that for the UK to lose its triple A rating would be a humiliation?

What would be humiliating is if this country lost control of its economic destiny. The way we keep control of our economic destiny is deal with our debt, deal with the imbalances in our economy, and make sure that this country can pay its way in the world, and that is what this Government are doing.

Does my right hon. Friend agree that the shadow Chancellor would himself get a triple A rating for his skill in running this country down? Does he also agree that the hard-working people of this country are getting—[Interruption.]

Order. The hon. Member for Burnley (Mr Birtwistle) should resume his seat. I must say to Members that I am trying to ascertain whether the question is in order; it might or might not be, but it is very difficult to hear. I can make a judgment only if I can hear it, and that means Members need to stop shrieking. Let us hear the hon. Member for Burnley and see whether he is in order.

Thank you, Mr Speaker. I am sure that you will find that it is totally in order. Does my right hon. Friend agree with the rest of the people that they are getting sick and tired of the shadow Chancellor’s politically motivated antics?

I am bound to tell the hon. Member for Burnley that I am always very grateful to him for his advice, but I think that on the whole I can probably get by without it, and only by a very generous interpretation—I am in a generous mood—could that be considered to be in order, but I will happily have the Chancellor briefly respond.

My hon. Friend is right that what is completely extraordinary is that we have constant criticism from the shadow Chancellor of our fiscal policy but not a clue from him about what he would do except add to borrowing. He has made it very clear that he would add to borrowing, although he has not said by how much, and he has not said which of the cuts he would stick with and which he would oppose, so until we have a credible alternative, we will not have a credible shadow Chancellor.

The Chancellor, having abandoned the triple A rating as a benchmark, appears to have adopted the claim that he has created 1 million private sector jobs. Will he tell us how many of those jobs have in fact been transferred to the private sector, or franchised out to it, from the public sector?

Private sector employment is up by 1 million since the election, the unemployment rate is lower than when we came into office, female employment is at the highest level in our history and the inactivity rate is at its lowest since 1991, so even though there has been a necessary reduction in public sector jobs, which I think even the Opposition accept had to happen—at least, they used to—we have actually seen very healthy jobs growth in the economy.

Does the Chancellor agree that the state balance sheet would look an awful lot better, and that the economy would function better, if RBS was sorted out more quickly and sold back to the private sector in a way that promoted banking competition?

I agree with my right hon. Friend. RBS is now pursuing a policy of becoming a much more UK-focused bank than it was under the strategy we inherited. We are absolutely clear that it should not be in the universal banking business on the scale that it has been and that the investment bank should be supporting its corporate and retail business in the UK, and it has made important steps in that direction.

Will the Chancellor confirm that in the five years of this Tory-led Government he will borrow more than the previous Labour Government borrowed in 13 years?

Let me explain something to the hon. Gentleman. We inherited a 12% budget deficit, and the deficit is defined as the amount added to the debt every year. We are getting the deficit down in order to deal with the debt problem. His plan is to increase the deficit deliberately, borrow even more, add to the debt burden and repeat all the mistakes made by his colleagues when they were in charge.

Between the mid 1990s and 2010, the nation’s total indebtedness grew from two to five times the national income. The shadow chancellor and the Leader of the Opposition, who came to Bedford two weeks ago to advise that the country should borrow £200 billion more, were architects and supporters of a policy of indebting our children and grandchildren. Will my right hon. Friend tell me what the implications for the country’s credit rating would be if the Opposition’s policies were pursued today?

We are debating the decision of Moody’s credit rating agency, which said in its market notice on Friday that reduced political commitment to fiscal consolidation could lead to further downgrades of the United Kingdom. That is the verdict of the ratings agency. The verdict of the Institute for Fiscal Studies, an independent body, is that Labour plans would add about £200 billion extra to borrowing. That is the view of independent bodies about the Labour party’s economic policy.

Is the Chancellor aware that the whole country is getting progressively more sick of the mantra that there is no alternative, which he parades as a policy, and that for as long as he perseveres with these counter-productive policies there is no hope? In particular, until he can get his national programme for investment in infrastructure under way—even the director general of the CBI said that he had totally failed to deliver on that, and the whole country and the whole House agrees—he is failing as a Chancellor.

Infrastructure spending—actual money being spent on infrastructure—is higher in this Parliament than it was in the previous Parliament. That is, I am afraid, the simple fact produced and audited by the independent Office for Budget Responsibility. We have increased capital spending compared with the plans that we inherited, and under this Government in this Parliament it is higher as a percentage of GDP than under the previous Labour Government. That is what has happened.

Does my right hon. Friend agree that it is going to take slightly longer than two and a half years to sort out a problem that was 13 years in the making?

My hon. Friend puts it very simply. It is a bit like the arsonist calling the fire brigade and then complaining that we have not put the fire out quickly enough.

