Tuesday 21 February 2017
[Andrew Rosindell in the Chair]
A Better Defence Estate Strategy
I beg to move,
That this House has considered A Better Defence Estate strategy.
In November last year, it was announced that 91 military bases across the country would close. That represents a 30% reduction in the Ministry of Defence estate. The announcement was part of the “A Better Defence Estate” strategy, and closure dates for bases ranged from 2017 to 2032.
One of the barracks earmarked for closure in 2027 is Invicta Park barracks in Maidstone, in my constituency. The Government argue that their aim is to improve military capability and rationalise the estate. Of course, those goals are well understood. We are told that decisions have been taken based on military advice and extensive engagement. I have serious concerns relating to the nature and extent of the advice and engagement, and to the lack of information regarding costs, benefits and environmental safety. I would like the Minister to provide further details when he speaks, but today I want to focus most of my time on the extremely negative impact that the decision will have if it goes ahead.
First, site closure will affect thousands of service and civilian personnel and their families, who still do not know what it means for them. Will they need to commute further, move house, or move their children from schools? Will they have a job at the end of it all? That uncertainty washes over everyone in the family. It also impacts socially and economically on local communities. Businesses, schools and places of worship will all be affected by the departure of those people. There will be a loss of military heritage, and of support and connection with towns and counties around the country. Many of these connections span hundreds of years, and are the source of the close bond between our armed forces and communities.
There will also be a reduced ability for the military to recruit and retain the best service personnel at a time when recruitment and retention figures for regulars and reserves are especially worrying. The increased uncertainty, coupled with wives and families being moved from vibrant and popular towns such as Maidstone and York to isolated “super-bases” such as Catterick and Salisbury Plain, will have an adverse effect. Some even feel that the Government have simply got the policy wrong in terms of military capability and effectiveness. Indeed, Lieutenant Colonel Brian Awford, who is now retired but who was a commanding officer at Invicta Park barracks, believes that:
“The decision to close Invicta Park Barracks is unsound. It will be a negative step for the army”.
Large garrisons with many shared facilities will become the norm. They will be separated from local populations and distant from specialist training bases. There will be no jobs for wives and no girlfriends for soldiers. The quality of life will decline. It will do nothing for morale or recruitment, which comes from the good liaison between the Army and the local population.
Many of those negative outcomes are shared by colleagues across constituencies, but in addition we each harbour unique vulnerabilities that deserve consideration. In my case, it is the plight of serving Gurkha soldiers and their families, and that of Gurkha veterans. Invicta Park barracks is the home of the 36 Engineers and the Queen’s Gurkha Engineers. Unlike the 36 Engineers, who expect to be posted and moved from time to time, the Gurkhas tend to remain located at one base, which they make their permanent home. All Gurkha soldiers who have joined the Queen’s Gurkha Engineers since 1994 have been based at the barracks for their entire career. They are, of course, seconded from time to time, but they always return to Maidstone and to their families, who remain in the town.
That is part of a long-standing, balanced understanding between the UK and the Gurkhas. They come from afar and take great risks in fighting for us, while being able to retain around them the support of their veterans, their wives, their children and the wider Nepalese community. To wrench serving Gurkhas and their families from their cultural base and permanent home denies them the benefits of that equation. I do not believe that to be right or fair.
My hon. Friend is making very strong points and I want to support her on that one. I represent the other side of Maidstone and recently met a group of Nepalese ladies, many of whom are wives of Gurkhas at the barracks. Does she agree that the Gurkhas are very much part of the community in and around Maidstone? The fact that they are there permanently is an important factor that should be considered as part of those decisions.
My hon. Friend and neighbouring MP—we also share the same first name, which makes for a bit of confusion—makes a very good point. As I will go on to say, the Gurkhas and the Nepalese community are cherished and respected. There is wide opposition to the closure, so much so that a petition against it that I have been running for just a few weeks already has 2,500 names. That expresses the strength of the feeling from the people of Maidstone that we do not want to lose our Nepalese community. The soldiers and their families have worked hard for many years to integrate and to become part of the fabric of the area. As I have said, they have succeeded, and are widely respected and cherished.
One former Army wife, Mrs Jean Ruddell, who lived at the barracks for seven years, told me how difficult it had been for the Gurkha wives when they first arrived in 1998-99. She said that it was a real culture shock and that they had been a little like rabbits in headlights. However, they worked hard, learned English and enrolled in classes to assist them in finding work. They fully immersed themselves in Kent life and in the county town. She said there was mutual respect for different traditions and beliefs. She described it as real harmony and as multiculture at its very best. She remarked on what a tragedy it would be to see all of that broken up, at a time when togetherness and commonality are more important than ever. Another lady summarised well how many Nepalese people feel:
“We will miss the close connection with the Maidstone community. We love it here and have made it our home. We will need to start all over again if we move. It is so hard to build such relations.”
To illustrate the cross-generational feeling, one 85-year-old Gurkha veteran told me: “If our soldiers move, their wives and children will move too. We will be left stranded. We will lose the help and support given to us by our younger generation. We rely upon this heavily, especially those of us who have been injured or who are disabled”.
In the armed forces covenant annual report, the Secretary of State for Defence says:
“We have a duty across society to recognise this dedication and sacrifice, by ensuring that the policies we make, and the services that we provide, treat our Service personnel, Veterans, and their families fairly, and ensure they suffer no disadvantage by comparison to the rest of society as a result of their service.”
I fully support the covenant, and the Minister should be rightly proud of the role he has played in establishing it within society. A key pillar of the covenant, as the Secretary of State said, is to treat our service personnel and veterans and their families fairly. However, if the decision to close Invicta Park barracks goes ahead, the Government will not, I believe, for all the reasons I have stated, be acting fairly, and will be in breach of the covenant.
I congratulate the hon. Lady on securing the debate. She outlines passionately the impact on her constituency. Does she agree with the wider concern that, if the rationale and thinking behind the estate strategy pervades the training and reserves estate, we could see other problems right across the United Kingdom?
The hon. Gentleman makes an excellent point, and if he makes a speech today we will hopefully hear more about that. There are a number of important contributions to be made by Members on both sides of the House and it is important that they are all heard. I also want the Minister to have plenty of time to speak and to address the issues that will no doubt be raised.
I congratulate my hon. Friend on raising this important subject. On the wider question of the management of the defence estate, does she agree that there are some immensely important, significant, historic buildings, some of which are of national importance? It is vital both that they are treated with great sensitivity and care and that, within the period of the rationalisation, the most careful plan for their use is arrived at?
As always, my right hon. Friend makes a very good point. I agree with everything he has said. There are some wonderful, beautiful, old, historic, listed buildings. I have one—the old officers’ mess—as part of Invicta Park barracks. I agree that there has to be a plan and that the buildings must be looked after and treated with great sensitivity and care.
In closing, I ask the Minister please to look again at the decision to close Invicta Park barracks. It cannot just be about houses and money. Although I recognise the need to rationalise the military estate, super-garrisons might not always be best. Our military is about people and, as my hon. Friend the Member for Berwick-upon-Tweed (Mrs Trevelyan) recently said, without the human capital, all our ships, submarines, jets, planes, helicopters and tanks across the world are of no use to us. In that case, and in my case, with the Gurkhas and the Nepalese community in Maidstone, it is about the maintenance of a vibrant and highly successful military and civilian multiculture, the value of which should not be underestimated.
What a great pleasure it is to see you in the Chair, Mr Rosindell. I pay tribute to the hon. Member for Maidstone and The Weald (Mrs Grant) for leading the debate. I have found the Minister who is here today to be a listening Minister. He has engaged with me as much as I have engaged with him, and I am grateful for that.
I wish to speak about the situation in Chester, at Dale barracks. Some 2,000 years ago, a bunch of Romans came along and set up a camp—a castrum—in what was to become my city. The castrum gave its name to Chester, which has been a garrison town ever since Æthelfrith defeated the Welsh at the battle of Chester—apologies to my hon. Friend the Member for Caerphilly (Wayne David), who is on the Opposition Front Bench. The first Earl of Chester built a chain of castles around Chester castle in 1071. We have a history that goes right through the second world war, when we had RAF Sealand—still in place today—and the headquarters of the Western Command. That history is very much part of the city’s DNA, and we are proud of it. We are proud to have those links to the military and to have an Army presence. We have the Westminster Centre for Research and Innovation in Veterans’ Wellbeing at the university, we have a recruitment office in the centre of the city and we have Dale barracks, which is now under threat.
The barracks was traditionally home to the 1st Battalion the Cheshire Regiment, and then the Cheshire merged with the Worcesters and Foresters and the Staffords to form the Mercian, so I understand that things do not stand still in the Army. Things move and things change—we also had the Royal Welsh based there for a while. Although we are not an Aldershot, a Catterick or a Colchester, we are a military city and proud of it. There are advantages to that. Chester is an attractive place to live, and so many of my constituents are former servicemen and women and their families who have made their home in the area. Schools in the Upton area are set up to cater for children facing the disruption of military life, for example when their parents are sent away on duty at short notice. Personnel retention rates in Chester are therefore much higher than elsewhere, because families are happier and there is less pressure on the servicemen and women themselves. Closing the barracks may well be a saving in the short term, but it would be a false economy.
The super-garrison structure in the south-west of England is part of the Ministry of Defence’s investment of more than £800 million in infrastructure in the Salisbury plain area, with a similar development proposed for the north-east, but super-garrisons do not cater for where troops are recruited from, and we have a high recruitment rate in the north-west. The net effect is that service personnel—in the Army in particular—find themselves bouncing around the country on Friday evenings and Sunday afternoons trying to get home or back from work. I know of one former officer living in Chester who spent two years driving up and down to Sandhurst. He described being so far away from family as a reason why people might leave the Army. The hon. Member for Maidstone and The Weald referred to that. The armed forces attempt to post service personnel close to their home town during their final years in the Army to help their and their families’ transition, and closing the Dale will further reduce that option for those from Chester and the north-west, which, again, will have a negative impact on retention rates.
I ask the Minister whether all options have been exhausted regarding the utility of Dale barracks. Could we provide other services and place other units there, perhaps a centre for combat stress and psychological therapy to link in with the work of the university? Can we beef up the presence with cadet forces? The facilities are modern; they were upgraded only in the past 20 years, so it will be a false economy for the Army and the MOD, as well as damaging to the local economy, if we close them simply, I believe, because of the high land values in Chester and move servicemen elsewhere. I am most grateful to the Minister for his time.
I, too, congratulate my hon. Friend the Member for Maidstone and The Weald (Mrs Grant) on securing this important debate. I represent the home of the British Army—Aldershot—and I am well aware that there are facilities around the country, principally in Army rather than Royal Air Force hands, that have been allowed to deteriorate. It is necessary, therefore, that we examine the military estate.
Having said that, I have a success story to report. No one has heard of the most successful private finance initiative project, the £8 billion Allenby/Connaught project run by the award-winning contractors Aspire Defence for the refurbishment of not only Aldershot garrison but Tidworth. As a result of the sale of military land in Aldershot, the garrison has been transformed, with fantastic new buildings. Apropos the point that my right hon. Friend the Member for Mid Sussex (Sir Nicholas Soames) made about buildings, I have to say that Grainger—it is running the Wellesley programme, which involves the release of land in accordance with a master plan—has spent a great deal of time ensuring that some of the historic buildings in Aldershot have been maintained. It has made its headquarters at the Smith Dorrien House, a 19th-century brick building that it has restored fabulously.
That is a very good story, but I am concerned by the fundamentals of the review. We know why it is being done. It is not to ensure that we have a better estate; it is to raise money. That is the brutal truth. The Treasury is not giving enough money to the Ministry of Defence. We have our national priorities completely wrong. We are spending an immoral amount of money on overseas aid, and we are neglecting our armed forces. The review is one of the consequences of that.
The hon. Member for City of Chester (Christian Matheson) is absolutely right about the footprint of the estate. I have the Welsh Guards stationed in Aldershot. Come Friday afternoon, the whole lot decamp down the M4 to Wales. We will not be able to recruit if we remove military establishments from other parts of the country and concentrate them all in the super-garrisons such as the one in Aldershot—I accept that it is doing a great job, but I am looking at the bigger picture nationally. The points that my hon. Friend the Member for Maidstone and The Weald made about that were absolutely right.
The programme is misconceived and being done in a rush. The Minister knows that Minley Manor was sold in great haste. I had a furious bidder on the phone to me saying, “Why was I not offered the opportunity to make a best and final offer on that property?” The Old War Office in Whitehall is also being disposed of in something of a hurry. There is a gathering rush to remove military facilities, and we will pay a big price. As a Minister I went to Leuchars to announce its closure as a RAF station. Fortunately it was not closed, because it is now an Army station. It enabled us to accommodate soldiers coming back from Germany. We had somewhere to put them, but the way the Ministry of Defence is going now, we will not be able to have that flexibility. Our armed forces are the smallest they have been since the time of Wellington, but look at the dangerous world in which we are living. A policy simply to cash in on the value of the estate seems misguided when we may well need to build up our armed forces in the future, given the state of the world we find ourselves in today.
It is a pleasure to serve under your chairmanship, Mr Rosindell. I congratulate the hon. Member for Maidstone and The Weald (Mrs Grant) on securing this debate and on all the efforts she has made to co-ordinate attempts by Members to ensure that this matter stays at the top of the agenda.
I am speaking today because I was very disappointed to find out that Redford cavalry barracks and Redford infantry barracks in my constituency are earmarked for closure in 2022. The closure of Redford barracks would remove a truly historic site from the military estate and leave families who live and work in my constituency in a position of great uncertainty. The Redford barracks has been situated at the foot of the Pentland hills for almost 100 years. When it was built in 1909, it was the largest military base built in Scotland since Fort George. The announcement that it faces closure is a dark day for the military and for military heritage in Scotland. In their proposals, the Government have said that the military estate “has failed to adapt” to meet 21st-century needs, but it is the task of Government to adapt the military estate. The responsibility for its not having been so adapted lies with successive UK Governments.
The proposals in the publication set out a commitment to deliver:
“Regional centres of mass for light infantry battalions supporting national resilience and community engagement”,
but it is not clear which of the centres in Edinburgh the MOD plans to use for that purpose. The obvious choice for the Scottish Army HQ would be Redford barracks, as it is situated in the capital city of Scotland. More importantly, the closure of those infantry and cavalry barracks will be devastating for the local community of Colinton and the people who work and live in that area. It is important to note that the buildings at Redford barracks have category B listing, and it will prove very expensive for any developer to convert them into housing.
The Government have said that they will consult local authorities and the Scottish Government where necessary. It is a pity that the UK Government have consistently refused to engage with the Scottish Government ahead of such decisions being taken. However, there is still time to consult. As the local MP for the area, I would be happy to meet the Minister to help facilitate constructive engagement between the UK Government, the Scottish Government, civic society in Edinburgh and the relevant local authorities. To that end, it would be helpful if he could confirm when the consultation will begin, how long it will last and the format it will take.
I have been in correspondence with the Minister and his Department about the prospective closure of Redford barracks, and I have been given various assurances that there is the intention to do this and that. It would assist the consultation process if undertakings could be given at the very beginning on Redford cavalry and infantry barracks. I stress that they are of historical significance and are situated in the capital city of Scotland, so they are the natural and appropriate site for any Scottish Army HQ.
It is a pleasure to serve under your chairmanship, Mr Rosindell. I congratulate my hon. Friend the Member for Maidstone and The Weald (Mrs Grant) on securing this important debate. This is the second time I have talked about Kneller Hall, which is in my constituency, and I am grateful for the opportunity to reiterate the arguments. It is interesting that those views are shared by many other Members here.
I want the Minister and the Defence Infrastructure Organisation to use some military expertise in their defence estate strategy. I am not a soldier—my background is more in peacekeeping—but I know that wars are not won with destruction or bullets; they are won with hearts and minds. That is what the estate is about. Kneller Hall in Whitton has the heart and mind of the community. The Minister will know that it was the Duke of Cambridge—not the current Duke of Cambridge but the second Duke of Cambridge—who realised that military music is incredibly important in inspiring courage, strength and loyalty in the military and the other services. When I talk about the heart of the community, I am not talking just about the sons of people in Twickenham who serve in Kneller Hall. It is not just about fathers who see their sons go into Kneller Hall; mothers and daughters also serve at Kneller Hall. It is part of our heart and our mind.
Will the Minister ask the DIO to use some military intelligence? I am grateful to my hon. Friend the Member for Aldershot (Sir Gerald Howarth) for giving me some new ideas—I hope that the military will take this on—about what can be done for Kneller Hall. We have precious listed buildings. I am interested in some partnerships that could be created to renovate Kneller Hall. We were told recently that the military stopped investing in the building in the 1990s, but there are ways to get round it.
Kneller Hall is part of the community, but it is also about military strategy. We could be recruiting more people. As everyone knows, Twickenham is one of the best places to live. It is in London and is great for young people. It is the home of rugby. It is a brilliant place to have a joint band, which I know the Minister is considering. Kneller is the place. It is where young people can be inspired. I know that the Minister has some medals, but, as I have said before, I will pin another medal on his chest if he can enhance and improve Kneller Hall. Thousands of people have signed petitions. I submitted a petition in the Commons, but the Facebook petition continues. I am talking not only about people in Twickenham; Kneller Hall has influenced people across the globe. It needs to be at the heart of our communities. The Minister must use his military expertise and military strategy and win hearts and minds for us.
It is a pleasure to speak in this debate, Mr Rosindell. I congratulate the hon. Member for Maidstone and The Weald (Mrs Grant) on setting out the case so effectively. I will make a few specific comments about Northern Ireland.
As a former member of the Defence Committee—my hon. Friend the Member for Belfast East (Gavin Robinson) is now a member—I regard this strategy as a matter of grave concern. The facts are plain. The estate is costly and somewhat ungainly. On paper it is easy to see how selling off pieces of the estate will not only bring to an end maintenance costs for the property or the area but will bring in a windfall. If we add the magical phrase “affordable housing”, how could anyone say no to that? I am sorry, but I wish to stand against some of the proposals in the footprint strategy.
The Ministry of Defence says that its estate, which covers 1.8% of the UK land mass, is inefficient, expensive to maintain and incompatible with the needs of the modern armed forces; the future estate will be smaller and clustered around areas of specialisation. I have no doubts whatever about the accuracy of those claims. However, I wonder whether someone can explain to me how we can possibly meet defence needs and the obligations to our armed forces in consolidated, precise little blocks. On paper, I can see how Northern Ireland per head and for surface area should have limited military input, but the reality of our history in Northern Ireland demands a strong presence. The service history of our residents demands home bases that cater for families. I remain to be convinced how the plans will fit the needs of our armed forces. The excuse that the estate needs work is not one that flies with me. It is not good enough to run something down to dispose of it when that will leave gaps in our estate strategy and, more importantly, our defence strategy. There is a significant risk that the poor condition of the estate will affect defence capability. I want to put that on the record as well.
I have great respect for the Minister. I appreciate his help in responding to all the different issues and how hard he works as a former soldier and as a Minister. Kinnegar Base in Holywood, on the boundary of my constituency, has been a thriving hub of activity, employing up to 1,000 civilian staff and providing much-needed support for the Army during the darkest days of the troubles. I understand that there is perhaps not the need that there once was for bases in Northern Ireland; bases have been steadily disappearing in the natural course of the reduction in troubles. However, we cannot be complacent about security in Northern Ireland. With a police officer shot last month and other threats, there is a very real need for Army support that surpasses population levels.
When I joined the Ulster Defence Regiment, I trained at Ballykinler. The sell-off of Abercorn barracks is a backwards step, not least as the accommodation should be retained for social housing rather than sold as a development opportunity. With respect to the Minister, I question that. Redevelopment in co-operation with communities to provide housing is a much better way to use the site than to sell it to the highest bidder. If that is what we are doing, I respectfully say it is wrong. The selling of the family silver can no longer be allowed. We are looking at future generations who will not have meaningful pensions. We have sold our children’s inheritance before they are born.
Hailing from Northern Ireland and a military background, I cannot support the closure of all three bases. It is my sincere nightly prayer that my little country of Northern Ireland never again finds itself in need of the Army support and presence that was once a part of everyday life. However, the practical side of me feels that the basic structure must still exist.
I know that other Members in this Chamber, such as the hon. Member for Greenwich and Woolwich (Matthew Pennycook), who represents the Woolwich base where I once trained and of which I have very fond memories, are also asking for a rethink of decisions. The Government should and must rethink the strategy and cut costs without cutting the defence capabilities and leaving us vulnerable and our military families vulnerable and unsupported. The Minister must consider those points before making decisions.
I thank my hon. Friend the Member for Maidstone and The Weald (Mrs Grant) for securing the debate and for her kind words earlier.
The Defence Secretary’s announcement that 91 sites across the UK will be disposed of is part of a long overdue defence estates rationalisation strategy. Although I wholeheartedly support the Department’s determination to assess its asset base—nearly 4% of the UK—and to work out what it does and does not need for the 21st century, we need to be very careful how we do this. As a member of the Public Accounts Committee, I led our hearing a few weeks ago to assess how the review was going. Sadly, so far I am dissatisfied that the detailed and holistic economic cases have not yet been done for each of the sites identified. That risks achieving financial and operational failures rather than gains for both the MOD and the taxpayer.
As one of several MPs taking up reservist roles —I recently applied to join the Royal Navy Reserve—I want to highlight my concerns by using the proposed closure of HMS Sultan and Fort Blockhouse in Gosport, as they are a good example of the concerns that we identified on the Public Accounts Committee. One aim of the better defence estate programme is to release land for house building, but scope for housing in Gosport is severely limited by the local plan and the lack of local demand. Sale to commercial developers is complicated by high onsite maintenance costs. HMS Sultan contains heritage assets and listed buildings—that is an issue with a lot of the sites identified—including two Palmerston forts, a site of nature conservation and land protected as open space, which is also an issue in several of the sites identified.
Fort Blockhouse contains designated nature conservation sites, open space and important heritage assets, as well as a sea wall with an estimated annual maintenance cost of £1 million to £3 million. A local expert estimates that it would cost £10 million to repair the wall fully, which could rise to £100 million if there was a breach. Maintaining the sea wall is essential for the physical integrity of Portsmouth harbour, which will soon be home to our marvellous Queen Elizabeth aircraft carrier, which the Minister will be pleased to hear I look forward to seeing tomorrow.
At Blockhouse the local authority is optimistic about the significant potential to regenerate the site as part of a mixed-use leisure and maritime allocation, but the MOD’s decision to retain the waterfront part of the site—the most commercially attractive segment—significantly jeopardises the opportunity to generate employment.
The business case for disposing of HMS Sultan remains unclear. Estimated renovation costs are considerably lower than costs associated with relocation. Work to improve Sultan’s accommodation is necessary, but generally the site is fit for purpose, as evidenced by Ofsted’s recent outstanding rating for its training provision. Furthermore, a recent investment of some £850,000, with £470,000 coming from the LIBOR fund, to renovate the warrant officer and senior ratings mess, which serves more than 500 trainees and permanent staff, will be completed next month. It seems a contrary decision to get rid of something that has such a significant investment. Second-order consequences of dismantling an excellent training provision for the Royal Navy are worrying. The Navy is short of engineers, and to undermine an important educational pipeline could have significant operational ramifications. The local population offers an excellent recruitment pool. The density of retired officers also provides a source of teaching professionals.