Does not the Chancellor realise that it has been three years of continuous failure: first, a recession, then a double-dip recession, and now the relegation of the pound sterling? If he had been a football manager he would have been out on his neck already. The people think that he is not fit to deliver the next Budget—why does he not get out?

There seems to be amnesia about Labour’s 13 years in office. The hon. Gentleman talks about a double-dip recession. The first recession was a 6% contraction in our economic activity while he was supporting a Labour Government, with a 12% budget deficit, a higher rate of unemployment and more youth unemployment than we have today. We are sorting out these problems. Of course it takes time, but, frankly, the prescription of the hon. Gentleman and other Labour Members would put us right back in the mess that they left this Government with.

Does the Chancellor agree that the only two countries that have maintained their triple A credit rating across the board—Canada and Germany—are the two countries that fixed the roof while the sun was shining?

My hon. Friend is absolutely right. Germany and Canada went into the financial crisis with the two lowest structural deficits of the G7, and the United Kingdom went into the financial crisis with the highest structural deficit in the G7—5%. That was confirmed recently by the International Monetary Fund. I think that, quite extraordinarily, the only person in Britain who still denies that we had a structural deficit is the shadow Chancellor. The former Chancellor accepts it and the former Prime Minister, Tony Blair, accepts it; only the shadow Chancellor does not accept it. He cannot accept it because that would mean admitting he got it wrong, and if he admitted he got it wrong, people would not put him in charge again.

It is suggested that to establish economic credibility we need more growth in the economy, yet—since the Chancellor seems to be quoting former Chancellors—a former Conservative Chancellor said that it will be years before we re-establish proper growth in the economy. How is the Chancellor going to re-establish his credibility?

As I said, the credibility of the Government’s economic policy is tested every day in the markets, and we are borrowing at record low interest rates. As I have said many times, the idea that the problems we inherited could be solved overnight was patently ludicrous. They are some of the worst economic problems that any incoming Government have ever faced in British political history. We are dealing with those problems. The deficit is down by a quarter, 1 million jobs have been created in the private sector, and interest rates remain very low. That is the test of the success of our policy.

I shall be calm, Mr Speaker. Will the Chancellor confirm that two other major rating agencies still maintain Britain’s triple A credit rating and that the credit default swap rate—another measure of default risk—is at 51 basis points today, one of the lowest levels in the world?

My hon. Friend is right about the credit default swap rate. As I have said, the credibility of our policies is tested every week when we have to borrow all this money to pay for Labour’s deficit, and we are borrowing it at record low rates.

Would not the honourable course be for the Chancellor to say at the next Cabinet meeting, “I’m going outside and I may be some time”?

The problem with the hon. Gentleman is that he is pretty free with his calls for people to go. The last person he called on to go was the shadow Chancellor.

Is it not correct that even before the crisis struck we had pretty much the biggest structural deficit in the world as a consequence of the previous Government’s policies? It is no wonder that we have been losing ground to economies such as those of India and China. It is only if we stick to our guns that we will sort out our position to become increasingly internationally competitive with other economies.

My hon. Friend is right. The UK had the highest structural deficit of the G7 going into the financial crisis. That was confirmed by the IMF just before Christmas. He is also right about our trade patterns. When this Government came to office we were exporting more to Ireland than to the BRIC countries—Brazil, Russia, India and China—combined. We are seeking to expand our trade with those countries and it has been going up markedly. I think there has been an almost 100% increase in our trade with China and, of course, the Prime Minister led a high-powered business delegation to India only last week.

Will the Chancellor remind the House and the country how many billions of pounds his Government have borrowed since he came to office?

We borrow money because we are running a deficit and we are trying to get it down from the 11.5% that we inherited. The deficit has actually come down by a quarter over the past couple of years.

Evidence suggests that this downgrade will have little effect in the actual markets. May I also suggest to the Chancellor that small business corporation tax cuts will bring their own reward over the medium term? [Interruption.]

I think that someone on the Opposition Benches shouted from a sedentary position, “Tax cuts for the rich,” when my hon. Friend was suggesting tax cuts for small businesses. That tells us everything about the Labour party’s attitude to enterprise. We have reduced the small companies rate, which was due to go up to 22% under the plans we inherited. It is now 20% and, as from the beginning of this year, we have had a tenfold increase in the annual investment allowance to help small businesses.

Who does the Chancellor think has been the most humiliated in the eyes of the public—the credit rating agencies that gave triple A ratings to junk investments and therefore helped cause the financial crisis, or the Chancellor, who staked everything on the same triple A rating and then lost it?

Unfortunately the hon. Lady’s list did not include the shadow Chancellor, so I cannot give her an answer.