I have summarised many of the key problems. Releasing the 91 most expensive sites makes surface-level financial sense from the MOD’s perspective, but it ignores the reality that in some cases the sites may be the most difficult to sell to developers. I know that the disposal process is in its early stages across all the sites, and I welcome the MOD’s commitment to explore development opportunities fully with local authorities and development agencies. It is disappointing that analyses of the sites earmarked for disposal are taking place after disposal decisions, but I sincerely hope that a business-minded approach will begin to drive disposal decisions alongside the military requirement.
It is a pleasure to serve under your chairmanship in this important debate this morning, Mr Rosindell. I congratulate the hon. Member for Maidstone and The Weald (Mrs Grant) on securing the debate.
The armed forces have more than 1,000 years’ history in the city of York, which was built on trade and also on defence. Imphal Barracks in my constituency, now listed to close in 2031, was built between 1877 and 1878. Two years ago my predecessor received assurances from the Ministry of Defence that the Army would stay in York. The Army basing plan on 5 March 2013 secured York as a garrison for the future, and serious investment was put into upgrading the buildings on the site. The city therefore believes that the Government are wrong to close the barracks.
No economic or social impact assessment has yet been carried out, even though MOD procedures say that it should be. Can I turn the Minister’s attention to joint service publication 507? It says that an impact assessment should include
“redundancies or impact on the local economy”
and goes on to say that
“MOD investment appraisals are concerned with appraising public value; that is the value to UK society of a proposal or option rather than just to the Exchequer or the Department.”
That work has not even been undertaken—I understand from discussions with officials that it could take at least 18 months—so it is rather premature to announce the closure of Imphal, without that essential work being done first.
The Army provides some of the largest employment opportunities for the city of York. We have 728 serving personnel, who of course bring with them their fantastic families. We know that the MOD is wrestling at the moment with the issue of spousal employment, and there is no better place to look for opportunities than in a city such a York, with its two universities and a college, which provide excellent education, as well as York schools. The opportunity for armed forces personnel to base their children in York schools, where they can catch up with their education and do well, is so important. There are 376 highly skilled civilian jobs based in York—a city where the average wage is below the national and regional average at around £22,000. That is important for our local economy. If we also consider the more than 100 contractors as well, and the jobs at Strensall that will disappear, we are talking about 1,500 jobs in a city the size of York. That will have a very serious economic impact, and the impact assessment of that is yet to be done.
I am grateful to senior armed forces personnel who talked through the operational issues with me. As the hon. Member for Aldershot (Sir Gerald Howarth) highlighted, these measures will have a real detrimental impact on recruitment and retention in the armed forces. In France, this experiment was tried, and was halted in its tracks because it created real difficulty for recruitment and retention. There is already a retention problem for the Signals, which are based in York. This will escalate that and clearly destabilise the armed forces, which is not what we want.
I wear this khata today as we have a Gurkha community in the 246 Signal Squadron based in York. They form a central part of my community; their families are integrated. They worship at the barracks and are part of the reach into the city. I met with them on Saturday night—they pleaded to remain part of York, because they see it as their home, where they want to settle.
The reality is that the work has not been done behind the scenes. This is a Treasury-led issue, not a Defence-led issue. It is about time a pause button was hit and we reviewed the reality of the impact that these closures will have.
I congratulate my hon. Friend the Member for Maidstone and The Weald (Mrs Grant) on securing the debate and on her excellent speech. Let me be clear: I agree with the principle of what the Government are trying to do. We have to take some painful decisions and some of those decisions will inevitably have effects on individual constituencies that some of us will not like. However, I share the concerns of a number of other speakers that we are in danger of losing our national footprint.
I should like to introduce two specifically defence elements into the equation. First, spousal employment continually comes up in the top three reasons for leaving the armed forces. The second factor is local house prices. I do not support the idea of an allowance to replace service family accommodation, but I do support aspirations for more members of the armed forces to have the opportunity to buy housing.
In terms of those two factors, if we look at the footprint of what is proposed, we find all too often that the bases under threat are places where there is plenty of spousal employment and plenty of affordable housing—Canterbury in my constituency, which closed recently, Maidstone in the constituency of my hon. Friend the Member for Maidstone and The Weald, Chester, Ripon and so on. The expansion is increasingly taking place in places such as Catterick, completely isolated and in the middle of nowhere, or in areas such as the constituency of my hon. Friend the Member for Aldershot (Sir Gerald Howarth), where housing is desperately expensive. That cannot be retention-positive. It is not fair to ask my hon. Friend the Minister to take account of wider community issues beyond a certain point, but those points are critical for the future manning of the armed forces.
I echo a point made by the hon. and learned Member for Edinburgh South West (Joanna Cherry). I happen to know Redford barracks quite well. When I had some responsibilities for Scotland, I visited it a couple of times. It is a prime historic military site on the edge of Edinburgh, the capital of Scotland. Unlike the hon. and learned Lady, I am a passionate Unionist. That site should be one that we make more of, as we get rid of some of the frankly uneconomic and unmanageable garrisons in the edges of Scotland. I know Fort George and the rest are unhappy, but I support those closures. Redford should be a place we concentrate on. I am not going to ask my hon. Friend the Minister for the figure because that will be commercially confidential, but I will ask him to write to me to reassure me that the estimate for the value of Redford barracks in his considerations takes account of the fact that it is listed and, as such, is of very little value to a developer. I understand that even the outbuildings are listed.
That point is paralleled all over the country. To take the point through, there is the alternative of moving more units to Leuchars, which is a very nice base—my son happens to be serving there. Unfortunately, the local community is not large enough to provide spousal employment for a large expansion and, because it is right next to St Andrews, house prices are among the most expensive in Scotland.
My hon. Friend the Minister has to take difficult decisions. I am with him on the fact that difficult decisions have to be taken within our shrunken defence budget, which I, like others, would like be greater. However, in deciding where we focus the armed forces of the future, we must take account of the two key factors of spousal employment and house prices, and the overall footprint.
I commend the hon. Member for Maidstone and The Weald (Mrs Grant) for securing this debate. I was delighted to join her at the Backbench Business Committee to make the case for it.
When the announcement was made, the shockwaves went through my constituency of Midlothian, where the closure of Glencorse barracks has been intimated. Understandably, the community were upset at the lack of consultation before or after the announcement, but there are two glaringly obvious issues in Midlothian that compel me to speak in the debate today: first, the huge loss that the base would be to service personnel, their families and the wider community, but also to infrastructure and the local economy; and secondly, the enormous financial investment made by the Ministry of Defence a number of years ago, which now seems entirely pointless.
The position I take today is an entirely cross-party one. Every elected member at all levels for the community representing the Glencorse barracks supports the position. All six local councillors, Christine Grahame MSP and myself have joined together and have met the local community. This is an entirely united position. A petition is on its way and, in due course, we will look to present it to the House—I am sure many hon. Members will do the same.
The history of Glencorse barracks is well-known, from its start in the Napoleonic war as a prisoner of war camp, through to its current situation. Unlike many other bases, Glencorse is fit for purpose following a £60 million upgrade in 2003 to 2005, at which point it was hailed by the MOD as benchmark accommodation for our forces. It is frustrating that some of the information around that investment is difficult to come by—it was announced not in Parliament, but on a visit to a construction firm by the then Defence Secretary. When we ask the MOD for information about the investment, we are simply told that the information requested cannot be provided in a format that would not incur a disproportionate cost. As an elected Member, it is very frustrating trying to get to the bottom of some of the details. It would appear that I am able to get more information from Midlothian Council and through the Scottish Government than from the Ministry of Defence. I ask the Minister to reflect on that experience—Members of this House ask questions to be better informed when making cases in situations such as this one.
My hon. Friend is making a powerful speech about Glencorse. Does he agree that, in the case of Fort George in my constituency, very little evidence has been supplied to say that it would save the MOD money? In fact, it will simply leave a £12 million to £16 million annual hole in our economy.
I agree. That is certainly true for many of us who are making the case for retaining our local bases.
Given the investment in Glencorse, it makes no financial sense to close the barracks. It has already been upgraded to the condition of a modern Army base, and it meets the criteria set out in the most recent defence estate reviews. It would be financial suicide to throw away such an investment.
There are rightly concerns that closure would damage the local economy, given the number of troops that are based there. Penicuik is a thriving community, but it needs more to support it. Given the investment in local schools and the special training given to local teachers to support our armed forces, if those Army personnel and their families were removed from the community, the impact would be felt down the line well beyond any closure.
Lastly, I must address the disappointing regard that the MOD has shown to Midlothian councillors and the Scottish Government following the announcement. I urge the Minister to take that on board and engage with all of us in the future. If the closures go ahead, what happens afterwards is vital. This ill-thought-out decision is financially unsound and strategically absurd, and it needs to be urgently stopped.
It is a pleasure to serve under your chairmanship, Mr Rosindell. I thank my hon. Friend the Member for Maidstone and The Weald (Mrs Grant) for securing this debate.
I am here to speak about Brecon barracks—I am the only Welsh Member here apart from the hon. Member for Caerphilly (Wayne David)—which is an important part of Brecon and Wales. There has been a barracks in Brecon for 200 years. In fact, the buildings that are currently used have been in existence for 200 years. Not only has it been home to the British Army in Wales, but many detachments from it have gone across the world—the South Wales Borderers’ visit to the Anglo-Zulu war was immortalised in the film “Zulu”. The adjacent museum contains 11 Victoria Crosses—one of the largest collection of Victoria Crosses outside Lord Ashcroft’s hold. The Secretary of State, in his announcement about the better defence estate strategy, said that the museum will be unaffected, as will Dering Lines and Sennybridge, the infantry battle school. The barracks has been an integral part of the garrison town of Brecon.
It was interesting to hear my hon. Friend the Member for Canterbury (Sir Julian Brazier) talk about house prices. House prices would plummet in Brecon, because more than 100 civilian jobs are involved in the barracks, and many retirees from the military come back to live in the Brecon area. It is vital in economic terms that the barracks remain.
The infantry battle school trains over a vast swathe of the Breconshire national park, but the defence estate does not own all that land—a lot of it is owned by local farmers. The relationship between those farmers and their families, many of whom have civilian jobs in the barracks, will be tarnished and damaged immeasurably if the barracks closes. I ask the Minister to look again not just at the economic issues but the emotional ties and the relationship between the military and civilians. That is vital, and we cannot put a price on it.
Brecon is home to the 160th Infantry Brigade and Headquarters Wales. I would like the Minister to solve a conundrum that I cannot get to the bottom of. I have spoken to the Army—in fact, I was at Brecon barracks for the 138th commemoration of the battle in the Zulu war. When I speak to the officers and the commanding officer, they tell me that they have had no conversations with politicians at a senior level, but when I speak to politicians at a senior level, they tell me that the Army is pushing for the closure of the estate. Both seem to say that the Defence Infrastructure Organisation is the middle organisation, but I wonder how much it listens to politicians and the Army. Perhaps the Minister will clarify that in his response.
Finally—there is much more I would like to say, but time is against me—Brecon barracks is not Chelsea barracks, as much as I would like to say it is. In economic terms, I am afraid that the sum that would be raised from Brecon barracks is minuscule compared with building a new HQ somewhere else in Wales. I ask the Ministry of Defence and the Minister to think again.
I thank my hon. Friend the Member for Maidstone and The Weald (Mrs Grant) for securing this important debate and for making such a passionate contribution on behalf of her constituency. My remarks will focus purely on the local issues in my constituency, and on the impact on the community of Strensall.
Strensall, a rural village in the north of my constituency, is the site of Queen Elizabeth barracks and Towthorpe Lines, and is home to Headquarters 2 Medical Brigade, 34 Field Hospital and the training sections. Under the plans, the MOD is due to dispose of both sites by 2021. Imphal barracks, which is just outside my consistency on Fulford Road in the south of York, is scheduled for disposal by 2031. The hon. Member for York Central (Rachael Maskell) has already touched on it, so I will not go into too much detail about it. There are 54 civilian support staff employed at Queen Elizabeth barracks and Towthorpe Lines, and 365 at Imphal.
Ministers want to support our armed forces as well as possible by directing resources into new equipment and personnel, rather than using them up on maintaining buildings and land. I appreciate that the current defence estate is vast, ageing and expensive to maintain, but it is only right to express the deep disappointment many local residents feel at the proposed changes.
York garrison has a long, proud history. There has been a barracks at Fulford since 1795, and in recent years Strensall has taken pride in its role as a centre of excellence for military medicine. However, I am encouraged by the fact that the Minister and his Department seem committed to engaging with the affected communities and managing any proposed changes in York as sensitively as possible. I thank him for having a constructive meeting last month about this issue.
The units at the site in York are scheduled for redeployment, and the MOD is still assessing the future of the civilian staff employed at Strensall and Imphal and the option of retaining some MOD facilities in the York area. My personal view is that the MOD has an obligation to offer people new or alternative roles wherever possible. As many have strong links and family ties with the city of York, I and many residents believe that the retention of some kind of military presence in York is essential.
However, the disposal of those sites and their potential development for housing and local infrastructure will have the widest impact on the city of York. The announcement in November has already had a significant impact on York’s local plan. Completion of the plan has been delayed by six months while the council undertakes a full technical consultation regarding the sites so they can form part of a comprehensive and accurate plan that includes the brownfield sites that are potentially available. It is likely that the sites will be developed into residential housing. For a small community such as Strensall, that represents a significant change, so it is vital that it is carefully managed through early and comprehensive engagement with local residents, especially given the established place of the barracks in the local community.
I would like the MOD to set up a local working group to involve local residents in the process. I hope the Minister will take that idea forward, because community engagement is key for the future of the barracks in Strensall.
It is a pleasure to serve under your chairship, Mr Rosindell, and I thank the hon. Member for Maidstone and The Weald (Mrs Grant) for securing this important debate. All hon. Members who have spoken have made interesting and valuable contributions.
The hon. Member for Maidstone and The Weald quoted the words of the Ministry of Defence, that the aim is “improving military capability” and “rationalisation of the estate”. She spoke about the extensive “engagement”, but expressed serious concerns about whether that had taken place. She was right to have those concerns.
The hon. Lady also spoke about a real lack of information and huge uncertainty for serving personnel, their families and the wider communities. Her points and those of the hon. Member for City of Chester (Christian Matheson) about the potential impact on the already poor figures for retention and post-service employment were particularly well made.
It is important, as the hon. Lady said, for the whole process to be viewed through the lens of the armed forces covenant. I am, however, no more convinced than she is that that has been the case, particularly in relation to the impact on families. The points that the hon. Member for Canterbury (Sir Julian Brazier) made on spousal employment were especially important.
Interestingly, the debate is titled “A Better Defence Estate Strategy”, although in reality that is simply not true: it is not better, and it stretches credulity to describe what has been announced as a strategy, which would suggest some forethought and a plan. The Government do not have a great history with plans, and this is a case in point. We heard, for example, from the hon. Member for Strangford (Jim Shannon) about the staggering lack of ongoing investment and maintenance over recent years. The strategy, if we may call it that, is in essence a farce. It aims for the loss of a fifth of the entire Scottish defence estate, which is extremely important and very concerning. Furthermore, the plans will have a real impact on the ability to provide conventional defence.
We heard about the lack of consultation, either with the public or with the Scottish Government, yet the aim is to close so many bases, many of which are of historical and cultural significance to our communities, as has been described so eloquently today, and all of which provide stability and important economic value to serving personnel, their families and their host communities. The lack of proper consultation leaves it somewhat unclear whether any of those factors have properly been taken into account. We anticipated that there would be cuts, but the volume proposed for Scotland is crushing and the justification for it is simply missing in action.
I asked the Minister some written questions about the plans, because I was keen to understand what was proposed and what financial projections could have led to such devastating decisions. The answers I got back left me, sadly, no clearer. I queried what savings would be achieved in running costs in each of the 10 years of the infrastructure reform programme. The Minister, for whom I have great respect, told me what savings it was hoped to achieve across the piece: £140 million over 10 years, rising to nearly £3 billion by 2040, all apparently to be reinvested “back into Defence”. Interesting, but not an answer to my question, which was a valid one, so I tried again.
This time I asked what capital investments were planned and what receipts were planned to be realised in each of the 10 years. I thought that was quite straightforward—clearly, the MOD would not have a plan that it had not based on proper financial metrics, would it? This time the answer was—well, the same as the first answer, although it helpfully clarified that the profile across the 10-year programme was “being refined”. In plain English that means that the MOD does not know—the hon. Member for Berwick-upon-Tweed (Mrs Trevelyan) said the same a little more politely.
The MOD has therefore announced this hugely important and hugely destructive programme for the Scottish defence estate without doing the maths. That is outrageously irresponsible. Scottish armed forces personnel, their families and the local communities will feel gravely let down by that back-of-a-cigarette-packet approach to their lives. The hon. Member for City of Chester, for example, spoke powerfully about the impact on personnel and children, which is hugely important. The rest of us might reflect on how comfortable we are with our conventional defence footprint being planned with that kind of so-called strategy.
What exactly are we looking at? What is the scale of the cuts? My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) pointed out that the Black Watch will leave its historical home at Fort George with a loss of more than 700 jobs and £16 million a year to the highlands economy. The Army barracks at Redford and Craigiehall in Edinburgh, and historic Glencorse in Midlothian, which is home to 2 Scots, are to be axed.
My hon. Friend is making a powerful argument about the financial cost, but promises to people have been broken as well, including the solemn promise that the Black Watch would have a permanent home at Fort George. How will the Minister respond to that betrayal of the people who have served in the Black Watch?
My hon. Friend’s point is particularly well made. I look forward to the Minister’s response.
Interestingly, as my hon. Friend the Member for Midlothian (Owen Thompson) pointed out, although it is only 13 years since a £60 million investment in Glencorse, which was described by the then Secretary of State for Defence as a “super-barracks”, even Glencorse has not been saved from this Government’s financial mismanagement of and disdain for the defence of Scotland. No wonder Mark Serwotka, general secretary of the Public and Commercial Services Union, expresses such concern about the plans, saying that they throw the future into doubt for thousands of staff.
Even if numbers of service personnel remain steady, significant numbers of civilian jobs will be lost, estimated at 700 at Fort George and 200 in Stirling. Unite described the closures as “brutal” and emphasised the impact on our local communities. As the MOD should know, in many instances the bases earmarked for closure are at the heart of their local communities, providing a source of decent and secure employment. Not only is the MOD weakening the defence of Scotland, but it is creating real problems for thousands of people.
All we can say with certainty is that, in the MOD’s own words, there is “reprovision intended for Scotland”. Meanwhile, a massive upheaval and a great deal of uncertainty for service personnel and their families will certainly result. All of that is accompanied by the staggering lack of detail and clarity that my hon. and learned Friend the Member for Edinburgh South West (Joanna Cherry) described so well, which is causing huge concern and uncertainty and throwing huge doubt on the programme and on defence planning and provision for Scotland.
The National Audit Office has identified a black hole of at least £8.5 billion of unfunded costs caused by the steady decline in the condition of the estate. It states that there is significant risk that the poor condition of the estate will affect the Department’s ability to provide the defence capability needed. In addition, the UK Government’s military priorities are all wrong for Scotland: we are a maritime nation with no maritime patrol aircraft and not one conventional ocean-going vessel in our ports. We have grave concerns that as our conventional capability shrinks further and further to pay for nuclear weapons, the United Kingdom’s last line of defence is increasingly becoming its first and only line of defence.
The announced closures are, as my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey put it so well, the latest in a series of betrayals and the breaking of promises made to the Scottish people before the independence referendum when we were told time and again that defence jobs could only be protected in the Union. We were threatened with dire repercussions in the event of a yes vote. The then Secretary of State for Defence, the right hon. Member for Runnymede and Weybridge (Mr Hammond), claimed that in the event of independence “the Scottish people” would not benefit
“from anything like the level of security the UK armed forces currently provide, or the level of prosperity that Scotland’s defence industry currently delivers.”
Just as with the non-existent national shipbuilding strategy, the Trident safety issues that we can hear about on CNN but not in this House and the national equipment plan that the auditors say simply does not add up, we have vital questions about our future defence estate going unanswered. The Government are full of warm words for our forces—perhaps the Minister will also take the opportunity to update us on what he is doing to secure the return of Billy Irving and the Chennai six—but in reality such words are sometimes seen as just that, words. The UK Government seem quite unable to ensure the defence of the realm. The UK Government have failed in their first duty to their citizens and betrayed the people of Scotland yet again. An independent Scotland would have a proper conventional defence force built in our national interests.
We have had an excellent debate this morning. I congratulate the hon. Member for Maidstone and The Weald (Mrs Grant) on raising the issue and on speaking so eloquently about her own constituency and the Invicta Park barracks in Maidstone. All of us have natural empathy for the Gurkhas, recognise the huge contribution that they have made to the defence of this country and are deeply concerned about their treatment and that of their families.
We have heard from a number of Members about different areas, but I will mention in particular the contribution about Kneller Hall, which I feel strongly about as a musician myself. I recognise the contribution to music generally, not only in the armed forces. As a Welshman, I have a long appreciation of the barracks in Brecon and was tempted to burst into “Men of Harlech” when the hon. Member for Brecon and Radnorshire (Chris Davies) talked about “Zulu”. I am very pleased to be going up to Brecon this weekend to hear the band Rorke’s Drift. I am sure it will be a superb performance.
This is an important issue. As we all appreciate, 1.8% of the UK’s land mass is currently taken up by the defence estate, and we are talking about a massive contraction in the size of that estate: 91 sites will close and the estate will be cut by 30% by 2040. I have several concerns, which in part echo what Members have already said, and I will distil them into three areas.
First, I am deeply concerned by the apparent lack of rationale behind the closure programme. It appears that we are embarking on an arbitrary voyage rather than embracing a long-term strategy driven by changing military need. I suspect that the Treasury is lurking in the wings and demanding that this kind of change takes place as quickly as possible. We are talking about a potential reduction in the workforce of 18,000, or 30%. We are talking about relocation. We are talking about individuals having to travel long distances to work—or, I suspect, large numbers being transferred to the private sector. I am mindful of the Public and Commercial Services Union’s concern that the programme may well be a smokescreen for the privatisation of the workforce and a reduction in their terms and conditions.
Secondly, I am concerned about the impact of closures on local communities. That concern has been articulated by several Members, and there is no better example than the one the hon. Member for Maidstone and The Weald provided about how the Gurkhas are very much integrated in the local community. They feel as though they are part of the community, and the community welcomes and embraces them. It would be a great shame if we simply severed such an important link on the basis of short-term financial expediency. I must question whether this is all about value for money.
The National Audit Office said that past actions that the Ministry of Defence
“took to live within its means are now leading to increased costs overall and creating risks to military capability.”
My concern is that that ill-thought-out approach is being replicated. We can all point to the example of what happened with MOD housing and Annington Homes, which the Public Accounts Committee looked into in some detail. Unfortunately, the MOD sought to make savings by selling service family accommodation to the private sector but failed to achieve a good sale price. The result was a continued deterioration in the MOD estate and accommodation for service personnel. That is a great shame for the armed forces as a whole and the British Army in particular, and we need to learn from those mistakes and ensure that we do not replicate them.
That leads me to my concern about the involvement of the private sector in this process generally. I am especially concerned about the key role of Capita, which leads a consortium. Capita was awarded £90 million between June 2014 and July 2016, half of which went into its profits. That is a cause for concern. The National Audit Office highlighted that, saying that the MOD has
“failed to set contractual safeguards to ensure savings are achieved from operational improvements, which was the primary aim of the contract”
given to Capita,
“rather than one-off cost-cutting.”
The NAO added that Capita
“has not met all milestones or performed adequately against agreed key performance indicators.”
In other words, the taxpayer, the MOD and the armed forces are being short-changed by an ideological move by this Government.
Those are my concerns. My general concern is that there is a genuine fear that land will be sold off below market value. We are told that there is a need to build more houses. We all agree with that, of course, but the Ministry of Defence so far has not demonstrated that it has put its important talk about new houses into practice.
One of the statistics that I omitted in my reference to Project Allenby/Connaught is that the Ministry of Defence is delivering on that talk with 3,850 new properties in Aldershot. Somehow, the Ministry of Defence stumbled on a good idea and appointed Grainger to manage the release of that land, and that is what is happening.
Indeed. That is commendable, but it is the exception rather than the rule. That is not being replicated elsewhere across the estate. It shows what can be done if a clear strategy is in place, but as we have heard, there is no clear strategy. The Government are taking a ham-fisted approach towards the estate on a very short timescale and in a manner that has not been properly thought out. What has happened in the past is a clear indication that we are unlikely to see the 55,000 new homes that the Government have promised.
I wonder how a strategy that runs to 2031—that is in some 14 years’ time—can be described as having a short timescale.
It is important, first, to have a strategy in place. The strategy is absent. Secondly, once the guidelines for the approach have been worked out, there should be proper consultation. As we have heard, in so many cases, consultation is retrospective. Once consultation has taken place, we should move to a contraction of the estate. I agree in principle with many Members that the estate is too large, but we need a proper, structured approach, not for decisions to be made and justification provided retrospectively.
Let us have a proper strategy, a debate and a consultation, and then let us seriously and sensibly approach the contraction of our estate. I would like to hear the Minister’s response not only to those points but, more importantly, to the concerns that several Members have articulated this morning.
It is a pleasure to serve under your chairmanship, Mr Rosindell. I congratulate my hon. Friend the Member for Maidstone and The Weald (Mrs Grant) on securing this debate, and welcome the opportunity to discuss our strategy for a better defence estate.
Some Members, especially the hon. Member for Caerphilly (Wayne David), seemed to question whether there is a strategy, so I will spend the first half of my time trying to explain exactly how that strategy was put together—it was based very much on military capability. I will then try to address some of the individual points that colleagues have raised. Realistically, I will be unable to do that in the 10 minutes I have—I must allow my hon. Friend time to wind up—so I commit to writing to hon. Members.
Until I became a Defence Minister, I did not appreciate the sheer size of the Ministry of Defence’s landholding. We are the country’s third largest landowner, after the Forestry Commission and the National Trust. Our defence estate represents almost 2% of the United Kingdom land mass—it is equivalent in size to Luxembourg. Whatever comparator we choose, it remains a fact that our estate is vast and vital to our military capability. It is where our people work, live and train, and where advanced equipment is maintained, cutting-edge research is undertaken, major exercises are conducted and major operations are launched.
The estate is vast and vital, but it is also too inefficient. To give hon. Members an idea, our estate costs £2.5 billion a year to maintain, 40% of our assets are more than 50 years old and, because of long-standing budgetary pressures, we simply have not been able to spend enough on maintenance in recent years through successive Governments. Many units are housed in bases and locations that are not fit for purpose and that are neither geographically nor logistically efficient. What is more, while the armed forces are 30% smaller than they were at the end of the last century, the estate has reduced by only 9%.
The whole point is that the armed forces are now at their smallest size. What strategic thinking is the Ministry of Defence doing to consider how it will cope with an increase in all three services to meet future demands? Once we have scrapped an airfield, it will take an awful lot of compulsory purchase to get one back.
As I described at the start of my speech, we own 2% of the United Kingdom. Even if we reduce the estate by 30%—someone can do the maths— we will still own 1.4% of the United Kingdom. After the reduction, we will still have an area twice the size of Greater London. There is still scope, if needed, to expand.
In these straitened times when budgets are tight but the threats to our country are growing, efficiency and productivity are the watchwords of successful defence. Let us not mince our words: an inefficient defence estate undermines the effectiveness of our armed forces and the security of the nation they exist to protect. Those are the hard facts. We need to act, which is why the 2015 strategic defence and security review committed to invest in a better built estate that will reduce in size by 30% by 2040, and that will, most crucially, better support the future needs of our armed forces and enhance our military capability, ensuring that our armed forces are the best they can be.
In November, we set out how we plan to do that, when the Defence Secretary unveiled our strategy for a better defence estate, which is the most significant change to defence land since the second world war. The strategy is based on advice from the service chiefs and all decisions in it have been predicated on military need. It has two strands, the first of which is to rationalise our estate, selling off sites that are surplus to defence needs and bringing people and capabilities into new centres of specialism. Secondly, we will invest, spending £4 billion over the next decade on improving our infrastructure and modernising our accommodation. In short, our vision is to create a world-class estate for our world-class armed forces.
Those are lofty words, but what does that mean in practice? For the Royal Navy, it means continuing to focus on operating bases and training establishments around port areas and naval stations, with surface ships in Portsmouth and Devonport; all the UK’s submarines on the Clyde; a specialist amphibious centre in the south-west, based around Devonport; and helicopters based at Yeovilton and Culdrose. For the Army, it means specialised infantry will be concentrated in Aldershot; mechanised, wheeled capability, including two of our new strike brigades, will be in Catterick; air assault forces in Colchester; armoured and tracked capability around Salisbury plain; medical services in the west midlands; and hubs of light infantry battalions in London, Edinburgh, Lisburn, St Athan, Blackpool and Cottesmore. For the RAF, it means building on its existing centres of specialism, with combat air in Coningsby, Marham and Lossiemouth; intelligence, surveillance and reconnaissance at Waddington; air transport at Brize Norton; force protection at Honington; and support enablers at Wittering and Leeming.
The strategy will also see our joint forces command consolidate as much of its capability as possible in centres of specialisation, with defence intelligence at RAF Wyton, the defence academy at Shrivenham and information systems and services at MOD Corsham all due to absorb units relocating from elsewhere. No less importantly, for our servicemen and women and their families, it will mean a better quality of life, which is a key factor for us when we consider that the welfare of our personnel and their loved ones is the key to efficient and effective armed forces. By locating our servicemen and women together with capability, we will provide better job opportunities for their partners, more stable schooling for their families and increase their ability to buy their own home. For those continuing to live in service accommodation, we will invest in creating more modern and more comfortable homes.
I thank the Minister for giving way on that point, because that is contrary to what the armed forces families are saying. They want to be integrated into the wider community. Personnel are saying that, too, because they want to know that their families are stabilised while they are focused on operations.
The whole purpose of consolidating into larger garrisons, often near large centres of population—York is one but not the only one—is to give that stability so that people are not constantly being moved. For example, the consolidation of three armoured engineer regiments around Salisbury Plain means that, as a soldier progresses in their career and is posted between the three regiments, they can stay in the same home. That is the sort of stability that we want to create, rather than having them posted from one end of the country to the next every three years.
Finally, a better defence estate will deliver better value for money for taxpayers. By releasing sites we no longer need, we can help build the houses that we do need. Our strategy includes plans for the release of sufficient land to build up to 55,000 homes in this Parliament. Yes, some areas will lose their military establishments, but the timely publication of our better defence estate strategy will give the MOD and the affected communities both the time and the opportunity to plan the future uses of those sites.
My hon. Friend the Member for Maidstone and The Weald gave a passionate opening to the debate. I understand her concerns, but the simple fact is that her barracks, Invicta Park barracks, is too small. I know it well as a Royal Engineer. She knows that the Engineer regiment currently on that site has to have one of its squadrons displaced at Rock barracks up in Suffolk. It is difficult for a commanding officer to command a regiment when one of their sub-units is more than 150 miles away, and there is no opportunity to expand the site of their barracks.
Both my hon. Friend and the hon. Member for York Central (Rachael Maskell) mentioned the Gurkha community. As my hon. Friend knows, I joined the Queen’s Gurkha Engineers—the regiment she talked about—as an 18-year-old in 1988 and served for three years in Hong Kong. Subsequently, the regiment moved to Kitchener barracks in Chatham and has now moved to her location. I think only four of us in the Chamber were in Parliament at the time of the great debate about our fight to try to equalise the terms and conditions for Gurkha soldiers in the British Army. That was absolutely the right thing to do, but she and the hon. Lady now seem to suggest that we should treat Gurkhas differently from other British soldiers. I find that worrying, and it could be the wrong thing to do. As someone who is a strong advocate for the Brigade of Gurkhas and probably the only Member of Parliament who has served—twice—in the Brigade of Gurkhas, I urge a degree of caution about how we make progress on that front.
I met the hon. Member for City of Chester (Christian Matheson) recently and talked about Dale barracks. I confirm that Fox barracks—the reserves barracks—will remain in place, and the Mercians will relocate in the north-west, co-locating in the King’s Division.
In many ways, my hon. Friend the Member for Aldershot (Sir Gerald Howarth) articulated the vision for the future. We want to invest in our infrastructure in the years ahead to create the first-class environment. Hon. Members on both sides of the Chamber spoke of their concern about the lack of infrastructure, but no one who argued against the estate strategy explained where the money would come from if we do not have the opportunity to dispose of some of the estate. I confirm that all of the money we will release from disposal of the estate will be reinvested in defence.
I will not give way because we have no time and I have to allow my hon. Friend the Member for Maidstone and The Weald one minute to wind up at the end.
My hon. Friend the Member for Twickenham (Dr Mathias) and I had a debate almost exactly a year ago in this Chamber. She realises that it will cost £30 million simply to refurbish Kneller Hall. We are currently looking at three other sites for potential relocation—no one has started to leave yet—but it is the sort of constrained site that, as we discussed last year, is simply not an ideal place for future investment.
The hon. Member for Strangford (Jim Shannon) underlined the need to invest in our estate. That is exactly what the strategy does—it releases the funds that we can reinvest into the estate. I am running out of time, and I have to allow my hon. Friend the Member for Maidstone and The Weald one minute in which to wind up.
I thank all hon. Members present for supporting the debate, and for their valuable contributions. Many of the negative points that have been raised are shared, but I am pleased that we have also heard about some unique vulnerabilities, whether historical or geographical, including the case of the Gurkhas and the Nepalese community in my constituency. I want to clarify for the Minister that I ask not for different treatment, but for fair treatment.
I listened carefully to the Minister’s remarks about capability and rationalising, but I still have concerns that the desire for cash and housing is clouding thinking. I think there will be a negative long-term impact on military communities and the country. I shall finish where I began, by asking the Minister, a man who has valuable personal experience, to look again at the decision to close all 91 of the barracks and bases in question, and to return with a reconsidered Government position.
Motion lapsed (Standing Order No. 10(6)).
Education Funding: Southend
I beg to move,
That this House has considered future funding provision for education in Southend.
And now for something completely different, Mr Rosindell—education in Southend, and the impact that the new national funding formula would have there if it went ahead without any changes. I have never been in favour of officer-led local authorities. Councillors are elected; they form an administration and should give instructions to officers, who carry them out. I have never been in favour of civil servant-led Governments. The civil service in this country is wonderful, but Governments are elected and Ministers should be strong enough to tell civil servants what their policy is, be aware of political ramifications and make sure their directions are carried out. I am giving my right hon. Friend the Minister the benefit of the doubt. He and I have known one another a long time and I hold him in great regard; he will not take offence when I say that I do not want him just to read out the civil service brief and palm me off with a lot of nice old platitudes at the end of half an hour. Let there be no doubt: if the proposed changes go ahead I shall vote against the measure needed to bring them in—and we have a majority of only 11. I am not going to mess about on the issue.
In the years since I became an MP I have listened to so many rebrandings of schools that I am sick to death of hearing what we are to call them—academies, grant-maintained and all the rest. We keep coming up with new ideas, but in the end it is down to the leadership of headteachers. I just want all children to be given the best possible opportunity, and I want fairness in the system. Leadership is essential, and I am glad to tell the House that the leadership of schools in Southend is magnificent. Before I turn to the general thrust of my argument, I have a point to make gently to the Minister. I was in Parliament when the community charge was proposed and I do not for a moment regret my support for it. If it had been introduced in a certain way it would have been an enormous success, but unfortunately we listened to the civil service proposals at the time, no exemptions were allowed, and we all know what happened. Eventually the policy resulted in the removal from office of the greatest politician I have ever known. I do not want the new funding formula to end up like the community charge.
My right hon. Friend the Minister will have the same briefing that I have, telling him that the national funding formula is aimed at addressing the unfairness of similar schools and areas receiving different levels of funding, with little or no justification. I am told that it will distribute the majority of funding directly to schools, to ensure that every child with the same needs will receive the same funding regardless of where they live—all very worthwhile. Under the formula, funding will be divided and allocated into four notional blocks—schools, high needs, early years and the central school services block, which is due to be phased in from 2018-19.
A hard national funding formula will, I am told, apply from 2019-20 for each mainstream school’s budget. Its purpose is that there should be a national standard for funding, which will remove the haphazard multiple funding formula in every local authority area. In addition, notional budgets will be calculated for the schools block funding in 2018-19, according to the national formula, using national averages as a starting point, and will be aggregated and allocated to local authorities in line with the locally agreed formula. I am trying to save my right hon. Friend some time, so he need not repeat those things in his reply.
I am not here to support the National Union of Teachers. I am glad that it has a new general secretary; I had no time for the last one, who I will never forget hearing shouting through a loudhailer about accident and emergency unit closures, outside party conference—it was terrible leadership. I hope that the new post holder will provide better and more sensible leadership. However, I am not presenting an NUT brief—or a House of Commons Library brief; the latter are normally the fountain of all truth. I am presenting a brief from local residents, making local points. I should point out that Southend has a Conservative-controlled council under the excellent leadership of John Lamb. The education portfolio is with James Courtenay.
I want now to make the case for changes for Southend. The proposed national funding formula for schools would be likely to have a devastating impact on every school in Southend West. Initially, somewhat naively, I welcomed the NFF as a potential major improvement in the current funding situation, but the weightings and the lack of stress testing have produced shocking consequences. Southend is now one of only four local authorities in which every school will lose out under the new arrangements. That amounts to making it the 11th biggest loser of all local authorities, and nationally the 84th worst-affected constituency. Those figures were given to me in a briefing by Councillor James Courtenay.
The impact of the NFF on schools in my constituency was brought to my attention in December 2016 in a letter from Mr Badger, the chairman of the governing body of Southend High School for Boys, which, together with the other three in Southend, is one of the finest grammar schools in the country. He stated that the proposals would, “shockingly”, see funding reduced by a further 2%. For that school and many others in the borough the proposed changes are bewildering. Southend High School for Boys was recently rated outstanding in every category of its last Ofsted inspection, and was ranked 67th in national key stage 4 secondary school performance for 2016. Moreover, it has demonstrated prudence in budgeting and expenditure, and was even cited in the White Paper “Educational excellence everywhere” last March as a model case study of an efficient school.
While the aim of the national funding formula is, so we are told, to address the unfairness of similar schools and localities receiving different levels of funding through the setting of a mainstream school budget nationally, it fails properly to recognise the differing needs of each school’s cash-per-pupil funding. It will hinder rather than help schools in the area that I and my hon. Friend the Member for Rochford and Southend East (James Duddridge) represent. He may, if he catches your eye, Mr Rosindell, speak about the schools in his constituency.
Illustrative figures suggest that if the hard formula for 2019-20 were to be introduced now, without any transitional protections, schools in my constituency such as Chase High School—which was prayed in aid as a centre of excellence when it was visited by Baroness Morris years ago—would face a £173 reduction in per-pupil funding. That would be a total cash loss of £163,000. Perhaps I may remind the Minister about Belfairs Academy, a wonderful school, which he opened—so he has seen how good it is at first hand. That school would lose £147 per pupil in funding, with a total cash loss of £168,000. Westcliff High School for Girls, where one of my children went, would lose £133 in cash per pupil funding, with a total cash loss of £109,000.
Moreover, even with the NFF 3% floor, schools in my constituency will not see a tangible funding increase for many years to come. Westcliff High School for Girls is set to lose 5.6% of its budget; with the floor in place, that will be reduced to a loss of 2.9% over two years. That school will not receive a further increase in its funding until the difference between the 5.5% and the 2.9% has been reduced through increases to the school’s allocation in the education budget. In short, if the school receives a 1% addition to its funding, there will be no improvement to its cash funding for about five years, which does not paint a rosy picture of fairness.
Primary schools in the area that I represent will also be hit hard. According to Darren Woollard, who is an excellent headteacher and the chairman of Southend Primary Headteachers’ Association, reductions in funding will seriously undermine vulnerable learners who need help the most. Furthermore, the NFF’s funding cuts to early years provision and the impending 30 years will have a major impact on capacity across the borough. I hope my right hon. Friend the Minister will not mind if he has slightly less than 15 minutes to respond; I would like my hon. Friend the Member for Rochford and Southend East to catch your eye, Mr Rosindell.
In essence, the cuts to funding will affect the quality of education and opportunity for pupils from an early age. The reduction in funding is likely to spark a downward spiral for education in the area that I represent, raising the risk of a recruitment crisis in the teaching profession and leading to the closure of schools due to the financial implications of the funding formula—something the Government would certainly not want. On average, £5,000 per pupil is needed to run a secondary school and £4,000 per pupil is needed for a primary school. Where I was brought up, in the east end of London, we did not spend those huge amounts of money on education. We had 56 pupils in a class, and we all managed to spell, write, read and all of that, but times have changed. I accept that all schools now think that the money that they are given is crucial to the quality of their education provision, not only across the country but in Southend in particular.
The NFF’s implementation in Southend will mean that seven secondary schools and 19 primary schools will no longer be financially viable and will ultimately have to close. Southend High School for Boys, Belfairs Academy, Westcliff High School for Boys and Westcliff High School for Girls, which are all academically wonderful schools, will all be needlessly mutilated by the funding formula. The Westborough School, which is a wonderful school in the area I represent under the marvellous leadership of Jenny Davies—it is a tragedy that she will retire later this year—is in a ward with a literacy rating of 2, which classifies it as being in the top 20% for educational need in the country. If the NFF is put in place in its current form, it is likely that that need will substantially increase. Some 23% of the population are 16-plus and have no qualifications in the area that I represent, which also has a total literacy index score of 103, which is above the rate in England and indicates literacy vulnerability.
In many ways, the NFF’s effect on schools in Southend has the potential to raise unemployment, poverty and deprivation in the longer term—especially when the population is projected to increase to approximately 200,000 by 2027. Distortions in the NFF’s calculations for Southend have been highlighted by headteachers in my constituency. Dr Paul Hayman, the wonderful headteacher of Westcliff High School for Girls, has highlighted the NFF’s lack of transparency in not showing the values for area cost adjustment ratios. He cites the fact that the current basic funding unit for a pupil in years 7 to 11 at Westcliff High School for Girls is £4,225, which will reduce to £3,984. Many inner-London schools are still set to be allocated £7,000 per pupil in London, which is a difference of £2,298 per pupil and opens up the question of how that can be justified. I say, as a Londoner myself, that that is just not fair.
Of course, one may claim that school budgets in Southend have been protected in recent years, and that the NFF will redress that balance. However, schools in the area that I represent have tightened their belts over the past seven years by increasing class sizes, reducing administration costs, reducing spending on books, computers and resources and limiting the number of courses offered to GCSE and A-level students. Why should there be more financial affliction for schools in the area that I represent due to this rigid proposed formula?
I end with some thoughts and a solution for my right hon. Friend the Minister. With the consultation closing, as I understand it, on 22 March, I urge the Government to increase basic per-pupil funding. Grammar schools are currently campaigning for basic per-pupil funding of £4,800, and many headteachers in the area that I represent support that. Furthermore, it would be wise if the Government presented an area cost adjustment that was—to use that awful expression—fit for purpose and represented the demographic needs of Southend. Most importantly, however, the Government should introduce a national minimum level of funding per pupil without enlarging the overall schools budget. We do not need hordes of civil servants to advise the Government on that matter; the hon. Member for Southend West is advising the Government to do that.
Although the Government have emphasised the 3% floor in funding drops, along with transitional arrangements in the interim before the hard formula is introduced in 2019, national minimum funding per pupil would guarantee certainty in safeguarding the financial provision of funding per pupil for all schools in Southend, and it would not harm or lead to the closure of schools that have an excellent academic record. I hope my right hon. Friend the Minister will not only have listened politely to what I have said but will actually take notice of the representations that I have made and that my hon. Friend the Member for Rochford and Southend East is about to make.
I congratulate my hon. Friend the Member for Southend West (Sir David Amess) on his contribution and on initiating the debate. I particularly welcome the Minister, who is a beacon of stability in a Department in which Secretaries of State can come and go. I was an Education Whip during the Minister’s first incarnation as an Education Minister, and it is good to see him back in his proper place as a beacon of stability within that Department.
I welcome the consultation, but for us, NFF stands more for national funding failure than national funding formula. I gently say to the Minister that, if the consultation does not result in changes, it will not pass through the House. My hon. Friend has said that he will not support it; I—as somebody who loyally supports the Government—will not support it if the funding formula does not change, both in relation to Southend and more generally. I agree with the principle of a national funding formula. I understand that an eighth of Government spending is on education so it cannot be an area that we do not look at and review, but it cannot be right that Southend is, as my hon. Friend said, one of four areas in which every school loses out—the only area to do so outside London. That seems wholly unacceptable.
The budget pressures are great. Some 80% to 90% of budgets go on staffing, while pensions and national insurance contributions are rising faster than the rate of inflation, whether measured by the retail prices index or otherwise. These are very difficult times. Schools do more now than they did in the past; year after year, schools are expected to do more with less. It is not just about cutting the obvious things. The excellent headteacher of Hamstel Infant and Nursery School, Mrs Clark, wrote to me to demonstrate that there would be a massive impact on that school’s ability to do what it was already trying to do, and that it was being asked to do more under the funding formula. That is typical of all the other primary schools. Other schools have already reduced the number of older staff, who are more expensive, and have replaced them as they retire early or at the right time with cheaper, younger employees.
If the NFF goes ahead, it will lead to redundancies. Learning support assistants will be made redundant and non-core subject teachers will be made redundant in virtually every school, including Southend High School for Girls, Cecil Jones Academy, Shoeburyness High School, St Bernard’s High School and Futures Community College, in addition to all the primary infants schools. I know that the funding formula does not apply to special needs schools, but there are parallel issues there as well. In addition, we have grammar schools that are underfunded and would benefit from a higher level of basic funding. At the moment, the position is untenable.