I can guarantee that in the Dog and Duck in Wellingborough they will not be talking about Moody’s. They might be talking about the lowest council tax in the country or the thousands of homes to be built in Wellingborough East, but does the Chancellor agree that they are most likely to be discussing the 2,000 new jobs that will be created by the Skew Bridge development, which will bring leisure and retail facilities to my town?

I think they will be talking about the new jobs being created at Skew Bridge and those being created across our economy as the private sector grows. I was in the west midlands on Friday, where I think there has been a 67,000 increase in jobs in the private sector over the past year. That is worth remembering, because the number of jobs in the private sector in the west midlands during the boom years before the financial crisis actually shrank under the previous Labour Government.

The Chancellor began by saying that the gilts market had been flat today, but in fact it is down across the board. Will he share with the House his changed forecast for inflation following the fall in the pound and for the cost of borrowing to the Government?

Unless something happened while the shadow Chancellor was on his feet, the gilts market was flat on the day.

The shadow Chancellor has admitted that his plan is to borrow even more. Although the Chancellor has a tough shift sorting out the disaster of Labour’s economic legacy, is he not glad that it is our shift when he stares at the car crash of an alternative opposite him?

We have inherited a very tough economic situation from our predecessors, but we have confronted the problem and taken difficult decisions on spending. What is remarkable about the Labour party is that in all its questions at Treasury questions, Prime Minister’s questions and the like, it complains about every cut, but never tells us about a single cut that it supports. That is why it does not have a credible shadow Chancellor or a credible economic policy.

In 2011, the Conservative party issued a dossier that said that a credit rating downgrade

“could add £5,000 per year to a family’s mortgage interest bill”.

Does the Chancellor stand by that laughable remark?

We are very clear that if we lost control of the country’s credibility in the international markets, as Labour would, interest rates would go up and families would pay more. The truth is that because of the credibility of our economic policy, interest rates are low and have stayed low today.

I wonder whether I may remind the Chancellor that Standard & Poor’s is facing proceedings from the United States Government for fraud and that Moody’s is likely to follow? Moody’s has just downgraded a country whose debt is all denominated in its own currency, which is a fiat currency. That is absolutely nonsensical. Will he therefore join me in citing Lord Chesterfield and telling them that they are foolish people who do not even know their own foolish business?

I think that it was Lord Chesterfield who provided advice to his son in that famous book, and I am sure that the advice included, “Don’t spend more than you’ve got.”

The Chancellor seems determined to follow in the footsteps of his illustrious predecessor, Lord Lamont, who, following our ignominious expulsion from the exchange rate mechanism in 1992, famously had a bath and sang, “Je ne regrette rien”. Does the Chancellor have any plans to have a bath tonight and what song does he plan to sing? May I suggest, “Help!”?

We are dealing with the problems that we inherited. Given the situation that we inherited, I think we can say, “Things can only get better”.

At the export for growth summit in east Lancashire, I spoke to world-class engineering businesses that are interested in borrowing to invest in their businesses so that they can grow and sell to the global market. Will the Chancellor confirm that he will stick to his plan and keep interest rates at a record low so that we can create more jobs in east Lancashire?

My hon. Friend is a powerful champion of businesses in his constituency and has spoken to me about what they need. He is absolutely right. Of course we want to get credit to businesses that want to expand and take people on. That is why we run the funding for lending scheme with the Bank of England. We have also provided additional annual investment allowances in the way that I have just set out. The reaction of business organisations to the news of the last couple of days has been striking: they have absolutely supported the Government’s determination to deal with our debts.

May I congratulate Swansea City on its triple A rating after winning the league cup? At the same time, the Chancellor is fouling up the economy and has caused a penalty that has lost us the triple A rating. He should be focusing on a growth strategy and should not be cutting the poorest hardest, given that they spend the most.

Of course, I congratulate Swansea on its victory in the Capital One cup.

We have to take difficult decisions on things like welfare, but we are helping people to have incentives to be in work, helping people who are in work and supporting people by, for example, increasing the personal allowance and taking the lowest-paid out of tax altogether. I would hope that the hon. Gentleman supports that.

The Chancellor has rightly drawn attention to the effect of deleveraging. May I remind him that the average leverage ratio for the banks in the 40 years between 1960 and 2000 was 20 times, and that between 2000 and 2007 it rose to 50 times? Will he remind us which party was in government at that time and who was the Minister for the City?

We are now looking, through the Basel agreement, at a leverage ratio as a back-stop to regulation in this country, and of course we have the Financial Services (Banking Reform) Bill coming through Parliament better to protect and regulate our financial services. My hon. Friend is quite right to remind us of who was the City Minister when the City blew up.

In February 2010, the Chancellor asked:

“What investor is going to come to the UK when they fear a downgrade of our credit rating?”

What I and my constituents want to know is this: does he still think that a downgrade will drive investors away, and if not, what has changed?

I am very clear, and was clear then, that the test of the Government’s economic credibility is out there in the markets with the interest rates that we can charge and in the corporate tax environment and the general competitiveness of the economy that we offer. Since I made those statements, this country has actually become more competitive and climbed up the league tables of international competitiveness. There was a survey last week on business tax, which said that this country had gone from being one of the least competitive business tax regimes in the world to being one of the most competitive.

Will my right hon. Friend reassure the House that he has no plans to balkanise the responsibility for regulating banks, that he will not sell off half our gold at a knock-down price and that he is not going to let our deficit rip?

I can assure my hon. Friend that we are not going to repeat the mistakes of the last Labour Government. We are absolutely clear, when it comes to regulating the City and banking—I am about to give evidence to the Banking Commission—that we are taking the tough action. [Interruption.] The right hon. Member for Morley and Outwood (Ed Balls) says “Pathetic”, but he was the City Minister when the Royal Bank of Scotland bought ABN-AMRO and when Northern Rock was offering 125% mortgages. He was the City Minister when the City got completely out of control, and he should get up and apologise for it.

In May last year, the Chancellor said that when Britain’s outlook was moved off negative, it demonstrated that the country now had economic stability. Now that it is being downgraded, would he like to give his assessment of our economic stability?

I know that Labour MPs keep reading out the Whips’ note, but perhaps the Whips will also circulate a note on what Labour’s economic policy is, and then we can have a more constructive debate.

Does the Chancellor agree that the reason he inherited such a big deficit was that the last Government had overspent, rather than that we were under-taxed? Is growth not sluggish because the tax burden is higher now than the one that he inherited, and is the deficit not higher than it should be because spending is higher than the level that he inherited? Is it not about time that we had some proper spending cuts and some proper tax cuts to put money in people’s pockets and get some growth into the economy?

We have further difficult decisions on spending to take this year to set the spending round for 2015-16. I know that my hon. Friend has always been consistent in supporting all the difficult spending decisions, so I look forward to that consistent support in the years ahead.

Over the weekend, the Labour and Tory Better Together no campaign was giving out leaflets to the effect that an independent Scotland would never, ever secure the triple A rating of the UK, just as the UK was losing that triple A rating. Does the Chancellor agree that his nonsensical economic scaremongering about an independent Scotland has totally failed, and that his credibility and that of the no campaign is nothing other than a treble Z?

If the SNP is to persuade the Scottish people to vote for independence, it must address fundamental economic questions that it has been unable to answer about the currency it would use and the fiscal agreement it would seek should it want to use the pound with the rest of the United Kingdom. There are also fundamental questions about the financial services industry based in Scotland. I remind the hon. Gentleman that the Royal Bank of Scotland is headquartered in Scotland. The SNP is simply unable to answer those questions at the moment, and as a result I think people doubt the case it is making for independence.

Does the Chancellor agree that rather than sneering at private sector job creation, we should welcome the fact that 1 million new jobs have been created since the general election? Will he assure me, the House and the markets that, in framing the coalition’s economic policy, he will continue to listen—and indeed listen significantly more—to those who run such businesses and who are taking on new employees, rather than to those on the Opposition Front Bench who landed us in this mess?

I agree with my hon. Friend and we should listen to the demands of the business community. It wants a more competitive business tax regime and additional help with investment, which we are providing. It wants essential economic infrastructure that was not provided over the past 15 years, and we are providing that. It wants a lighter regulatory regime, and we are providing that for small businesses. My hon. Friend is right: businesses large and small are the engine of growth in our economy, and it is welcome that there have been 1 million private sector jobs since the election.

The Chancellor has been noticeably more comfortable this afternoon looking backwards rather than forwards. Will he please tell the House his estimate for the likely impact of recent events on the sterling exchange rate, and what the implications will be for inflation?

I do not comment on the level of sterling. The G7, which the UK chairs at the moment, issued a clear statement that we are not targeting an exchange rate and that the exchange rate flows from the economic policies that we pursue at home to improve our domestic economies.

Does my right hon. Friend agree that for the Labour party to have any fiscal credibility it should just say sorry—sorry for the debt, sorry for the deficit, and sorry for the pain it has caused my constituents?

My hon. Friend puts the point powerfully and until we hear that apology from the shadow Chancellor, frankly he will not have the credibility to offer an alternative.

The Chancellor’s message to my constituents seems to be that things are only getting worse. Will he lead by example and inform the House what personal sacrifices he will have to make as a result of this downgrade?

My message to all families is that in the markets interest rates remain low and have remained low today. That is the credibility test for the Government’s economic policy, and as I say, for families paying a mortgage or businesses with a business loan, that is crucial.