I welcome the capital expenditure that the Government are facilitating. I also welcome the work on opening out grammar schools. Roughly 100 grammar school pupils come from the Thurrock unitary area, which is represented ably by my hon. Friend the Member for Thurrock (Jackie Doyle-Price), who cannot speak for herself in the Chamber given that she is a Government Whip. Putting more grammar schools in Thurrock would help Southend, in that more local people—people in not only the Southend postcode but Great Wakering and the broader Essex and Thurrock area—would come in.
The Government must do something. They could do something on the area cost adjustment and on the London allowance. Lots of people will not come into Southend from an area in the outskirts of London where they could be paid more. The Government could do more on funding grammar schools, on transitional arrangements and on arrangements for bulge groups going through, which they are in secondary schools. Without doing that work and without Members of Parliament being on board, the proposals simply will not and should not get through the House of Commons.
It is a pleasure to serve under your chairmanship, Mr Rosindell. I congratulate my hon. Friend the Member for Southend West (Sir David Amess) on securing this important debate. I am grateful for this timely opportunity to discuss the details of the proposals for introducing a new national funding formula. I have known my hon. Friend for as many years as he has known me, and I assure him that I do not intend to palm him off with fluffy platitudes.
We are now more than halfway through the consultation process on these proposals, and we have heard views from across the school sector and from all parts of the country. Throughout the consultation period, we are considering all representations from local authorities, teachers, governors, parents and hon. Members in this House. We are listening carefully so that we can ensure that the final national funding formula is the right one.
Many Governments have avoided introducing a national funding formula. We have grasped the nettle. It could be argued that in a time of fiscal restraint, we should have avoided introducing a national funding formula, but we think it is right to introduce such a formula and are proceeding with the consultation with the intention of introducing that formula. It is an open and transparent consultation, which is why it includes illustrative allocations for every school and local authority in England, calculated on the basis of figures for 2016-17, to help schools and others to understand the impact of the proposals. Those allocations are only illustrative.
The new formula will apply, as my hon. Friend the Member for Southend West said, in 2018-19 on the basis of a soft formula, which means that the local school forum can alter the allocations within the funding envelope for Southend. We have already announced that for 2017-18, no local authority will see any fall in its funding levels.
We believe that what we are proposing achieves the best balance between the different elements of the formula—between the core funding for every pupil and the extra funding for those with additional needs, and between the funding that relates to pupils’ characteristics and the funding that supports schools to meet their fixed costs. Those are complex trade-offs, which is why we are consulting for a full three months on the proposals.
The single biggest element of the national funding formula will be a basic amount that every pupil attracts to the school. That will account for around three quarters of the total schools block—about £23 billion of the total £40 billion. We are clear that significant funding should be directed through the formula to children from disadvantaged backgrounds who face entrenched barriers to their education. Schools that are educating those children should receive extra resources, so that they can support those children to do as well as their peers. We propose to spend more through the formula than is currently spent on pupils who start school with low prior attainment compared to their peers, so that they can get the extra support they need to catch up.
Overall, we want to maximise the amount of funding spent on factors that relate directly to pupils’ so-called characteristics. Our proposed lump sum of £110,000 per school, regardless of its size, is just below the current national average if we aggregate the 150 local formulae in the country. It is significantly below the sum that Southend uses locally, but we still believe that the lump sum is an important element of the formula. Our proposals recognise that all schools need a fixed element of funding that does not vary with pupil numbers and characteristics, to provide a level of certainty. One reason—it is not the only one—why Southend schools face these percentage reductions is the difference in the lump sum figure.
The decisions we have made in balancing the formula will certainly have different effects across the country, depending on how they differ from decisions that local authorities have taken on their local formula. The anomaly is in the local formulae, rather than in what we are proposing in the national formula. In the case of Southend, the current local formula uses a higher basic per-pupil amount than the figure we propose in the national funding formula. Southend also concentrates funding for deprivation more narrowly. In the national funding formula, we want to spread deprivation funding more broadly and further up the income spectrum, so that we can target additional funding to pupils who are not necessarily eligible for free school meals but whose background may still create a barrier to their education.
We know that some areas and schools will disagree with the balance we have struck in the proposals. That will be the case particularly in areas where the proposed national funding formula will mean a lower level of funding than the current baseline for 2016-17, such as in Southend. We are keen to hear views on whether we have got that balance right and welcome any additional evidence through the consultation. We will look to change our proposals where the evidence shows clearly that the balance needs to shift.
I took on board the advice from my hon. Friend the Member for Southend West, which will trump any advice we receive from experts across the country. He argued for a de minimis funding level of £4,800 per secondary school pupil, and his advice will be considered as part of the consultation process.
While there will be different views about the precise balance of the factors, there is certainly a consensus, as my hon. Friend the Member for Rochford and Southend East (James Duddridge) confirmed, that we need a national funding formula and a fair funding system that gets resources to where they are needed most. No matter where children live and whatever their background, prior attainment or ability, they should have access to an excellent education. We want all children to be able to reach their full potential and to succeed in adult life. That ambition can be achieved only if we have a fair approach to funding, whereby funding relates directly to children’s needs and the schools they attend.
Under our proposals, the funding system will be clear, simple and transparent for the first time. Similar schools will be treated in the same way right across the country. We will no longer see the wide range in funding levels that we see now, and it will no longer be the case that the amount a child attracts to their school depends on where they live or their school’s location. Our proposals will end the postcode lottery in school funding and extend opportunity across the country.
I want to give my hon. Friend the Member for Southend West a minute to conclude at the end if he wishes; if not, I will plough on. I am hugely grateful to have had this opportunity to look closely at how we can ensure fairer funding for our schools. It has been very useful to hear from my hon. Friends for Southend West and for Rochford and Southend East and to take time to consider the important issues that they both raised.
I am making the point that we are aggregating 150 separate local formulae into one national funding formula, which will inevitably mean there will be changes. That is particularly inevitable, mathematically, if we then illustrate the new formula on the basis of existing figures. However, I understand my hon. Friend’s points. As I said, these are illustrative figures and will have no impact on 2017-18. The overall level of school funding, at £40 billion, is the maximum amount we have ever spent on schools. It will rise in the years ahead. Schools will receive more money if their pupil numbers go up and if their pupil characteristics change. We expect school funding to be at about £42 billion by 2019-20. That does not mean to say that the formula will not have the impact we are illustrating; they are illustrative figures only.
Question put and agreed to.
Superfast Broadband: Rural Communities
[Mr Graham Brady in the Chair]
I beg to move,
That this House has considered the rollout of superfast broadband to rural communities.
It is, as ever, a pleasure to serve under your chairmanship, Mr Brady. Anyone wondering why broadband should be of concern to me and my constituents could do no better than to look at the briefing paper prepared by the House of Commons Library for today’s debate. If anyone is looking for Orkney and Shetland in just about any of the various league tables in that paper, do not bother looking for us at the top of most of them, because we are generally at or around the bottom. We are the sixth lowest UK constituency for superfast broadband availability, and in the table for average speeds, the situation is even worse—we are fourth lowest. The only table where we feature near the top—fourth from the top—is unfortunately the one showing the percentage of households in constituencies that are unable to get connection speeds of 10 megabits per second or more.
I congratulate the right hon. Gentleman on securing the debate. When we look at the maps, it is quite obvious who is in or near the relegation zone, and his constituency is indeed there or thereabouts, but does he agree that, within the confines of those maps and that assessment, there are smaller areas within larger constituencies that are also very badly affected in terms of not having superfast broadband access?
Indeed. Breaking the picture down to ward level gives a much better idea of what is happening on the ground, but even when one looks at the statistics that are provided, one does not have the full story. I know from engaging regularly with BT in my constituency that it will say that x number of people within an area now have broadband access—it is doing that within postcode areas, essentially—but one will find that, even within the specified area, the people who can actually get superfast broadband will not be the same as those included in the headline figure.
I congratulate the right hon. Gentleman on securing the debate. Only last week I received a response from BT in relation to the superfast extension programme. It informs me that
“even when improvement work is complete, there is no guarantee that everyone will access faster broadband”
speeds in rural areas. Has the right hon. Gentleman any comment to make about that?
I could make many comments about that sort of thing, but I fear that you would rule me out of order, Mr Brady. It does, however, illustrate the frustration that many people in rural communities feel, and it is becoming more acute. The evidence is growing that the disparity between the densely populated urban areas and rural areas is becoming ever wider.
If I can just make a second or two of progress, I will take as many interventions as I can later.
The problem is acute for people in rural areas and it is particularly serious for people in island areas—it strikes at the heart of everything that we seek to do in maintaining island populations. A critical mass of population is essential to maintaining the economy and the social viability of any island community. In a rural area that is close to an urban area, if someone loses their job or their business goes into administration or receivership, they can move or they can drive for another half-hour or hour to get another job. However, if someone in an island community loses their job and another one is not available locally, they leave the island, which means that another salary is taken out of the local economy, another school has a smaller roll and fewer people are using the local post offices—the list goes on. That is why connectivity is essential for us.
The right hon. Gentleman is correct—it is willing agreement—but it does not have to be like this. To his west and my north-west, everyone in the Faroe Islands is connected with at least 2 megabits. In fact, that was the situation three or four years ago and speeds are probably faster now. Everyone has 4G phone and there are undersea tunnels with a 4G signal. We cannot go between Gatwick airport and London and get a phone signal going through the tunnels. His point about population is absolutely right. The Faroese population will hit 50,000 for the first time in history this month or next.
The hon. Gentleman and I both know the Faroe Islands quite well and we both know that they have been able to achieve the things that our island communities have struggled to achieve because they start from the presumption of a service that is provided for the people on the islands first. It is not something that is driven from, as it is for his community and mine, people in Edinburgh or even Inverness, which is frankly not an awful lot better. It is community and island-centric provision. That is what matters.
Does the right hon. Gentleman agree that the problem exists not just at the end of the country where his constituency is, but in Cornwall? I cannot attribute this to my right hon. Friend the Minister. Superfast Cornwall, which is a partnership between the EU, the Liberal Democrat-led Cornwall Council and BT, is failing to roll out broadband in a satisfactory way for a lot of my constituents. Does the right hon. Gentleman agree that there is a problem there as well?
The hon. Lady has the advantage of me. I was mildly and pleasantly surprised to hear that we still have a controlling interest in Cornwall. I am sure that my colleagues there are doing their best in very difficult circumstances. I am sure equally, from the tone of her intervention, that the hon. Lady will be doing everything she can, in a non-partisan way, to work with them.
Let me make progress for a minute or two. Ofcom’s “Connected Nations” report in December 2016 gave us a good snapshot of the overall picture. Average download speeds across the UK as a whole are now running at 37 megabits per second. However, 5% of premises, which is about 1.4 million, are unable to receive speeds faster than 10 megabits per second. Superfast broadband—that means speeds greater than 30 megabits per second—is now available in 89% of premises, which is more than 25 million, across the whole of the United Kingdom. However, those high-level, headline statistics actually illustrate the acuteness of the divide—the growing divide—between urban and rural communities. In Scotland, 43.9% of people living in large urban areas, as opposed to 7.9% in remote urban areas, are able to receive speeds classed as superfast. Those unable to reach the 10-megabits-per-second threshold constitute 1.6% in large urban areas, as opposed to 54.3% in very rural areas. That is a good illustration of the gap between the digital haves and have-nots—the rural and the urban.
First, I must make it clear that I fully support the roll-out of rural broadband. It is crucial for the highlands, the islands and, indeed, the borders of Scotland—if I did not say that, my mother-in-law in the highlands would kill me. The right hon. Gentleman might not be aware that many households and businesses in urban areas, and particularly in areas of commercial deployment, are also being missed and left with very slow speeds.
The position will never be uniform across any community but—I think that this distinction is material—there is a range of opportunities available in urban areas that are simply not available to those of us in more rural areas. It is invidious to play one side off against the other—in making the comparison between urban and rural, I am merely highlighting the difference and not trying to set one community against another.
Does the right hon. Gentleman share my view that it must be just a coincidence that, in many of the areas selected for commercial roll-out, which the hon. Member for Edinburgh North and Leith (Deidre Brock) talks about, BT seems not to have connected with fibre some of the small business parks and light industrial estates? I am sure he will agree that there is no way that that can be because BT is trying to make some money out of leased fibre lines to those premises.
I do not want to turn this into a whinge-fest about British Telecom, because that is just too easy. Our role in this debate is to look at a more strategic picture. The fact is that where there is provision, business and economic development follow. That is why it needs strategic, political and regulatory intervention. It is in all our interests that we maintain the widest possible spread of economic development. If the political will and regulatory effort is put into getting the roll-out, we will find that the economic opportunities follow.
The final illustration I have on the difference between rural and urban broadband is that I asked my staff to run broadband speed tests on their own machines. I asked my caseworker in Shetland to run the broadband speed checker first of all. On broadband.co.uk, she recorded a 0.3 megabits download speed. My researcher based in the House of Commons, who has an address in Surrey, did the same test and came up with 184.12 megabits per second. If that is not a digital divide, I really do not know what is.
Is it not right to note—as the hon. Member for Edinburgh North and Leith (Deidre Brock) did—that there can be premises in an urban area sitting cheek by jowl with others where there are enormous disparities? Does the right hon. Gentleman also recognise, and share my intense frustration, that millions of pounds of public money is sitting in bank accounts ready to hook up homes and premises, but all too often excessive caution, or the terror of being found in breach of state aid rules, prevents that money from being spent?
I confess that of the many difficulties I have encountered in the years I have been dealing with this issue as a Member of Parliament, that is one I have not come across. However, what the hon. Gentleman describes would frustrate us all. The difficulty is that this problem is now beginning to undermine Government policy across the board. The Government as a whole have an interest in the Minister’s Department taking a lead in driving it out.
We are forever encouraging our farmers to diversify, saying that they should be setting up holiday accommodation and finding different ways to bring people into the countryside and add value to their product. Bluntly, however, that requires good connectivity—without that it will not happen.
I recently had contact with a postmistress in Shetland who tells me that her business as a postmistress is now being adversely affected by the intermittent service and extremely slow broadband speeds that she has to deal with. She says customers at the post office are being seriously affected by long waits because of the internet cutting out. As well as the difficulties that slow broadband speed causes her personally, it is considerably affecting her ability to provide a reliable post office service to that community in Shetland. There is a broad measure of political consensus in the House on the provision of post office services, but again, in the areas where it is most challenging it is being undermined by poor connectivity.
I will offer another couple of examples of how this problem affects my constituents. I recently had contact with one constituent in North Roe, right at the north of Shetland, who told me that in one week he had missed out on approximately £800 of potential grant funding for marine equipment as he was unable to open emails and download attachments. He says that he cannot submit fisheries or crofting forms online and that after 5.30 pm he need not even bother trying the internet, such is the quality of service he gets. The best example I got was also from a resident of North Roe, who told me that he tried to load the BT speed tester on his machine but did not have sufficient connectivity to load the page for the test.
The most interesting example came just this week in a piece of correspondence from a constituent in Westray. For the benefit of younger or newer Members in the House, that was a letter, which is what we used to get from constituents. He tells me:
“Access to broadband is not a luxury these days. We do banking and shopping and book flights to the Scottish mainland on the internet, and we communicate by email. Information that used to be on paper is on webpages now. I wrote to Ofcom about BT’s service and their reply referred me to web pages where I could learn about how to escalate my complaint and seek compensation”.
To load those pages, however, he would be required to go to the library in Kirkwall, which is a nine-hour round trip from his home in Pierowall in Westray.
The difficulty is that broadband roll-out, whether south of the border in England and Wales, or in Scotland through the Scottish Government—in partnership with Highlands and Islands Enterprise and BT in my area—is driven by targets. Indeed, the targets themselves may often be misleading. The next generation of roll-out, however, is not just going to be confined to broadband. For us the opportunities come from the availability of 4G and 5G—whenever that becomes a feature of our daily lives.
The Minister should perhaps be talking to his colleagues in the Home Office about the roll-out of the emergency services network. The contract has been given to EE, and that is going to give it an obvious advantage in having control of infrastructure across the whole country. The opportunity is there for much improved 4G coverage through EE. I give EE credit for the way in which it has engaged with communities, certainly in my constituency, but I hear increasing complaint about its willingness to engage with other mobile companies. It tells me that it does not know what features are going to be found in the design of this roll-out, and that it does not know what the mast heights and positions are going to be. This generational opportunity to improve the service is an opportunity for Government Departments to work together instead of in their own individual silos, to ensure that when that provision is ultimately rolled out it brings the maximum benefit to communities across the whole of the United Kingdom and companies across the whole of industry.
The right hon. Gentleman is making a constructive point about the roll-out of mobile telecommunications. Are not the industrial strategy and the Digital Economy Bill an opportunity for the Government to look at this 5% of areas, which will predominantly be rural, that are not included in the target of 95% by 2017? A pilot scheme in the Shetland and Orkney Islands and Ynys Môn would be a great example for that going forward.
Indeed; I can think of few areas that would be more suitable. I say that not entirely with my tongue in my cheek, because I suspect that anything that can be made to work in the constituencies and communities that the hon. Gentleman and I represent could be made to work anywhere else.
The understanding I want the Minister to take from today’s debate is that the days of centrally driven, top-down roll-outs are over. They have achieved a significant amount in getting targets met and getting out to the low-hanging fruit, as it were. However, for that remaining 5% of areas there will have to be a different approach altogether.
I am grateful to the right hon. Gentleman for giving way again—he is being very generous with his time. I absolutely agree with him on that point. Devon and Somerset are the last areas to get their phase 2 contract awarded, but once that phase 2 contract is awarded and the premises within the 91st to 95th percentiles are known, why would we wait to deliver the universal service obligation sequentially? If we know what the final 5% is, let us get on with delivering the USO concurrently and employing whatever technology suits rather than a central solution from above.
I think that will be the answer to filling the last 5%, but there will not be a single solution. I am frustrated by the way in which the fibre roll-out is now holding some things up. We know that the last 5%—or whatever it will be—in Scotland will be delivered by Community Broadband Scotland, which can only come in when we know what is left. However, those responsible for the fibre roll-out wanting to sweat the asset, effectively, is leaving communities waiting at the end of the queue.
Does the right hon. Gentleman find the ad hoc nature of much of this strange? I happened to come across some people from EE once who said, “If only we could get the Northern Lighthouse Board sites, that would help,” so I wrote to the Northern Lighthouse Board, which said, “Yes, no problem at all.” However, nobody is co-ordinating things centrally. It is similar with Vodafone and EE at the moment—opportunities are constantly being missed. Sometimes a bit of central thinking is needed, and I do not think that has been happening at all; it is far too ad hoc.
That is a good illustration, though I will not, on the one hand, make a plea for decentralised thinking and then on the other berate Ministers for not taking control of everything. There is a strategic role for Ministers at the centre, but those who are charged with broadband delivery in the hon. Gentleman’s area and mine—Highlands and Islands Enterprise, for example—need to be much more focused on community engagement and taking communities along with them than they have been hitherto. That will be absolutely essential when it comes to finishing the last 5%, or whatever the margin will be.
For some years now I have organised a series of digital forums in Shetland and Orkney. The last one we took out to Skeld in west Shetland—one of the most poorly served mainland Shetland communities for broadband coverage and mobile phone connectivity. During the forum I got an explanation of the inadequacies of the roll-out that, frankly, I do not ever expect to be able to improve on. A constituent who had worked for 30 years in the NHS said she suspected that if the NHS had left all the difficult cases till last in those 30 years, most of the difficult cases would have died. Right hon. and hon. Members can probably join the dots on the analogy being drawn. It is one that the Minister would do well to listen to.
I welcome the opportunity to contribute to this debate, Mr Brady. As a former parliamentary private secretary to the Minister’s predecessor, my right hon. Friend the Member for Wantage (Mr Vaizey), I have an active interest in this issue, both from a policy and constituency perspective. Active, fast, reliable, affordable broadband is vital for families, communities, businesses and public services across my rural constituency. In South East Cornwall and across the UK, superfast broadband is now as essential a utility as water and energy. Indeed, I consider it to be the fourth utility.
Our economy, whether urban or rural, is now increasingly dependent on high-quality broadband. I welcome the Government’s commitment to introducing a broadband universal service and the good progress that has been made locally under the superfast project, but it is not good enough. We must strive for 100% connectivity, particularly in isolated rural areas where good internet access is the lifeblood of successful local economies and thriving communities.
I, like many other hon. Members, continue to receive numerous complaints from constituents about poor broadband availability. Unfortunately, many of my constituents do not understand that Superfast Cornwall and, as I alluded to earlier, a partnership between the Lib Dem-led Cornwall Council, the EU and BT are responsible for delivering broadband in my constituency. I will highlight several cases in South East Cornwall that demonstrate the urgent need to provide universal access to superfast broadband.
There was a partnership between the European Union, Cornwall Council and BT. Cornwall was one of the first areas in the country to roll out broadband before the Government undertook their programme, and it was leading on this at one time. Unfortunately, however, the service now being provided to little villages is absolutely dire; they cannot even get a broadband speed of 2 megabits per second.
Cornwall and tourism go together like jam, scones and clotted cream. However, superfast broadband and good internet access is a vital ingredient for running a successful holiday business and retaining and attracting clients. I know at least one small holiday letting business that cannot secure bookings or market effectively due to poor connectivity. That is unacceptable.
Another example of the negative impact of failing communications infrastructure was highlighted to me last week by a local business that is based in Liskeard, although the owners live near the village of Duloe. They are in a notorious broadband notspot and their company operates 24/7 using robotic technology. If the owners had a decent broadband connection, they would be able to look remotely to make sure that the machines are running. Instead, they have to undertake a round trip of an hour and a half to check the machines over the weekend, which is a waste of money and time. The impact on productivity and on the company’s balance sheet should not be underestimated.
Finally, the affordability of high-quality broadband must be addressed. Although I acknowledge that the UK has one of the most competitive communications markets in the world, the cost of business broadband remains too high. An established scrap metal business in my constituency suffers from poor connectivity, meaning that the legally required reporting of vehicles to the Driver and Vehicle Licensing Agency online is virtually impossible. The firm was offered an expensive corporate ethernet solution by BT and Superfast Cornwall. Surely more affordable consumer-style alternatives should be available for small businesses, which work on very tight financial margins. I ask the Minister to consider that carefully and please, please look at how we can ensure that Superfast Cornwall is improving the situation in South East Cornwall and addressing the real notspots.
It is a pleasure, as always, to serve under your chairmanship, Mr Brady, and to follow the hon. Member for South East Cornwall (Mrs Murray). I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on how he set out the concerns that many rural communities have across the United Kingdom. There are notspots in urban areas but, as somebody who lives in an urban area during my working week but who goes home to a periphery area, I notice the difference. I can use 4G very comfortably in my London flat but it is difficult to get it in rural areas.
It comes down to where people are. If they are in a bad area, whether in an urban or rural part of the country, the fact is that they do not have broadband. That is really what matters, not whether they are in a rural or an urban area. It affects people just the same.
I am grateful for that intervention, but I was on the hon. Gentleman’s side when I said that there are notspots in urban areas. However, people there have alternatives. In rural and periphery areas, people rely totally on the roll-out scheme, which has reached 75% in my area. Like the right hon. Member for Orkney and Shetland, I hold regular broadband hubs with communities across my island constituency. We are looking for solutions. We know the problems and issues. On the last occasion, I got the CEO of BT Openreach there to come with his team. He went with the engineers to check the difficult terrains and gave a commitment that there would be 95% coverage by the end of the year.
I have asked the Minister these questions a number of times. Given the Digital Economy Bill and the talk of a universal service obligation by 2020, who will deliver that extra 5%? We in the House of Commons need to join to work together for the 5% club—those not covered by the 95% roll-out, whether in Scotland, Cornwall and other parts of England, Northern Ireland or Wales.
The hon. Lady is contradicting herself. She was saying how poor it was earlier. She is almost leading the way with the Liberal council and the European Union. The Welsh Government work in partnership with the European Union, which specifies certain criteria, including the number of households, which work against some rural communities. However, the Welsh Government have their own policies for those rural communities.
My point is that we need to work together and take a strategic approach. I support the Digital Economy Bill, and I believe that this is a golden opportunity for the Government to work towards helping the last 5% to get broadband at a decent level that can then be improved in future.
The point that the hon. Gentleman is making is exactly right. We are talking about the roll-out of superfast broadband, but before the Government race off and start delivering ultrafast, let us make it a priority to ensure that a minimum service of at least 10 megabits per second is available everywhere. We can start doing that now, rather than waiting until the end of the second phase of the Broadband Delivery UK roll-out.
That is absolutely right. The hon. Gentleman has now reinforced that point, and I agree totally. This is the second debate on the trot in which we have agreed. I want the Minister to know that there is no partisanship. I give the Welsh Government the same concerns that I give the UK Government, because we need to work together. I am not knocking BT Openreach either, because I have been out with their staff and seen some of the engineering difficulties they have to deal with.
The people suffering in the 5% are often not on the gas mains and pay more for their fuel. They pay exactly the same price for their broadband and mobile communications as people in inner cities, and they deserve Governments’—plural—time and effort on their behalf. That is the plea I make to the Minister, who is checking my constituency ratings as we speak. If they are high, I will take credit; if they are low, I will blame others. The 5% need to be considered as a priority. The Government and the Prime Minister have talked about an industrial strategy. Broadband should be part of it. We should be talking about giving businesses across the United Kingdom 21st-century communications to allow them to compete on a level playing field with those in other parts of the country.
I did not intend to speak because I thought that this debate would be over-subscribed. I have pushed my luck in coming here and speaking, but I speak for different parts of the United Kingdom, which are coming together to join me in the 5% club so that we can deliver 100% broadband coverage and better mobile telecommunications across the United Kingdom.
It is a pleasure to serve under your chairmanship, Mr Brady. I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing the debate.
The Minister will well know the problems in my constituency. He will know that if he drives across my constituency, he will struggle to get a 3G signal, let alone 4G. Most of my constituency is covered by 2G signal, despite the fact that its inhabitants are relatively affluent and that many run their own small businesses. We are, or would be, a thriving rural community, but sadly we are poorly served by our broadband connection. In Eddisbury, not 5% but a far greater percentage are missing out. I will highlight an example. One of my constituents is trying to set up a new business in a rural area: a pub, which will also be an invaluable community hub. I have a lot of thriving public houses in my area. I will not list them, but I encourage hon. Members to come visit.
My constituent wants to encourage and support other small businesses nearby, but he has no sufficient broadband connection. He is considering getting an uncontended leased line to guarantee that he can reach speeds of at least 20 megabits per second. He has been quoted £9,120 per annum for the line and an initial £13,000 in start-up costs. That is not untypical in my constituency. It highlights the problems that rural businesses face.
Another business has a multimillion turnover, but it had to move out of its small business park—my hon. Friend the Member for Wells (James Heappey) mentioned the small rural business parks not connected by BT—and over the border into Wales to the Wrexham industrial estate in order to access the broadband speeds that it needs. That is not acceptable for the rural communities in my area, which struggle to grow their businesses. It is perhaps typical of what is happening in Eddisbury.
The map helpfully provided by the House of Commons Library indicates that vast tracts of my constituency receive less than 28 megabits per second. Although the Minister’s figures indicate that superfast roll-out is at 78%, I argue that, in reality, signal is simply not being delivered to people at the end of a copper line 2.5 miles from the exchange. That is the problem. BT says to those people, “You can have a community fibre partnership and link up your home.” That is fine for those who have a spare thousand pounds or two to top up, but sometimes it costs £5,000 or more to connect a single premises.
My hon. Friend has hit on an important point that affects many of my constituents. Although we are getting fibre to the cabinet, there are lots of areas, especially in rural communities, that are well over 2 km from the cabinet on copper, which means that they lose the superfast broadband speed. Although they are technically connected to a cabinet with fibre, they are not getting superfast broadband.
That is certainly the experience of my constituents. They find it deeply frustrating and are at a loss for what they can do. It is important that those communities and premises are addressed before we start megafast roll-out elsewhere in the country.
I welcome the fact that there will be a universal service obligation of 10 megabits per second. I ask the Minister not to let the telecoms companies wriggle out of that obligation. Often, in order to deliver that speed in rural communities, they may well need to lay more fibre. The universal service obligation seems absolutely critical to the last 5% or, in the case of my constituency, to the last 22% or more.
I urge the Minister to look at how he can strengthen and support the universal service obligation, and I encourage constituents to download the Actual Experience software, which sends data about the appalling connections directly to Ofcom. The more information we get in real time, the more the lack of service delivered from the roll-out will be clear to the Minister. I therefore encourage him to take action to strengthen the USO and to put what pressure he can on connecting Cheshire and rolling out to the remaining premises in Eddisbury.
It is a pleasure to serve under your chairmanship, Mr Brady. I am delighted to speak in this important debate and I extend my thanks to the right hon. Member for Orkney and Shetland (Mr Carmichael) for securing it. This issue causes me and too many of my constituents too much frustration. Whole swathes of my constituency are excluded from the so-called digital revolution. Superfast broadband remains a pipedream. It is something we hear about and may even dream of, but we have yet to partake of its delights.
The situation has been improving across Scotland, not least due to the concerted and determined efforts of the Scottish Government. Statistics that say that 83%—modest as that is—of Scotland has superfast broadband mean nothing to those who do not have that luxury. It is certainly viewed as a luxury by those living in more remote areas. Indeed, if someone lives in a remote area, such statistics make their own lack of access to superfast broadband all the worse, as though they and their community’s challenges are being mocked by the progress elsewhere.
It is true that 83% of Scotland does now have access to superfast broadband, but Scotland is being left behind, as the figure for the UK is 89%. This gap is narrowing, but make no mistake: there is an unmistakable and identifiable gap. In my own constituency of North Ayrshire and Arran, the Scottish Government’s commitment to 100% superfast broadband coverage by 2021 is welcomed, and rural Scotland is impatient for it.
There was a great missed opportunity when the UK Government rejected Scottish National party amendments to the Digital Economy Bill that would have required the Secretary of State to introduce a broadband voucher scheme to allow an end user to access broadband, other than that supplied by the provider of the universal service order under part 2 of the Communications Act 2003. A consultation by the UK Government has been announced, which I welcome wholeheartedly, but our proposals would provide a replacement for the previous UK Government broadband connection voucher scheme, which ran from 2013 to 2015 and encouraged small and medium-sized businesses to take up superfast broadband, helping more than 40,000 such enterprises.
Our businesses in rural areas rely on good, reliable broadband connections, and there is still much to be done. We have made progress, but, as many of my constituents would testify, we are not there yet. Digital connectivity is an integral part of economic development. For a modern, thriving, successful economic future, we need first-class digital infrastructure. Superfast broadband is about growing our economy and economic opportunities. It is about connecting people, about social inclusion, about empowering our young people and the next generation. First-class digital infrastructure is required to keep all parts of our economy competitive and thriving in a global market. That must include our rural areas.
I am tempted at this juncture to speak about mobile signals, but time forbids me. Suffice it to say that on the island of Arran there are huge notspots, which is simply not good enough.
I want to turn for a moment to what I believe is the UK Government’s lack of foresight in this matter. Rural mobile connectivity is suffering and struggling because successive UK Westminster Governments have seen the licensing of mobile spectrum as a cash cow rather than as critical infrastructure and something that is absolutely essential for our communities and our whole country. It seems that the only criteria that were considered when the 3G and 4G spectrum was auctioned were raising large sums of money.
I will finish my point and then take the right hon. Gentleman’s intervention.
It seems that little consideration was given to how great the coverage could and should be. How is it that the German Government required 98% coverage, but the UK settled for 95%? Greater funds were traded for lesser coverage, and that has had the effect that whole swathes of the country and my constituency are missing out. It is simply not good enough.
Perhaps the right hon. Gentleman will explain, if he gets an opportunity to speak later, why the German Government succeeded, whereas the UK Government appeared to fail.
Scots have access to a 4G signal only 50.4% of the time, suffering some of the lowest access to mobile data in general, and as of December 2015 nearly half of Scotland’s land mass had no data coverage whatever, compared with only 13% of the UK as a whole. That is simply not on, and I am keen to hear what the Minister thinks of those statistics. I want to hear what reassurances the Minister can give to my constituents in North Ayrshire and Arran, who are so poorly served in this so-called digital revolution. What reassurances can he give to all the people across Scotland who are so poorly served that it affects their ability to connect with people, their ability to study and their ability to run their businesses as effectively and completely as they would like?
Scotland lives and competes in a global environment, and all parts of Scotland need to be part of the digital revolution to compete properly. I look forward to hearing what the Minister will say today to my constituents to show that he understands that.
It is a pleasure to speak in this debate, Mr Brady. I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for setting the scene so well. I have a great deal of interest in this issue. As the figures and the stats will show, in my constituency of Strangford we lag behind on accessibility. To someone of my generation, a megabyte would have meant a really large bite of some kind of food. That was certainly the perception. I never dreamed of the day when it would be a part of everyday speech. More than that, I never dreamed that it could play a real part in the ability of a business to compete and thrive. This is the case, however. We live in an age when online provision is almost considered a human right and our businesses do not have a chance without it. For that reason, in December last year I tabled a written question:
“To ask the Secretary of State for Culture, Media and Sport, what assessment she has made of the level of investment required to bring broadband access in rural communities in (a) the UK and (b) Northern Ireland up to the average level in all communities.”
The answer was simple and also stark:
“95% of UK premises are expected to be covered by superfast broadband by December 2017. The 95% figure is a UK average and individual areas, including rural parts of Northern Ireland and other areas of the UK, will have different coverage levels.”
We are one of those.
“All premises which do not have a speed of at least 10Mbps will be able to request an upgrade to at least this speed under the Universal Service Obligation.”
The Minister told us that.
“Furthermore providers and local bodies will also be able to access funding for full fibre connectivity as announced at the Autumn Statement 2016, once those proposals have been finalised in early 2017.”
That gave me lots of information, but unfortunately it did not give me the information that I needed. That is what has been done to provide support to rural communities. What co-operation is taking place with the devolved Minister in the Northern Ireland Assembly to see better connection for all of Northern Ireland, but most especially the rural communities?
I thank the hon. Member for Strangford, my constituency neighbour, for his contribution and for giving way. Does he agree that the previous voucher scheme brought much benefit to our constituents, particularly those who live in higher altitudes, and particularly businesses? Does he think that the reintroduction of a voucher scheme would provide a necessary financial incentive to people who try to conduct business in rural communities?
I thank the hon. Lady for her intervention. I agree with her point, which she made very well. Perhaps the Minister will respond to that in a positive fashion. I am going to ask for such things as well.
For us in Northern Ireland the issue is clear. I understand that the Northern Ireland project has been allocated more than £11.5 million of Government funding for phases 1 and 2 of the superfast broadband programme.
Just before the hon. Gentleman gets on to the Northern Ireland context, I want to nail the issue of notspots in urban areas. He mentioned the figure of 95% for overall superfast coverage by the end of 2017. Superfast coverage for rural areas is 59%, which shows the difference between urban and rural.
The Minister clearly said 95%, and the hon. Gentleman has pointed out that that falls to 59% in rural areas. In my area, the figure would be similar to that.
To relate things to my constituency, the BDUK scheme has made superfast broadband available to 1,871 more premises than previously, which must be good news. I welcome the progress. The average take-up of superfast broadband under the BDUK Northern Ireland project area is 27.3% and, more broadly, the total Government and commercially-funded superfast coverage in Strangford is 79.1%. I know that the Minister probably has all the figures written down; statistics are no doubt regularly handed to him. These points are all great soundbites, but the difficulty, for me, lies in the fact that the estimate from the available supplier data is that coverage will be around 84.5% by the end of December 2017. That is a massive distance away from the 95% expectation that the Minister has indicated. It translates to a 10% disparity in my rural community. Therefore, I again ask the Minister what can be done, and indeed what will be done to bridge the gap between target and reality in my constituency.
A member of my local council is not able to get broadband in his home. His neighbour three doors along can get it, but anyone living in the other direction is stuck in the dark ages. There is something wrong if that happens. Businesses in rural areas struggle to keep up with competition that can sell online, which is the rage these days. I received a standardised email from my constituents—I call it a round-robin; it is the sort of thing MPs get regularly—containing an interesting request that we will all have heard, to end the franchise of Openreach. That is one opinion that has been put forward, and perhaps consideration will be given to how best to go about it. I am sure the Minister will respond.
I do not know whether that is the answer. Perhaps the competition would be an encouragement to stretch further for customers. However, I do know that it is grossly unfair that my constituents are unable to gain the coverage that they deserve. Today I want simply and firmly to put the question back with the Minister—to bat the ball right to his feet: what is to be done for the rural communities of Strangford? What is being done to help schoolchildren access homework resources, and to enable businesses to stretch further and achieve more and parents to multi-task and shop online? All those things are part of day-to-day life—but not for too many of my constituents. That is why I ask for more to be done. When will that happen for Strangford, and the rest of Northern Ireland?
It is a pleasure to serve under your chairmanship, Mr Brady. I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for securing today’s debate. Although the content of my email inbox varies, the issue of broadband always remains one of the most important issues affecting my constituency. I am pleased to see that my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) is here today. Our constituencies share a border and sometimes I feel that, as we are on the fringe of what is known as the central belt, people believe that the benefits of the big cities fall to us too; I assure the House that they do not. Like other Members, I am regularly contacted by constituents who are frustrated by slow internet speeds and the way in which broadband infrastructure is being implemented in their area.
As has been discussed in previous debates, constituents are frustrated because they do not consider broadband to be a luxury. It is seen as the fourth utility, essential for business, entertainment and education. If we accept that view, we must give constituents the same right to it as they have to gas, electricity and water. We would never consider telling our constituents, “We know that your water only comes on during certain parts of the day, but we hope to have full water supply rolled out to all properties by 2020.” Constituents would not find that acceptable. Equally, we cannot expect them quietly to tolerate an inadequate fourth utility. I understand that there is no technological magic wand that we can wave over areas with poor connectivity. However, we need to ensure that all tiers of government, including local authorities, are provided with the necessary funding for roll-out to be undertaken as quickly as possible.
In some instances, companies have indicated that it is not commercially viable for them to build the infrastructure that would deliver superfast broadband to certain areas. In my own constituency, Wemyss Bay, Inverkip and Kilmacolm have been particularly affected by that commercial gap. By the way, Kilmacolm got piped clean water only in 1878. Some may be surprised to know that Inverclyde, just 40 minutes from Glasgow, is relevant to a debate on rural broadband. My constituency is, in fact, Scotland in microcosm. Most of the population lives on a relatively thin strip of land, where we have densely populated towns with large housing estates. That area is hemmed in by the coast and undeveloped hills. Surrounding the most populated areas we have farmland, which includes sheep and llama farms. We have sustainable forestry providing fuel for biomass heating, and rural villages, along with smallholdings and isolated farm houses. The sort of obstacles that inhibit full roll-out of superfast broadband all exist in Inverclyde, and include the river, hills, flooding and sparsely populated areas. However, Inverclyde’s diverse geography, along with its limited size, actually makes it an ideal location for pilot schemes or for testing more effective ways in which to roll out superfast broadband; so I urge broadband providers to come to Inverclyde and prove how good they are. Ultimately, if we cannot meet the challenges of getting superfast broadband to Kilmacolm or Inverkip, those of providing an equivalent service in Argyll or Sutherland will be insurmountable.
What other potential solutions are there, and, more importantly, are they economically viable? Virgin Media’s Project Lightning includes the village of Kilmacolm, and I am looking forward to seeing how well that progresses. Recently Vodafone, in conjunction with Telefonica UK Limited, announced that a new base station is planned in the Wemyss Bay area. I am hoping that that is a step towards providing 21st century coverage to the surrounding area. Satellite solutions undoubtedly have their place, and I have recently brought the National Farmers Union of Scotland together with satellite solution providers.
Inverclyde is much like many other constituencies. We have many suppliers, not necessarily working together, fighting for the most profitable section of the market, while the more rural areas are neglected. When the day comes that Inverclyde has 99.9% coverage, I shall be knocking at the Minister’s door and speaking up for the 0.1%: no household left behind. We have a fragmented approach when we need a joined-up solution. MPs are grappling with the technology and trying to find bespoke solutions for their constituency, when the UK Government, instead of abdicating responsibility, should be overseeing the roll-out, defining best practice and funding the less commercial areas.
I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on obtaining the debate. The constituency he represents and the Outer Hebrides are partner islands, so to speak. It is time that the UK upped its game because island groups are showing the way. Unfortunately, it is not the Hebrides, nor is it Orkney and Shetland, unfortunately for him; it is the Faroe Islands. During the debate, I could confidently text the Faroe Islands and get a response. Regardless of what someone is doing there—fishing, looking after sheep or, more likely, working in the office on a high-tech job—they will be able to respond.
I heard with wonder the remarks about urban notspots from the hon. Members for Eddisbury (Antoinette Sandbach) and for Wells (James Heappey). The idea seems to be unknown in the Faroe Islands. All of Tórshavn gets 100 megabits broadband. That is equivalent to Lerwick, Kirkwall or Stornoway getting 100 megabits—smaller towns are also getting that. In the Faroe Islands, 20 megabits is normal and 5 megabits is a minimum. A few minutes ago, I asked two diplomats in the Faroes whether any houses there are without broadband. Apparently 100% of houses have it. That is all the more remarkable given the islands’ size and topography. I asked them whether they ever auction spectrum. They never do. They decided to spend that money on investment in the ground.
Jan Ziskasen, the head of Føroya Tele, came to London with me to the Department for Culture, Media and Sport and basically offered 4G coverage for the two island groups. He is ready to do it with the flick of a pen—he has already scoped it—but it has still not happened. The Faroese are ready to come in and do what the UK has been unable to do for island groups. Interestingly, when he left the Faroe Islands, he noticed that his 4G speed was 210 megabits, but on the steps of the DCMS in Whitehall he was getting only 20 megabits. Once again, a small island group is shaming the UK. He also tells me that his undersea tunnels have strong 4G coverage. Perhaps he might even throw in connectivity on the Gatwick tunnels for the Londoners while he is fixing the problems that so clearly need to be fixed on the islands.
The island group has seen an improvement of 310% connectivity in the last year or so. On the face of it, that is tremendous, but we still find ourselves bottom of the league at 36% connectivity. When we start at such a low base, percentage increases seem impressive. As I said to the right hon. Member for Orkney and Shetland, we need centralised and strategic thinking, and not just ad hoc stuff, such as MPs who happen to be proactive writing to the Northern Lighthouse Board or making Vodafone and EE talk to each other. There is a huge role for the Government, but there is also a role further down. In the village of Ardmhòr, at the north end of Barra, one house that has a cabinet quite near was getting 50 megabits. Closer houses were told by BT that they would not get any connectivity at all. Luckily, the local engineer, Donald Campbell, came in and knew what to do to fix the problem, and it was fixed.
I wonder whether the leased fibre lines are part of the money-making scheme described by the hon. Member for Wells (James Heappey). In Ardveenish—the peninsula next to Ardmhòr and the industrial zone of Barra, my native island—there is no broadband at all. Barratlantic told me last week that BT has offered to provide it with broadband at the cost of £26,000 for a line. I hope BT will prove me and the hon. Gentleman wrong, and that that this is not a cynical scheme.
We have to realise that these are not technical problems. As my hon. Friend the Member for Inverclyde (Ronnie Cowan) pointed out, Kilmacolm had water connectivity in the 1880s. If the Faroese have broadband and mobile phone connectivity, it could happen now for us if the will were there. The Faroese are certainly willing to come into the most difficult areas in the UK—our island groups—and do it. They are talking about speeds of 20 megabits. In this Chamber at the moment there is only 15.5 megabits. The UK should be ashamed of what is happening. The 4G speed down here is 27 megabits.
A lot can be done, but where is the will and where is the way? Politicians surely have to take the lead. The strategic thinking that should have happened needs to happen at a Government level. We also need to start thinking about who knows best on the ground. Hopefully, by the end of this, if we listen to the Faroe Islands and follow what they are doing, I will be able to Skype the hon. Member for South East Cornwall (Mrs Murray). We could have scones. By the end of the afternoon we could be getting on very well without having to spend the cost in carbon of meeting each other in London on a weekly basis.
I did not mean to go on for so long. I might have to leave before the end of the debate, because I have a constituent who wants to talk about broadband this afternoon and I am half an hour late for my meeting.
I am not sure whether these broadband debates are cathartic. There is certainly an unleashing of frustration from every MP, but for a number of reasons I am always more frustrated by the end than I was at the start.
I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing this debate. Such debates are challenging to sit through because we do not focus enough on the reality of the problem and the challenges of fixing it, but every time we discuss it is beneficial. It is undoubtedly one of the biggest issues for our constituencies.
We should level-set where we are at. Our frustration about lack of coverage stems from the understandable pragmatism behind the Broadband Delivery UK contracts, which stretched the money as far as possible, and from the target to reach 95% of premises, which leaves people behind. We should have foreseen that earlier and made attempts to fill the gap. We all get frustrated with BT, but a lot of the time unjustifiably so, because it will deliver on its overarching contracts.
I should like to focus on some of the specifics of what the Government are doing and the questions that remain outstanding. We know the strategy is the BDUK scheme and then the universal service obligation. I will address the USO and fibre investment and quickly touch on rates and vouchers.
The USO is meant to be the catch-all to fill the gap for the 5%, but one thing that has not been discussed today is the fact that Ofcom’s last report in December put forward three scenarios to the Government, to which, to my knowledge, we have yet to hear an official response—the Minister will correct me if I am wrong. Scenario one said that the USO would be 10 megabits simple downloads; scenario two was for 10 megabits, but with more latency specifications and an upload speed of 1 megabit; and scenario three was a 30 megabits download speed. The regulator is at pains to point out that a decision rests with the Government. There are political decisions to be made about the infrastructure that we want.
Does my hon. Friend share my frustration about not knowing who to blame? Just when we think we have got our finger on it, and we go to the Government, they blame Ofcom. When we run to Ofcom, it blames the Government or the companies. There is a Bermuda triangle of blame and we just cannot get all three corners together.
In a future debate, we should address the fact that there is too much outsourcing of policy decisions to Ofcom. A lot of these decisions are political. I sometimes joke with my hon. Friend that he is the MP for the Faroe Islands, but the reality is that the Faroe Islands have that coverage because they took a political decision. They wanted that level of coverage and they took the policy decisions to deliver it. We could do the same, but we do not. We tend to pragmatism and say, “It’s going to cost a lot of money. How important is it? We’ll ask Ofcom and then shape the answer. Ofcom suggested this and recommended that.”
The hon. Gentleman makes 10 megabits sound like a dream that we aspire to, but given the rapid change in usage, will we be back here in five years having an argument about it? The Government will have fulfilled their obligations and ticked the box but will not actually have cured any of the problems we face.
That is an excellent point.
Let me explain why 10 megabits would be the wrong decision. Ofcom states:
“In designing any intervention, Government may want to consider the extent it should be designed to take into account further future growth in broadband usage. Doing so could help to ensure that consumers and business that rely on the USO are not left behind…Such an approach could support both better value for money by intervening once, and ensure that there is not a continual state of review, advice and reinvestment as requirements grow over time.”
If we go for 10 megabits now, we will be storing up more trouble for ourselves down the line. Let me jump ahead to a point that backs that up. There has been a lot of discussion about who will deliver the USO and about the high probability that it will be given lock, stock and barrel to BT—I think we need to be careful about that. BT’s response said:
“Existing technologies such as Fibre to the Cabinet and new technologies like long reach VDSL can offer cost-effective solutions for a 10M service but would require further investment if the requirement increased significantly, e.g. to 30M.”
That is a big “but”. If we specify a USO at 10 megabits, but what happens when we want to change it to 30 megabits? A USO does not entitle a user to free broadband. A telephony USO means that if someone does not have a telephony service, BT will provide it up to a cost of £3,400. We should imagine that in the broadband world. I do not have time to go into it today, but the detail of the Ofcom paper spells out different thresholds. Some hon. Members may think that the USO will fix everything for our constituents. It might mean that they are entitled to claim it, but it may give them a bill for thousands of pounds. What if it gives them a 10 megabits service? If they want 30 megabits in the future, they might have to pay for it again. We have to be so careful in how we implement this.
I am not going to address how much bandwidth we should use, but I will say that we need to raise our ambition. The Government need to put money into this, instead of trying to do it on the cheap. The right hon. Member for Orkney and Shetland should rest assured that the Scottish Government are committed, with R100, to 100% superfast, meaning 30 megabits. The Minister has great ambition around fibre, and the UK Government should step up and show the same ambition.
I am not sure how much time I have left, Mr Brady—
It is always a pleasure when the former Minister is here.
Let me make one final point, if I may. As we consider fibre deployment and the idea of vouchers, I will say that I am fully behind vouchers, but it is important that they do not lead to a trap whereby rural schemes such as Broadband 4 the Rural North, or B4RN, or the scheme on North Skye and in the Borders, are opened, so that any network can go on top, because it kills their business model. That must not happen. I know that is a big point of contention at the moment, so can we have vouchers and can we have them open? Let us ensure that the digital divide is closed and not cemented through bad policy.
I, too, congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing the debate and allowing us all to get these frustrations off our chest.
This debate is welcome, because the last time the House discussed broadband was prior to the publication of Ofcom’s “Connected Nations” report, which has been referred to today and which offered a progress report on the Government’s delayed roll-out of broadband. The debate has clearly indicated the continued frustration of hon. Members throughout the House, and I feel their frustration. The Ofcom report showed that Sheffield is the major city with the lowest superfast broadband coverage in the country. That is a useful reminder of a point that has been played out today—that although this problem predominantly affects rural areas and particularly island communities, as has been so passionately expressed, it is also a truly national issue, encompassing all nations, regions, cities, towns and villages of the UK, and so requires a national strategy.
The “Connected Nations” report found that although Scotland performed worst in the UK and England best, the headline data masked internal variations that cut across the traditional boundaries of rural versus urban. Indeed, of the 3.5 million homes that cannot receive superfast speeds, 1.7 million of them are in urban areas. In total, 36% of rural Scotland is in the slowest of slow lanes, and 25% of rural England, while 400,000 small and medium-sized enterprises in town and country do not have access to superfast broadband, with 200,000 being unable to access even the basic speed of 10 megabits per second. Almost a quarter of a million UK premises cannot get even the pitiful download speed of 2 megabits per second, and more than 600,000 premises cannot get 5 megabits per second.
There is little secret that we are facing a slow-moving productivity crisis, and little wonder when 75% of our small businesses report that broadband is critical to their needs and yet nearly half of small businesses have complaints about internet service as it currently stands. Some 33% of the business parks that were designed to be a test bed for innovation productivity are still unable to access superfast broadband, as the hon. Member for Eddisbury (Antoinette Sandbach) set out. She also highlighted the important distinction between technical access and availability, and the take-up of broadband speeds in our communities. It is not yet clear to me that Broadband Delivery UK, whatever its future iteration with relation to the universal service obligation, will take those issues into account and properly measure them.
We are failing our businesses and, even more importantly, our potential businesses if we do not keep pace with them and provide the digital infrastructure that they require. Businesses rely increasingly on substantial download and upload speeds—although the USO does not take upload speeds into consideration—in order to store information on cloud systems and conduct multi-user calls while transferring and processing data, with multiple employees online all the time.
The sheer scale of data transferred over fixed-line broadband is detailed in “Connected Nations”, and it has grown as broadband speed has increased. The average monthly data consumed per household jumped by 36% over the past year to 132 gigabytes, and the total volume of data transferred was a staggering 2,750 petabytes. That all clearly adds up to a need that will become more and more stark by the end of the decade. With the need so obvious, it is surprising that Ministers continue to pursue the pitiful designation of 10 megabits per second by 2020.
I perfectly understand the frustration of the right hon. Member for Orkney and Shetland that 37% of his constituents still cannot access the bare minimum speed that Ofcom defines as being necessary for participation in a digital society. Moreover, the Government are offering his constituents that bare minimum only by 2020. Half the properties in Orkney and Shetland do not have access to superfast broadband, so as it stands it will be the same old story, repeated again and again: rural communities are an afterthought, and those with poor coverage are always playing catch-up, as technological advances require a faster and faster internet service.
As the hon. Member for Berwickshire, Roxburgh and Selkirk (Calum Kerr), the Scottish National party Front-Bench spokesman, said, Ofcom agrees with that. In its technical response to the USO, it said that
“government may want to consider the extent it”—
“should be designed to take into account further future growth”.
Ofcom made it clear that the Government would get better value for money by intervening once and ensuring that there is not a continual state of review, advice and reinvestment as requirements grow over time.
I can inform the right hon. Gentleman that Labour’s policy did indeed change last year, and for the past seven years Labour has not been in power; that might have escaped his notice. The Government have had plenty of time to address this issue. It is quite clear that their current “wait and see” strategy is exactly the wrong choice to provide value for money and other benefits for our consumers. Broadband and data usage is only going one way.
When we last debated this issue in the House, the Minister argued that the relevant legislation provides for the USO to be revised upwards. However, following a series of parliamentary questions, it would appear that the entire basis for the claim that 10 megabits per second is sufficient to participate in a digital society is drawn from research conducted by Ofcom in 2013. In 2012, 31% of UK premises had no take-up of fixed broadband services at all and 10% of all UK premises had take-up of speeds of less than 2 megabits per second. In that context, 10 megabits per second would represent a quantum leap, but not any more.
We should also look at how quickly the designated minimum speed has changed in previous years. From 2010 to 2013, it jumped from 2 megabits per second to 10 megabits per second, as Ofcom and the Government recognised the expanding demand and need. It is therefore very likely that the Minister intends to introduce secondary legislation that is already outdated.
To truly future-proof the legislation on the USO and properly serve communities that have been stuck in the slow lane since the advent of the technological age, Ministers will have to be much more ambitious. If the roll-out began at the end of 2017, that would benefit 1.9 million residents and businesses. It would benefit residents in Lewisham, who still cannot access superfast broadband, and those in the East Riding of Yorkshire, which has the lowest superfast take-up in the country.
Ofcom itself has referred in its technical report to the “clear benefits” of a more highly specified USO of 30 megabits per second and a 10 megabits per second upload speed. It is time that the Government’s ambitions matched those of millions of consumers and small businesses. The UK simply cannot afford to stay at the back of the queue.
I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for securing the debate and for allowing time both for many Members to set out their frustrations and for me to provide an update on progress. The roll-out that we have achieved so far, which is on track to reach 95% superfast coverage of UK premises by the end of this year, is in part a testament to the coalition Government of which he was such a critically important member.
Let me re-emphasise the Government’s commitment to addressing the digital needs of all parts of the UK. That is clearly a very important goal, and a lot has been achieved. I do not think that anyone here today, even if they have expressed the frustrations of those who have poor broadband, would deny that we have come a long way. In fact, that was demonstrated in the contribution by the Labour Front-Bench spokesperson, the hon. Member for Sheffield, Heeley (Louise Haigh), who tied herself in knots while arguing that much has been done but much is left to do.
First, let me set out some of the figures. As I said, we are on track to reach 95% of the UK as a whole. Of course that figure is lower in rural areas, because of the nature of things. However, on the point about whether there is a distinction between rural and urban areas, let me say that as a matter of law there is such a distinction, because EU rules do not allow a subsidised broadband programme in urban areas. As a matter of fact, although there are still some patches of poor connectivity in urban areas, the picture is much better than in rural areas. It is understandable, therefore, that the mix of hon. Members here today is more rural than urban. Indeed, in Altrincham, 98.4% of people have access to superfast broadband, so you are probably the best off of the lot of us, Mr Brady—perhaps that is why you have said so little.
In Scotland, phase 1 of the Government’s superfast broadband programme, including reinvestment of clawback funding and project savings, is worth more than £11 million, and more than 60% of homes and businesses in Orkney and Shetland now have superfast broadband available to them. The highlands and islands project as a whole will have reached a total of 130,000 premises by spring 2018, none of which will be covered by commercial roll-out. So it is thanks only to UK Government action that there has been any connectivity at all in Orkney and Shetland.
I understand the frustration of the right hon. Member for Orkney and Shetland that things have not gone more quickly in Scotland. It has been entertaining to hear some Scottish National party Members say that things should have gone more quickly and that some of the delivery has been fragmented, because delivery in Scotland is by the Scottish Government. It is a pity and a regret, and something we have been working hard to push on, that the Scottish Government have been behind the rest of the UK in their procurement. I hope that some of the frustration that has been vented by hon. Members representing Scottish seats is directed at those who are delivering the Scottish Government contract.
Perhaps the question to ask the Scottish Government is why they have not yet managed to procure phase 2 when most of England has, and when some parts of England and Wales are moving on to phase 3. That is not a partisan point, because I will come on to the hon. Member for Ynys Môn (Albert Owen). The Labour Government in Wales have delivered effectively and, in fact, in Ynys Môn, where there is no commercial coverage at all, overall coverage is 80%. The Welsh Government have been much more on the front foot than the Scottish Government have in delivering for rural communities right across Wales.
It is amazing how the Minister can try to make a partisan point and claim it is non-partisan, but there we go. The Scottish Government scheme runs until the end of 2017. The Scottish Government have shown leadership with the R100 project, which is a commitment to give superfast to everyone—exactly what everyone here is asking for. Will the Minister commit to matching that ambition?
I do not want to point this out, but I have just commended the Labour Government in Wales for being further forward. I will come on to the universal service obligation, because more heat than light was produced by the hon. Gentleman’s contribution. We went through this at length during the Digital Economy Bill’s passage through the House, and in the end there was cross-party agreement regarding the universal service obligation, which will bring in 100% coverage by 2020—ahead, in fact, of the Scottish Government’s proposed date of 2021.
The Minister will be aware of some of the challenges we face in Suffolk in delivering high-speed broadband. I am sure that Members on both sides of the House can welcome the universal service obligation but, once it is in force, it must allow those who are not provided with access to broadband at the set minimum speed a simple means of seeking redress. I know that the Minister has spoken about this before, but might he make that point clear? I am sure that would help others here in their understanding of the USO.
Yes. Thanks to the support of my hon. Friend and near neighbour on the Digital Economy Bill, we are now bringing in automatic redress as part of that legislation. Perhaps more important than redress is the need to get the universal service obligation through and into force within the timeframe we have set out.
That is a really important point, especially in relation to Broadband Delivery UK areas that are supported by broadband subsidised by the UK Government and delivered through either a devolved Administration or a council. The higher the take-up, the more money comes back into the contract, and that money can go towards helping more people get superfast broadband. We all have a role to play in driving take-up and ensuring awareness. That is not unreasonable, now that the availability figures are getting higher, and work is going on inside Government on how we can drive take-up higher.
There have been calls for public money to be spent. Some £1.7 billion of public money has been invested in the BDUK programme, and £440 million of funding will be returned for reinvestment, either thanks to programmes being delivered at better value and lower cost than expected—that is sometimes seen as rare in public expenditure, but it has been effective in these contracts—or because the take-up means that money is flowing back into the contracts. That will help to provide coverage for up to 600,000 additional premises, and I expect that further reinvestment funding will also come forward. That has been achieved through excellent contract management, especially with local authorities, as well as strong take-up in many areas. Crucially, that has been above expectations. For instance, in Scotland nearly £38 million has been returned to date as a result of the UK Government contracts for reinvestment, and people who have really low speeds—less than 2 megabits per second—can take advantage of the Better Broadband scheme.
The right hon. Member for Orkney and Shetland set out the case of his caseworker in Shetland who has a speed of 0.3 megabits per second, in contrast with the much higher speed of his London staff. The Better Broadband scheme is a voucher-based system that allows anyone with a speed of less than 2 megabits per second to access funding for a basic broadband contract and connectivity, for instance through satellite, and I recommend that the right hon. Gentleman’s caseworker not only take that up but then email people in his constituency to let them know that the scheme is available. The grant is technology-neutral and can be spent on satellite, wireless or community fibre projects.
I fully understand the frustration of those who do not yet have a good connection. We have talked about some of the figures. Some 81% of South East Cornwall is covered by commercial contracts, but only 83% has access to superfast broadband, meaning that provision through Superfast Cornwall covers only 2% of the constituents of my hon. Friend the Member for South East Cornwall (Mrs Murray). There is clearly much more to do in Cornwall.
In Eddisbury, 82% of premises have access to superfast broadband, but that means that 805 premises have less than 10 megabits per second, including that of my parents—I hear about it all the time. Thankfully, though, a new procurement is in the pipeline in Cheshire, which I hope will cover crucial parts of the county—with no special pleading.
In the constituency of the hon. Member for North Ayrshire and Arran (Patricia Gibson), 87% of premises currently have superfast access, according to an independent study by thinkbroadband.com, and that will rise to 93% by the end of the year. Thanks to the support of the UK Government, 14,000 premises there have already been covered, with several thousand more to come.
The hon. Member for Strangford (Jim Shannon) mentioned the business voucher scheme. We have consulted, following the autumn statement, on a further full fibre business voucher scheme and will respond to that consultation at around the time of the Budget. I understand the success of the business voucher scheme of the past couple of years. The hon. Gentleman mentioned that he had coverage of 79.1%. I would like to put on the record that, according to my figures, it is 79.4%.
One hopes. Clearly the engineers have been busy.
I met the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) along with a Faroe Islands Minister. It was a very interesting meeting. The Faroe Islands are of course much smaller and have a monopoly provision, but there are lessons to learn.
Motion lapsed (Standing Order No. 10(6)).
Community Alarm Services: Social Housing
[Mr Philip Hollobone in the Chair]
I beg to move,
That this House has considered social housing community alarm services.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I am pleased to have secured a debate on this important issue. I sincerely hope, despite the extremely difficult and tragic circumstances that I will outline, that we will be able to reach a positive outcome and improve the safety of the many people across the country who rely on community alarm services.
At 18.35 on 5 November 2015, Ronald Volante, father of my constituent Rita Cuthell, triggered the community alarm service in his property. It was operated by the social housing provider, Magenta Living. He was in a considerable amount of distress and could only manage to cry out the word “help” to the individual receiving the call. Two hours later, an ambulance finally arrived at Mr Volante’s house and the paramedics who attended found that he had sadly died. He was found next to a note addressed to his daughters, which said, “I love you.” It is difficult to appreciate fully the suffering that Mr Volante experienced during those hours, or the pain and anguish that those closest to him have suffered since as the full extent of the circumstances of his death have become known.
What has become clear is that a number of opportunities that could have saved Mr Volante’s life were missed. Nothing that we can say in this debate today can change that fact. What we can do is seek assurances that nobody else will have to go through such an appalling experience ever again. Mr Volante was a resident at the Maritime Park social housing complex, which is owned by the Regenda Group housing association. During daytime hours, a warden was present at the facility. Out of hours, residents relied solely on a community alarm service provided by the Magenta Living housing association. Mr Volante was 74 years old and suffered from coronary artery disease and thrombosis. He had previously suffered a myocardial infarction that required heart surgery.
After Mr Volante triggered the alarm, his call was answered by an operator within six seconds. The operator’s notes state that they could not ascertain what Mr Volante was requesting, other than help. After attempting without success to call both of Mr Volante’s daughters, the operator called for an ambulance at 18.38. I have seen a transcript of the conversation with the North West Ambulance Service, which lasted for just over six minutes. During the call, the operator speculated as to whether Mr Volante might be having some kind of speech problem, as all they could hear was the call for help. The operator was unable to provide a great deal of detail about Mr Volante’s condition, as they were communicating with him remotely from a call centre and had no visual contact. At no point during the conversation did the operator inform the North West Ambulance Service of Mr Volante’s heart condition, despite that information being available. Although the ambulance service knew that the caller was not actually with Mr Volante and was calling from a lifeline service, it made no further enquiries about his medical history.
Following the call to the emergency services, the operator confirmed to Mr Volante that they had called an ambulance. At that stage, they received no response from Mr Volante. Despite that, they closed down the community alarm service at that time, 18.46. The call to Mr Volante lasted a total of 10 minutes and 41 seconds. No further efforts were made to contact Mr Volante’s family at that stage.
I thank my hon. Friend for securing this debate, which affects his constituent, and my constituent, who unfortunately died in this incident. Is one of the many lessons that we might draw from this that the service works all right if a person is not in the process of dying? However, once someone is in the process of dying, there seem to be some real faults. One is about how an operator follows up when they do not hear any more from someone after they call for help. That is one area that should be attended to.
My right hon. Friend is absolutely right. I will come on to the issue he raises later in my contribution.
Almost an hour and a half later, at 20.07, the North West Ambulance Service, having still not arrived, contacted the community alarm service to advise that it had been receiving a large number of emergency calls—it was bonfire night—and asked whether the ambulance for Mr Volante was still required. The operator advised that they were not sure, as they had had no further contact with Mr Volante. Ambulance control advised that it would attend as soon as it could and asked the operator to provide an update to Mr Volante. A second operator made a call to update Mr Volante at 20.11, but no response was received. At this stage, a second operator telephoned Mr Volante’s daughter, Mrs Cuthell. She expressed concern that nobody had attended the flat in an hour and a half. At 20.30, just under two hours after the initial call to the alarm service by Mr Volante, an ambulance finally arrived at his address. At 20.37, the alarm service received a call from the ambulance service, which confirmed that Mr Volante had sadly been found deceased.
As I said when I began my remarks, a number of opportunities were missed throughout the two hours—opportunities that could have led to Mr Volante’s life being saved. The inquest was opened on 28 January 2016. The coroner, Mr Rebello, determined that Mr Volante died of natural causes, because there was no certainty that an earlier intervention would have saved his life. However, Mr Rebello also issued a report under regulation 28—also known as a report to prevent future deaths—because he believes, as do I, that action should be taken to prevent future deaths in similar circumstances.
I am therefore now requesting the assistance of the Minister and his colleagues to ensure that action is taken, not only by Magenta Living but by every provider of community alarm services. I also believe there are messages for ambulance service providers across the country, and I hope that the Minister will be able to take them on board. The first serious issue was the fact that a 999 call on behalf of a 74-year-old gentleman with a serious heart condition was categorised as a green 2 call. While there is a national standard that an ambulance will be provided in response to the most urgent telephone calls—also known as red 1 and red 2 calls—within eight minutes, there are no national standards for a response to a less urgent green 2 call. In those cases, the North West Ambulance Service sends an ambulance as soon as is practical, which sadly on a busy night like 5 November can be hours rather than minutes.
In her evidence to the coroner, Irene Weldon, the acting manager for the emergency operations centre covering Cheshire and Merseyside, confirmed that it was very likely that the call would have been treated with a higher level of priority—red 1 or red 2—if the call handler had been made aware of Mr Volante’s history of heart disease and thrombosis. When I put that to Magenta Living and asked why Mr Volante’s medical conditions were not disclosed to the ambulance service during the call, I was provided with the following response:
“Proactively providing medical history to the ambulance service at the point of contact by call handlers does not form part of the procedure accredited by the TSA.”
TSA is the Telecare Services Association. It is the industry body for community alarm services. It sets national standards for providers to adhere to and provides a framework that sets out how its members should respond to calls. Clearly it is not acceptable that the framework does not require vital medical information to be provided to ambulance services when a 999 call is made by an alarm service operator. The coroner called for action to be taken in that respect in his report to prevent future deaths, and I echo that call for action.
The second issue is that while Mr Volante was able to vocalise his request for help when he contacted the community alarm service, by the time the operator made contact to confirm that an ambulance had been called just a few minutes later, he was no longer responsive. That important change in circumstances was not reported to the ambulance service. Again, that could have led to the call being given higher priority. When I asked Magenta Living about that, it said:
“Historically, a change of circumstances would not result in a call handler updating the emergency services. This practice was adopted due to the fact that keeping the line open could potentially impact upon the monitoring of the centre’s ability to respond to further activations from residents at the same scheme.”
It is completely unacceptable that community alarm providers do not routinely inform the emergency services of a deterioration in the condition of a caller. If the ambulance service had been informed of the possibility that Mr Volante was no longer breathing, it is very likely that the priority of the call would have been upgraded. That was another concern raised by the coroner.
As I said previously, we cannot possibly say with certainty whether earlier intervention in this case would have saved Mr Volante’s life, but we know that in all urgent cases of this nature, every minute matters, so I can say with absolute certainty that if the medical condition of callers, or any deterioration in their circumstances, is not being reported to ambulance services as a matter of course, the lives of the 1.7 million people who use community alarm services are being put at risk. When he sums up, will the Minister indicate whether he agrees with me that the national framework set out by the TSA should be urgently updated to ensure that those issues are addressed? I also ask him to join with me in asking all social housing community alarm service providers to ensure that their local processes reflect the recommendations set out by the coroner in Mr Volante’s case.
Since her father’s death, Mrs Cuthell has been tireless in pursuing those issues, so that she can feel that justice has been done for her father. I know that her biggest wish is that nobody will ever have to go through such a terrible experience again. It is to her absolute credit that throughout the trauma of her father’s death and the incredibly difficult experience of the inquest she has maintained a great focus on making sure that lessons are learned and improvements are made. She has shown calm dignity and incredible determination to bring about change, and I am pleased to say that that is beginning to bear fruit. We have held numerous meetings with the TSA and the North West Ambulance Service. There has been progress, albeit at a much slower pace than we would have liked.
The TSA has arranged meetings with the Association of Ambulance Chief Executives and is working with it and its members to develop protocols for its quality standards framework, which it hopes will be fully implemented by June. That will mean that when a call of this nature is made in future to the service providers, the call handler will provide reassurance to the caller until the responder is actually present. It also plans to have clear procedures in place to communicate with the responders and, crucially, plans to escalate the matter where it becomes clear that a responder is not available. A national emergency algorithm is also being developed that will enable all necessary information to be passed to the ambulance services when a call is made, to enable the ambulance service to prioritise such calls more accurately.
The right approach is being taken by the TSA to ensure that the tragic situation is not repeated, but the TSA does not represent every provider in the sector. Membership of that organisation is voluntary, and that is where we need assistance from the Minister. We would like to see all telecare services adopting the same approach and adhering to the same standards that the TSA is developing. Is the Minister prepared to look at making that a requirement across the board?
I want to touch on some concerns about ambulance services. I understand that the primary issue in this case was the fact that the call had been awarded a lower priority because important facts were not reported to the ambulance service. It is nevertheless unacceptable that it took almost two hours for that service to respond.
Although much of the recent media focus has been on when people get to hospital, ambulance services have suffered the most worrying deterioration in recent years. There is a national standard that says that red 1 and red 2 calls should be attended within eight minutes; the reality is that that target is not met in about a third of cases, and has not been met for some time. The most recent figures show that just 68.5% of red 1 cases—where a patient has suffered a cardiac arrest or stopped breathing—are responded to in eight minutes. In other life-threatening emergencies in the red 2 category, just 62% of calls received a response within eight minutes. Lives are being lost and patients are being put at risk because funding to the NHS has not kept up with demand. I know that the Minister cannot tell us what the Chancellor has planned for his Budget next month, but I call on the Government to deliver the rescue package that our NHS so desperately needs.
Whatever happens with funding, the other steps I have outlined today do not come with a price tag and can be implemented across the board. We know that will not bring back Mr Volante, but it would allow us to look his family in the eye and say that lessons have been learned and the mistakes that led to his death will not happen again.
It is a pleasure to serve under your chairmanship today, Mr Hollobone. I start by congratulating the hon. Member for Ellesmere Port and Neston (Justin Madders) on leading the charge on this debate, which raises a number of serious issues. I thank him for the work he has done so far with the family and the progress that has been made as a consequence of that work. I will come on to talk more about that in the next few minutes.
This short debate raises a number of important questions. It is clear that we need to learn lessons. In preparing for the debate, it struck me that this industry is a growth area in our country. More and more people are in sheltered accommodation for longer and are reliant on call handling services provided by a variety of contractors. More and more people are therefore susceptible to this sort of tragedy, which is probably a consequence of a mixture of individual error and the procedures and processes not being in place to pick that up.
Before I respond in more detail, I add my condolences to the two daughters and the family of Mr Volante for what happened on 5 November 2015. I reiterate that the Government are as keen as they are that we get the lessons learned from this situation right.
I will briefly set out the issues as I see them on what happened that evening. The company Magenta was operating an outsourced service called Support Link to the sheltered housing association. It received a call from Mr Volante. All that was heard in that call was the word “help”. As per the procedure, the company tried to reach Mr Volante’s daughters, who were the next contact in the process it had. It was unable to do that, and then called an ambulance.
As the hon. Gentleman has said, although it was known to the call operators that Mr Volante had a heart condition, at that time it was not made clear to the ambulance service. As a consequence, although not necessarily entirely as a consequence of that—we will come back to that; the hon. Gentleman made some comments about how the ambulance service reacted—the call was given a lower priority than it otherwise would have been. The consequence of that was that the standard for the call was 30 minutes, and as we have heard, it took nearly two hours on 5 November, the reason given being that it was Guy Fawkes’ night.
When Magenta was informed that the ambulance was going to take longer than expected, it called back and was unable to get a reply from Mr Volante. It did not take any further action at that time, such as asking the ambulance service to expedite or convert the call to a higher priority. When the ambulance finally arrived, as we have heard, Mr Volante was found to be deceased. The coroner accepted that had procedures been carried out effectively and properly the outcome may well have been the same, but we do not know that. He made a number of recommendations at the inquest, including a regulation 28 report, which is what we are here to discuss, and made other, wider points.
The coroner made a number of observations specific to this case and a number of wider observations, and we have heard about the work that has been done on some of those points. His specific observations on the case included the point that Magenta had access to the medical records, and the ambulance service should have been made aware that Mr Volante had heart disease. The ambulance service has said that had it known that, it would have been likely to have given the call a higher priority and got an ambulance there much more quickly.
Secondly, and equally importantly, when Magenta called Mr Volante back and there was no response, which implied some kind of deterioration in his condition, it did not take any action. It did not inform the ambulance service that the call should potentially be upgraded. In two further dialogues with the ambulance service, it did not do anything proactive to expedite the situation.
Finally, the coroner suggested that Magenta’s procedures be updated and that training and supervision be updated to reflect that. My understanding is that Magenta has put the required changes in place quickly and effectively, which I believe has been accepted by everyone involved—but of course that is not the whole issue.
There are four wider issues. First, Magenta is accredited by an organisation called the TSA. It is clearly important that the measures that Magenta has implemented are implemented equally by all other members of the TSA. Organisations that declare themselves to be accredited, which brings some status in terms of procurement and all that goes with it, must put in place exactly the same procedural changes as Magenta. I will come on to talk about that.
The second issue is that that applies only to organisations that are accredited or are part of the TSA, but a number of call handling organisations are not in that category. We think, although we do not know for certain, that about 10% of call handling organisations are not accredited, which clearly leads to a loophole in making this process work.
The third issue—the hon. Gentleman talked about this—is whether the ambulance service could have done more. It is not absolutely obvious to me why the initial call was given a green coding. I accept Magenta’s story that had it been informed of the heart condition the call would not have been given that code. I have not seen the conversation, but it still does not seem right that a call for help should have resulted in a low-priority ambulance being called. Another issue is that, after the call was given a lower priority, the ambulance took nearly two hours, against a standard of 30 minutes. I will come back to what the lessons learned are.
The fourth issue to learn lessons on is the overall regulatory environment. GPs, hospitals, care homes and domiciliary care providers are regulated by the Care Quality Commission. That regulatory system is, on the whole, effective. It is not 100% effective, but it is certainly better than nothing. The interesting point, which the hon. Gentleman did not raise explicitly but is part of the learning, is that sheltered accommodation is not regulated in the same way. The reason is that, under the Health and Social Care Act 2008, which set up the system of regulation, sheltered accommodation is not considered to provide personal care and is therefore outside the regulatory environment.
That also applies to call handling organisations. We have noted that they are not regulated. I had a discussion this morning with the CQC, which is aware that they are outside the regulatory system, and we are going to monitor the issue and think about taking it forward. I do not want to be more explicit than that, and the hon. Gentleman did not raise the issue explicitly. I learned that the status of a call handling organisation is similar to that of a friend phoning 999 when an issue has arisen. There are issues there that we can learn from and think about. The very least that needs to be understood is that, when something is not regulated, people need to be clear about what that means, and we should not act under the perception that regulation exists.
We heard from the hon. Gentleman about the work that he and Mrs Cuthell have done with the Telecare Services Association. Broadly speaking, the TSA operates a framework of best practice for such conversations. The framework is audited, and I believe that the TSA has teeth in its accreditation process. Through the work of the hon. Gentleman and Mrs Cuthell, it has been made clear that the framework will be updated. The next version is to be released in the summer—in June or July—and it will be audited. I can say no more about it than that, other than that I agree with the hon. Gentleman that progress has been slow. After this debate, we will write to the chief executive of the TSA to say that the Government also regard it as very important that the framework is updated, and that we expect that to happen. The hon. Gentleman and I should perhaps meet at the back end of the summer to ensure that everybody is happy that action has taken place appropriately and that every other supplier has put in place the same level of protection as Magenta.
On the issue of non-TSA suppliers, which is a loophole, I have explained the regulatory environment. The commitment I make about that 10% or 20% of the market—the fact that we know so little about it is significant—is that we will find out which the major organisations in that category are and write to them to put to them the lessons that Magenta has learned from this case. We will say that we expect them to understand the lessons and take similar action. There is a point to be made about how such services are procured by clinical commissioning groups and local authorities. Those organisations need to understand—I think this is the case at the moment—that when someone procures call handling services of this type, there are benefits to ensuring that the organisations they buy from are accredited by the TSA. That has some value, and commissioners should be on guard in that respect.
The hon. Gentleman’s final point was about the performance of the ambulance service on that evening. I agree that the time taken for the ambulance to get there was completely unacceptable—I think the ambulance service agrees with that, albeit that it is mitigated by the fact that it was 5 November. The hon. Gentleman made a number of wider points about funding, which he cannot expect me to answer in this debate. We will write to the chief executive of the North West Ambulance Service to make the point that this incident was unsatisfactory and ask him to be absolutely certain that the initial classification as low-priority was correct following the dialogue between his call handler and the Magenta call handler. It is not absolutely clear to me, given the facts as I understand them and as the hon. Gentleman set them out today, that that was the case. I make that commitment.
At the start of the debate, the hon. Gentleman said that Mrs Cuthell’s major motivation is to ensure that what happened to her family never happens again. I cannot make a commitment that it will never happen again, but I can say that the story we have heard is completely unsatisfactory. The Government understand the failures that occurred and will put in place what is needed to try to ensure that it does not happen again. The hon. Gentleman made the point that 1.7 million people are covered by such call handling systems. That number will only increase as our population ages and as a higher proportion of people are in sheltered accommodation or are covered by call handling organisations while living at home.
I reiterate my commitment to meet the hon. Gentleman at the back end of the summer to ensure that these various things have been taken on board, that these actions, many of which he has led, have taken place, and that we are happy that what can be done has been done.
Question put and agreed to.
London Stock Exchange
I beg to move,
That this House has considered the future of the London Stock Exchange.
It is a pleasure to serve under you, Mr Hollobone. I have brought this matter for debate because the proposed merger between Deutsche Börse and the London Stock Exchange raises issues of national interest and, in my opinion, it is a slam dunk that the merger is not in the national interest.
The London Stock Exchange Group owns several key market components in the United Kingdom, including the London Stock Exchange itself, a recognised investment exchange regulated by the Financial Conduct Authority and the London Clearing House, which is supervised by the Bank of England. A number of subsidiaries of the group are also regulated by the Financial Conduct Authority. The proposed merger requires regulatory approval by the Bank of England and the Financial Conduct Authority. The most significant approvals are those required, first, from the Bank of England in connection with the London Clearing House, which I understand to be 57% owned by the London Stock Exchange, and which conducts euro clearing, and, secondly, from the Financial Conduct Authority with respect to the London Stock Exchange, which is fundamental to the City of London’s capital markets.
The London Clearing House is one of the two main clearing houses in the UK and clears all major currencies, including the euro. As I understand it, both the German and French Governments have indicated a wish to strip euro clearing out of the City. All of that has significant political involvement because it would facilitate in due course a substantial movement of UK market infrastructure to the continent and would permit Germany and France, in the context of Brexit negotiations, to achieve German and French objectives that will undermine the UK’s political leverage during those negotiations.
Her Majesty’s Treasury has certain powers to direct or make recommendations to the Bank of England or the Financial Conduct Authority to take action or not. The Prime Minister is First Lord of the Treasury, and the Chancellor of the Exchequer of course has fundamental responsibilities. The Treasury has powers of direction over the Bank of England under section 4 of the Bank of England Act 1946. It may give directions to the Bank following consultation with the Governor
“as…they think necessary in the public interest.”
The Treasury may direct the Bank to exercise its powers not to approve the acquisition of what is described as a “qualifying holding” in the London Clearing House.
It is not known whether the Bank of England has already given its approval, although the Treasury could direct such a decision to be reversed on the grounds of public interest. The powers include determining that the proposed deal is not a normal commercial deal in the light of the Brexit negotiations and to take account of the involvement of the state of Hesse, which has shown a desire to boost Frankfurt as a hub at the expense of London, which is indicated in the report of Professor Dirk Schiereck, commissioned by Deutsche Börse in January 2017. In the past few days a Minister in Hesse indicated that the headquarters of the merged group should be in Germany:
“The reasons for the headquarters being in Frankfurt are crystal clear.”
The objective could not be clearer. It is inconceivable, in the UK national interest, that the London Stock Exchange should be regulated in and operated out of Germany as we leave, and having left, the European Union. There are also questions, as yet unresolved, surrounding the new chief executive officer, who is under investigation for potential insider dealing in connection with the London Stock Exchange deal, and the regulatory relationship between the United Kingdom and the EU which forms part of the Brexit negotiations. It would not be in the public interest for the combination of the two groups to be achieved immediately in advance of those negotiations, since that would give commercial parties operating at the behest of German political masters the ability to remove the rug from underneath the UK’s feet without regard to the negotiated outcome, or to threaten to do so during the negotiations unless the UK made certain concessions.
If the deal goes through, the combined group will be able to bulk up euro clearing and exchange and business clearing generally in Frankfurt at the expense of London. Given the declared political objective to promote Frankfurt, Paris and the eurozone, that is not an outcome in the UK’s national interest.
The hon. Gentleman is, as ever, making a logical and compelling case, but is he suggesting to the House that the owners and management of the London Stock Exchange are willingly entering into a merger that will lead to the transfer of all of their business to another country?
There is severe detriment to our national interest in allowing a merger of that kind when the London Stock Exchange and its group are the jewel in the crown of the City of London. Any merger raises matters of national interest such as, first, financial stability and UK taxpayer liability. The merger would create a new financial market infrastructure group controlling, inter alia, about 90% of European-listed and over-the-counter derivatives transactions, but operated for the benefit of shareholders, not users, with an unprecedented complexity of risk profile and significant uncertainty as to whether the UK taxpayer would pick up the bill were part of the combined infrastructure to fail. The uncertainty created by the lack right now of a clear Brexit deal adds considerably to the stability and taxpayer risks.
Secondly, there is loss of control of a key UK asset post-Brexit. The London Stock Exchange is a major centre of global financial markets: more than 500 foreign companies are listed in London, which is 20% of global foreign listings; and it has the highest equity market capitalisation, 170%, in relation to the GDP of all the largest economies. Majority control of that vital business will pass to Deutsche Börse shareholders, who will own 54% of the new group post-merger. Passing control of the London Stock Exchange to Deutsche Börse in the context of Brexit is not in the national interest and might undermine our negotiations with the 27 member states as we leave the EU.
The issue is not where the headquarters of the new company is located technically. I am told that formally moving the HQ to Germany, as the state of Hesse has insisted, is not likely given the need for a significant shareholder vote, but that is beside the point. The real issue is who calls the shots and in whose interests critical decisions are made. It is no answer to say that the HQ will remain in the UK if the reality is that the people really in charge are flying in for the day from Germany. Decisions must be taken in the UK and in the interests of the UK.
My third point is about competition concerns. The only substantial remedy offered by the parties to the EU Commission to allay concerns about significantly impeding effective competition is the sale of the central counterparty, Clearnet SA, based in Paris, and part of the LSEG. No disposals have been offered by Deutsche Börse, which owns trading platforms, central counterparties and settlement systems that have been integrated into a single vertical silo in Frankfurt. That is not sufficient, and I am concerned that the outcome of the European Commission’s review of the proposed merger will be determined by the EU’s political priority to ensure that Germany has control over London’s capital market infrastructure, instead of by genuine market concentration and anti-trust concerns.
Fourthly, there has been a lack of public scrutiny and industry comment; there has been little proactive support for, or indeed criticism of, the merger from the main UK financial institutions. That is not surprising, since the parties have given 12 major investment banks a role in the deal and they are destined to share about £353 million in fees if the deal succeeds. There has also been little comment by the UK Government so far on a deal concerning a major UK asset, although they still have a public interest role to play under the Enterprise Act 2002. We need to know why it was, and who decided not to refer the merger when it first came before the Secretary of State. Vast profits and sums of money are involved, and some stand to gain financially on a grand scale. All of that can be ascertained, but the national interest must prevail.
Precious little has been put into the public domain to suggest that the deal is remotely in the public interest. On what possible basis can it be argued, in particular post-23 June and the passage through the House of Commons of the European Union (Notification of Withdrawal) Bill, that the merger is in the national interest? Furthermore, under section 1JA of the Financial Services and Markets Act 2000, the Treasury
“may at any time by notice in writing to the FCA make recommendations to the FCA about aspects of the economic policy of…Government”,
including how to ensure compatibility with the FCA’s “strategic objective”, to ensure that the London Stock Exchange functions well, and how to advance the FCA’s objective to ensure the soundness, stability and resilience of the UK’s financial system, which is defined as including the London Stock Exchange and the London Clearing House.
Has my hon. Friend thought about what would happen, were the merger to go ahead, if the eurozone collapsed, given some of its fundamental difficulties? Having extricated ourselves from involvement in the euro and, on Brexit, from the European Union, would the merger not lock in some of the potential downsides to the UK equity and capital markets without gaining us any of the upsides?
As I have said, the withdrawal Bill is quite clear. We will leave. That means that we will be insulated from the catastrophe that could occur if the eurozone collapsed. I could enlarge that point, but I will not for the time being.
There is another statutory requirement to ensure the principle of the desirability of sustainable growth in the UK’s economy in the medium or long term. Those are all statutory functions, and I strongly suggest that Her Majesty’s Treasury should decide—in fact, I urge it to—that it is not in the UK’s interests to allow a deal where there is a clear intention to take action that would cause systemic risks in the UK and be detrimental to UK tax revenues.
I move to the powers of the Bank of England, which is under a judicially reviewable statutory duty in respect of the test of approval for any acquisition of the London Clearing House. Under the European market infrastructure regulation, the test for approval in general terms for the purpose of ensuring the sound and prudent management of the London Clearing House raises questions of the suitability of the proposed acquirer and the soundness of the proposed acquisition, including the person who will direct the business of the London Clearing House. It also includes questions relating to whether the Bank of England would be able effectively to supervise, and several other factors. All those are in question in this instance.
I turn to the powers of the Financial Conduct Authority, which is required to approve the acquisition of the London Stock Exchange because it involves the acquisition of the “control” over the LSE by the new holding company. In those circumstances, the FCA has to consider the suitability of the new group holding company and the financial soundness of the acquisition to ensure sound and prudent management, and have regard to the key influence that the new group holding company will have on the London Stock Exchange. There are grave concerns about all those matters that pose a threat to the sound and prudent management of the London Stock Exchange, including questions relating to moving euro clearing out of London. The removal of euro clearing to Germany would undermine UK economic growth, because it may lead to the movement of other currency clearing out of the UK and undermine the City’s success. Moving the new holding company to Frankfurt would also be against the UK national interest.
I grant that there is an issue about the removal of all or a substantial amount of euro clearing to the European Union jurisdiction, but that may come anyway as a result of Brexit; it is not dependent on whether this merger takes place. Indeed, one could argue that the merger might act as a barrier to such a move.
I was against the merger before Brexit, and I have become even more so since. I emphatically repeat my view that it is against the national interest, and I will not in any way resile from that point.
This deal would operate against the UK’s national interest in several ways. For example, the driver behind the merger is to consolidate as much market activity across the whole value chain into as few liquidity pools as possible. The reason given for that is to allow customers—primarily the world’s largest banks—to manage their capital and collateralisation requirements as efficiently as possible, particularly in the illiquid and untransparent world of OTC interest rate swaps. The most efficient way of achieving that is to have one dominant silo. This merger would bring together the two pre-eminent trading and post-trade silos in Europe, the London Stock Exchange and Clearing House and Eurex, which is owned by Deutsche Börse. One of those silos would inevitably prosper disproportionately, at the strategic and economic expense of the other. Given that a German chief executive officer would immediately be in place—whether that is the presently proposed CEO or not—and more than 54% of the shares would be owned by Deutsche Börse shareholders, and given the strength of Eurex’s existing listed derivatives clearing house, there is a very meaningful risk that the London Stock Exchange and the London Clearing House, and therefore the City as a whole, would be at the thin end of the wedge.
In the real world of markets, this works as follows. There will be no big announcements, no formal closures and no notice of intention to leave. Rather, liquidity will be shifted from one place to another through the creation of incentives and tipping points. Mirror contracts will be created that mimic what is on offer in London. Special arrangements for collateral and cross-margining in the favoured venue will be put in place. Without anyone particularly noticing, liquidity will shift away from London to the continent. Once that siphoning of liquidity begins, it will be unstoppable, and without liquidity there is no market.
Prior to Brexit, when this deal was first negotiated, that was a very attractive outcome for the LSE’s German partner. Post Brexit, control of the combined group and the shift of London’s business to Europe is an absolute necessity for Deutsche Börse and its national stakeholders. The importance of that is shown by the ever louder calls from German politicians and regulators for the combined group to be headquartered in Frankfurt. Controlling the LSE’s direction is key to Frankfurt successfully becoming the new financial centre of Europe—clearly at London’s expense. Even if the headquarters are maintained in the UK, there will be a German CEO, a majority of shares will be held by Deutsche Börse shareholders and there will be a massive political push from Frankfurt, which will lead to decisions being taken behind closed doors, against the UK’s interests.
The exchanges themselves have suggested that that loss of liquidity from London will not happen, and the solution is a so-called liquidity bridge. No market participant—apparently even the companies themselves—seems to understand what is meant by that or how it would be delivered. No reliance should be placed on it.
Finally, the acquisition of LCH.Clearnet SA by Euronext, which is largely French and Dutch-controlled and headquartered in Paris, is another political wildcard. That would enable France to exert much greater political force behind its push for euro clearing to relocate to Paris, again potentially creating systemic risk and dangerous uncertainty in the UK’s markets.
This transaction has the clear potential to strip a key activity out of the City of London. It should certainly not be nodded through in the midst of Brexit negotiations. Why weaken the City before we have even started the process of exiting the EU? I have mentioned the Enterprise Act 2002, which I understand can still be used in the public interest, including by reference to the criterion of UK financial stability.
In an important article published in the Financial Times on 13 February, Jonathan Ford makes it clear that the €29 billion merger was, as we know, conceived before the Brexit vote. The deal was supposed to take advantage of a converging EU rule book in the single market by drawing together Europe’s two most vibrant securities markets and their clearing activities, which are the financial plumbing of the system. The aim was to create
“a single…‘pool of liquidity’”
that captured scale economies, in competition with the Chicago Mercantile Exchange.
Jonathan Ford argues that to make their own common pool a reality, Deutsche Börse and the London Stock Exchange would have to be very ambitious. He doubts whether that is feasible. He indicates that there is a serious problem, namely, that
“clearing operations have a wider impact on the functioning of capital markets; not just the management of systemic risk but on the very competitiveness of financial centres.”
“Given the importance of finance to the post-Brexit economy,”
the United Kingdom has a “strong interest” in ensuring that the deal is not damaging to London as a financial centre. He argues that the Bank of England and the FCA still have vetoes, and the Government can
“determine the outcome in the wider public interest.”
He suggests that the Government would be wise to intervene to prevent the loss of future business, and indicates that it would be better to take account of the Brexit negotiations as they proceed.
The UK has long been in favour of foreign direct investment, which increases productive capacity through capital investment, transfers of technology, skills and better management. Deutsche Börse’s acquisition of LSE is not FDI. It is not cross-border investment in the UK by residents and businesses from another country with the aim of establishing a lasting investment in the UK. FDI does not cover the asset stripping and systemic risks associated with the proposed merger. Foreign investment in UK infrastructure, including in the LSE, is welcome—the LSE of course already has many foreign shareholders—but this merger must not be allowed to clamp down on competition, gut the UK’s financial infrastructure and cause significant and lasting damage to the UK. It is understood that the European Commission has already commenced proceedings and the London Stock Exchange and Deutsche Börse have received a limited statement of objections to the proposed deal.
In conclusion, I urge the Government, the Bank of England and the Financial Conduct Authority, and other regulatory authorities, including those in Germany and Brussels, to recognise that whatever the reasons may have been for the merger before 23 June 2016, the reasons since then for determining and resisting it are extremely strong and should be employed.
Order. The debate is due to finish at 5.30 pm. I need to call the Front-Bench Members no later than 5.07 pm. The recommended time limits for the Front-Bench speakers are: five minutes for the SNP; five minutes for Her Majesty’s official Opposition; and 10 minutes for the Minister. That allows two or three minutes for Sir William Cash to sum up at the end. Five Members wish to speak, so I am afraid there will have to be a three-minute limit. If there are too many interventions, somebody will not be able to speak.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank the hon. Member for Stone (Sir William Cash) for bringing this debate before us. However, the context and tone in which it has been undertaken is a bit unfortunate. To me, it seems that this is not a political issue, but it is being made to feel like one.
To give some context, there have increasingly been mergers in stock exchanges. There were 18 stock exchanges internationally in 1999, but that had decreased to five by 2012—those numbers were given in a Library briefing paper.
Those are the numbers that were given in a Library briefing paper, so I assumed they were correct.
There has been a move towards stock exchange mergers in recent years. Therefore, the merger is in the context of the London Stock Exchange Group looking to compete with bigger stock exchanges and needing to be a bigger stock exchange in order to do that.
I want to make it clear that the merger is not an anti-Britain move. As has been said, it was conceived a long time before the Brexit vote happened. It is not about trying to write Britain out, and the deal was not set up to try to move things to Frankfurt. In fact, as the hon. Member for Stone stated, the headquarters of the new organisation will be in London and—I do not think he mentioned this—the board will be 50:50 from the LSE and Deutsche Börse. There is therefore a lot of protection built in.
The London Stock Exchange Group has a good story to tell, and I want to talk about that briefly and about protections. The group has done a huge amount to support high-growth small and medium-sized enterprises through its ELITE and AIM programmes, both of which have been immensely successful. In fact, the group will come to Aberdeen next month to speak to companies about accessing finance.
I have asked the UK Government on a number of occasions for assistance for oil and gas companies in accessing finance and have felt like I was banging my head against a brick wall and not getting much of a response. However, the LSE Group has offered to come and talk to companies about ways in which they can access finance, which is hugely important. Those companies are not big enough to be involved in the stock exchange but the group is looking to grow them. It has also been successful in the horizontal model it uses for clearing. Again, protections are written in that will ensure that such things continue.
I have talked about the 50:50 board and the HQ in the UK. No one seriously thinks that Frankfurt will become the centre for European banking. That is just not the case. Anyone who has heard about the situation on the ground in Frankfurt knows that it does not have the infrastructure to support that. It is not going to happen. Companies will not move wholescale to Frankfurt. If I was a Frankfurt politician, I would want people to come and I would be making positive statements about that happening, but it is not going to happen. London will continue to be a big financial centre, and the link between the London Stock Exchange Group and Deutsche Börse will serve to bolster that rather than to weaken it.
My hon. Friend the Member for Stone (Sir William Cash) put it incredibly well, so I will not trouble the House with the detail he put on paper so articulately. As he rightly said, the merger was conceived before the Brexit vote and circumstances have fundamentally changed. Our Prime Minister has said that we will be leaving the single market, and I suspect that we will leave the customs union. That very much puts into question whether in any event the deal remains commercially viable for the many of the reasons he identified. The pooling looks dubious to me, and the cost savings are certainly dubious. The biggest concern is that, post-Brexit, this is on the political agenda as opposed to the commercial agenda, which worries me.
I hear what the hon. Member for Aberdeen North (Kirsty Blackman) said about not being concerned about change of control. I do not agree with her sense of security. If the control of shareholders is with Deutsche Börse, they can change anything that is written into the agreement. I believe the chairman is to be a German, and he will have the casting vote.
The consequences are that we are putting at risk one of our most valuable assets. The headquarters of this wonderful institution could move to Frankfurt. The regulatory environment in which the stock exchange works could change. The eurozone could take on euro clearing. I do not agree with the hon. Lady that that is inevitable—it is still up for negotiation and I would like to clear euros here. Do we really want to take that risk where politics trumps economics, as in the EU project?
Whatever we think of the merger, this is not the right time. We will cause instability in the market if we carry on with it. My plea to the Minister, and indeed to the Prime Minister, to whom I have written, is that the decision should be delayed until 2019. We have the power to do that. As my hon. Friend indicated, the Bank of England can do it, the Chancellor of the Exchequer can do it, the FCA can do it and the Competition and Markets Authority can do it. The risks are huge. The competition authority in Europe has yet again moved the date for its decision, to 3 April. If it makes the decision, there will be unstoppable momentum behind the merger and we risk all the events that my hon. Friend identified becoming a reality. It will then be very difficult to stop.
I agree with my hon. Friend that FDI is a good thing, but this is not FDI. Why would we threaten our national economy? Why would we threaten our national security? The stock exchange, just like the NHS and BT, is one of our crown jewels. When we look at these commercial transactions, we must ensure that we make exceptions for things that are important to national wealth, national health and national infrastructure. The City supports that. I have now spoken to more than 50 individuals, and they will be named shortly.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I am glad: your stricture will cut down my 20 minutes of waffle to three minutes of pithiness. The London Stock Exchange is one of the world’s largest diversified international market infrastructure and capital markets businesses. However—my hon. Friend the Member for Stone (Sir William Cash) made this key point—it is no longer a social institution. It is a public company like any other. Its existence and ability to trade depends on its range and quality of products. It is not a members’ club or a public body.
Since its inception as a public company, it has changed dramatically, not only in the last 12 years but in the 40 years since we joined the European Union. As we leave the European Union, we need to recognise how much it has changed. It has sought opportunities to expand, and it has brought great success to the City of London, extending the range of products and activities. One therefore needs to see the merger with Deutsche Börse as the latest in a long list of opportunities and expansions that the London Stock Exchange has taken part in.
I do not have time to rehearse or go through my hon. Friend’s concerns. He was right to make a number of them—there clearly are some concerns—but he failed to talk about any of the significant advantages. First, the merger would create a European market infrastructure company to challenge other comparable companies in the world. It is simply not right to say that the efficiency savings or cost savings would be minimal. There would be considerable efficiency savings that would reduce the trading costs for market participants and, inevitably, for end users—the pension funds we are all in—and it would reduce the costs for capital raising.
One of the great advantages of this potential merger is that the UK’s high-growth businesses—they are the backbone of this country and, as we are now all Brexiteers, they want to go out into the world and compete—need to be able to get the capital that is so critical for growth and job creation in the United Kingdom. Highly innovative, high-growth companies in the UK need that access to non-bank finance and, in particular, equity. They also need the ability to access debt and debt instruments, which is one of the major opportunities that the merger will provide to both UK-based regional powerhouses and internationally-competing UK companies. We should not underestimate that benefit.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank my hon. Friend the Member for Stone (Sir William Cash) for bringing the debate, which is very timely. As has been pointed out, the merger has been on the horizon for some time, but Brexit has suddenly crept over the horizon and, I am sure, will fundamentally impact on the decision-making process.
Half of St Albans’s economically active population work in London, with many working in financial services. I believe Brexit presents the opportunity to recalibrate our financial services, but the merger has the potential to take away from our negotiating strategy. It is in the best interests of the EU to give London a good deal in the Brexit negotiations, but not if the stock exchange is relocated to Frankfurt, which could happen as a result of the merger. To not look at this in detail would be foolish.
As has been pointed out, 17 of the largest currencies in the world are cleared in London, including the euro. Goldman Sachs and J.P. Morgan have hailed the City as
“one of the most attractive places in the world to do business”,
citing its “stable legal systems” and
“deep, liquid capital markets unmatched anywhere else in Europe”.
Doing anything that somehow puts a drag anchor on that liquidity is going to be a problem for the future. The merger should not proceed in such a febrile and shifting period as a result of our Brexit negotiations.
Does the Minister agree that it is in the best interests of the European Union’s internal market to maximise its access to City financial services? I believe it is totemic that the stock exchange that is at the heart of those financial services actually stays in London. I do not agree with the Scottish National party Member, the hon. Member for Aberdeen North (Kirsty Blackman), that stock exchanges emerge hither and thither and it does not really matter where, and that a headquarters in one place is enough. I actually think it is of concern. If any other major business was potentially being taken out of this country, such as a car manufacturing business or any other manufacturing business, there would be significant concern. The fact that this is to do with financial services and the stock exchange does not make it any less of a concern.
We should put a stay on the merger, which could be perverse and jeopardise the positive situation in the City of London. As my hon. Friend the Member for Stone said, decisions must be taken in the UK, by the UK. Taking back control was fundamental to the drive for Brexit; ceding control at this particular stage, if that is at all possible, would be at odds with the drive in this country to keep control within the United Kingdom.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I am grateful to one of my constituents for drawing my attention to this issue. I want to hear what the Minister has to say because, if we look at all of the recent mergers and acquisitions activity, whether between ARM Holdings and SoftBank, PSA and Vauxhall, Unilever and Kraft, or even Liberty House and Tata Steel, the Government are saying something. The Government have a view, so I think, as many hon. Members have said, it is appropriate to hear the Government’s updated view.
It is clear from other aspects of Government policy that there was no planning for post-Brexit circumstances for our country, so it is appropriate that they should have a new and fresh look at this. We need to know if our rules and regulations for competitive markets and a national interest test are suitable and up to what is needed in this new period of uncertainty in our economy. We have inherited those rules from the past, but should we rely on them as if we were part of the European Union and say they are fine and fit for purpose now, or is it appropriate for us to look at them anew?
It is also important to hear from the Government, because their crucial role at this time is to reduce uncertainty in our economy, so that people, companies and banks start investing in our country. It is fair to say that there is not a conspiracy—I do not think there is a conspiracy in the City—but when there are mergers and acquisitions involving a vast number of advisers, their interest will be focused on the deal and not necessarily on the impartiality of their advice to the Government. Without a clear review from the Government, there is a risk that the City will just let the merger through on the nod because so many people have vested interests.
Echoing my hon. Friend the Member for Stone, I would like to know the Government’s role in reducing uncertainty on three specific issues. First, he mentioned a significantly increased systemic risk for the Bank of England from linking the two clearing houses, therefore exposing the UK to systematic breakdown of the euro. What assessment have the Government made of the extent of that? Secondly, as has been mentioned, on exposing the stock exchange to political risk from political groups outside the UK, what is the Government’s policy for managing that increased political risk if the merger goes through?
Thirdly, the harmonisation of business models has been mentioned by both sides during the debate. That is a way forward, but it is not the only way forward. Do the Government view the City of London harmonising with the EU as a priority, or should it better be looking to independently frame arrangements with the world?
It is a pleasure to serve under your chairmanship, Mr Hollobone. This is an important debate, and we have discovered that an hour is not enough. I hope we can take it into the main Chamber at some point because a lot of issues need to be cleared up.
The hon. Member for Stone (Sir William Cash) is correct: this is a national issue and we have to take the national interest into consideration. The track record of takeovers and mergers in recent years has actually proven that, more often than not, the national interest has not been well served. There are a number of instances, particularly in financial services at this crucial moment in time, where dangers have to be brought into the light. The takeover by MasterCard of VocaLink, our main payments system in the UK, is systemically dangerous. It is also a technology raid, because we have the best payments technology in the world—that is another issue.
We have to judge mergers on a case-by-case basis. I say with due respect to everyone—I am not trying to make a silly debating point—that, if there has been a move to politicise this particular merger, I am afraid it has come from those who supported Brexit. They are in danger of finding problems where there are none to be found. Why would the owners of the London Stock Exchange Group walk into a merger like this if it was so disastrous for their business, and if it was so patently obvious that they were going to be out-regulated and that their business will be shifted away to another part of the world? If we look at it from that perspective, it ensures a bit of common sense in the debate.
I would dearly love to give way, but given the little amount of time I have, I will not. As things move on, I hope we will have the chance for further discussion.
Hon. Members might be interested to know who actually owns the two parties in the proposed merger. In fact, the bulk of the London Stock Exchange Group’s ownership is not British. It is the Qatar Investment Authority, it is BlackRock, which is a major American private equity group, and it is Invesco, which is headquartered in Bermuda—we can all ask why that is. It is not actually the jewel in the crown of the UK, as was mentioned. It is already an internationalised organisation.
If we were to ask who owns Deutsche Börse, the answer is that the majority is owned by City of London institutions. That underlines the fact that, while there are hundreds of small exchanges all over the world, particularly in Asia and Africa, the big exchanges are owned by global institutions, and they are about mobilising global amounts of capital. In particular, they are no longer simply about narrow trading in equity. They are fundamentally about finding the capital for exchanges in derivatives and interest rate swaps, which makes the whole global capital market work. For that, the capital needs to be pooled. That is why for the past 15 to 20 years, right across the globe, there has been a constant move to merge and in some way consolidate the large exchanges. As we know, it has not been easy for political and national interest reasons, but that is the way the market is going. I put it to Members that it is either this merger or another merger—a stand-alone London Stock Exchange Group is no longer tenable.
That brings me to the final point worth making. Aspects of the structure of the merger have to be discussed, particularly post-Brexit. For instance, it seems strange that it is 54% to Deutsche Börse and 46% to the London Stock Exchange, rather than 50:50. That should be discussed, but in the end, this or some other merger will go ahead. Let us look at the specific technical issues, but let us not politicise this issue, because it is the nature of the way these global markets are working.
It is always a pleasure to see you in the Chair, Mr Hollobone. I begin by congratulating the hon. Member for Stone (Sir William Cash) on securing this extremely important debate at a critical time for the London Stock Exchange and for the many financial services companies in Europe and beyond that depend on its continued successful functioning. The hon. Gentleman could reasonably be regarded as the Archbishop of Brexit, so when he says that something might not be in the national interest as a result of the Brexit process, I for one certainly take heed of that.
The London Stock Exchange is a great British institution, with a history dating back to 1698. In the intervening centuries, the LSE has evolved far beyond a simple trading platform. Its services are now exported around the world and a variety of markets benefit from those services, which include clearing, indexing and technology. As policy makers, it must be our priority to provide an environment in which that can continue. However, the LSE sits at the convergence of a number of challenges as the UK seeks its departure from the European Union. We need to pay careful attention to how those challenges can be managed, not only for the future success of the LSE but to ensure that potential damage to the rest of the financial services sector is mitigated.
The first and most sensitive of those challenges is undoubtedly the proposed merger of the LSE and Deutsche Börse. Given the standing of the LSE, it is unsurprising that it has been courted by numerous merger partners over the years. Mergers were under discussion between these two particular organisations as long ago as 2000. The LSE last rejected an offer from Deutsche Börse in 2005. Today’s proposed merger has shareholder approval from both sides. The only barriers that remain are regulatory approval and the go-ahead from the relevant European and UK competition authorities.
There are good reasons why this deal could be in the best interests of industry more widely and the consumer, notwithstanding the outcome of in-depth scrutiny by anti-trust authorities. In the years following the 2008 financial crisis, regulators have made significant progress towards tackling a fragmented post-trade environment and mitigating systemic risk. It is arguable that the economies of scale provided by this merger may help those efforts, while creating a significant global player, as the hon. Member for Wimbledon (Stephen Hammond) outlined.
Consolidation has been a notable trend in recent years among trading venues, driven by a number of factors, but ultimately larger single entities have the potential to reduce costs for their stakeholders. This particular merger could also improve capital flows across the European Union, in the intended spirit of the capital markets union. I worry a little bit, listening to Conservative Members, about the degree of protectionism that seems to be slipping into centre-right parties around the world at the moment. Those advantages are perhaps being underestimated.
It is undeniable that the UK’s decision to leave the European Union has significantly altered the terms of reference for the deal. In my view, it will be extremely challenging for the relevant regulatory and anti-trust bodies to deliver a final verdict on the proposals while the detail around the conditions of our exit from the European Union remain so vague. Notably, there seems to be some debate over whether the headquarters of the new entity would be in London, which was treated as a given prior to the vote on 23 June, or in Frankfurt, which has now entered the discussion given the UK’s signalled departure from the single market. Clearly there are strong arguments for both sides, but the conversation must take place in the context of ensuring a future for clearing activities in the City of London.
London is one of the world’s leading centres for clearing, providing essential market infrastructure to global financial services. The revenue and jobs that the industry supports must be recognised in the Brexit negotiations. LSE’s subsidiary, LCH.Clearnet, which is 57% owned by the LSE, cleared over 90% of the world’s over-the-counter derivatives last year, amounting to a figure in excess of $655 trillion. That is especially pertinent given the ongoing efforts by certain parties to relocate euro-denominated clearing to the continent. In 2015, LCH cleared €327 trillion across different euro-denominated products, according to evidence submitted to the Treasury Committee by the LSE earlier this year. The scale of that activity is so significant that it could support up to 232,000 jobs throughout the UK, which would be lost if euro-denominated clearing went as part of the Brexit process.
Although efforts have so far failed on the continent, given some strong practical arguments against re-domiciling those transactions, the relevant authorities must give careful consideration to potentially creating a bridge between Frankfurt and London that includes LCH.Clearnet, to mitigate the risk of that gaining traction.
The LSE is one of the vital cogs that has helped to build the UK’s successful financial services sector. It is critical that we ensure it can continue to function effectively post-Brexit. A full and in-depth assessment of the proposed merger must take place in that context.
Thank you, Mr Hollobone. It is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Stone (Sir William Cash) on securing this important and topical debate. He has made many thoughtful and detailed points, and I will do my very best to answer them in the brief time I have. The hon. Member for Stalybridge and Hyde (Jonathan Reynolds) also raised some interesting points, which I will attempt to answer as I work my way through my speech; he should bear with me.
What is clear today is that we share the same interest: the continued success of an important, and some would say iconic, British company. The London Stock Exchange Group has a proud history that goes back more than 200 years. While the group is most famous today for its equities exchange, it is in fact a much wider business that includes, notably, one of the world’s major clearing houses.
I well recognise that the proposed merger with Deutsche Börse is a significant development. Let me start by recalling some of its key terms. The merged company will be controlled by a newly created parent company, headquartered here in London. At the outset, it will be owned 54.4% by shareholders of Deutsche Börse and 45.6% by LSE Group shareholders. The board of directors of the merged group—
Sitting suspended for Divisions in the House.
It is a pleasure to be back under your chairmanship, Mr Hollobone. I was talking about the shareholding of the company. The board of directors of the merged group will be drawn from both sides of the group and chaired by the current LSE chair, Donald Brydon. The deal on the terms has now been approved by both sets of shareholders, but official scrutiny of the merger remains outstanding. Let me address that point in response to questions that my hon. Friend the Member for Stone asked about the roles of the FCA and the Bank of England.
The deal must be cleared by numerous regulators worldwide, including in Germany and the UK. In the UK, the Bank of England and the FCA have a statutory role in assessing and approving changes in the control of central counterparties and stock exchanges respectively. On CCPs, the Bank must be satisfied of the reputation and financial soundness of the acquirer, the reputation and experience of any person who will direct the CCP following acquisition, the CCP’s ongoing capacity to continue to comply with relevant regulations, and any money laundering or terrorist financing concerns. On exchanges, the FCA is empowered to intervene if it considers that the change of control would pose a threat to the sound and prudent management of the regulated market. Those assessments remain outstanding and the regulators are in ongoing discussions with the companies.
Of course, the merger is of such a size that it must face rigorous scrutiny from the European Commission on competition grounds. Its investigation is also ongoing and includes the engagement of the UK Competition and Markets Authority in a consultative capacity. It is due to reach its conclusion in early April. That is a complex and sensitive inquiry, which I will not attempt to prejudge.
My hon. Friend asked about the Government’s position. The Government do not have a formal role in scrutinising the merger, and it would not be appropriate for us to take a position either way on the deal, but we are following it closely and are in touch with the regulators.
Another area of concern that was raised pertains to the migration of businesses to Frankfurt if the merger goes ahead—particularly clearing businesses. The merger is subject to ongoing regulatory assessments. These are commercial matters, but for hon. Members’ benefit, let me read out what the LSE Group said on 16 January in relation to speculation about the merger. It stated that
“such action is not contemplated and any statements suggesting otherwise are inaccurate and misguided…LSEG and Deutsche Börse are committed to maintaining the strengths and capabilities of their respective operations in London and Frankfurt. Further, the existing regulatory framework of all regulated entities will remain unchanged and, in particular, there is no intention to move the locations of Eurex or Clearstream from Frankfurt, LCH from London and the US, Monte Titoli from Milan or CC&G from Rome following completion.”
That is what the company said, but let me emphasise that we are not complacent about the position of UK financial services companies, and we will continue to ensure that we support and enable their ongoing success.
On the implications of Brexit, we are in regular contact with not just the LSE but many financial services firms to understand the implications of Brexit for their varied areas of business and their priorities for the new trading relationship as we negotiate with the EU. Our aim is clear: to ensure the continued success of British financial services and the millions of jobs that they bring to people across the UK.
Moving on to specific points raised during the debate, I welcome the thoughtful contributions made by the hon. Member for Aberdeen North (Kirsty Blackman), my hon. Friend the Member for Wimbledon (Stephen Hammond) and the hon. Members for East Lothian (George Kerevan) and for Stalybridge and Hyde. I want particularly to answer my hon. Friend the Member for Newton Abbot (Anne Marie Morris), who asked whether the deal could be postponed. In the long term, this business, like so many others, will need to meet the challenges and opportunities of Brexit. I assure Members that the Government take our role seriously. We will continue to engage with the LSE and other firms across the financial services sector to ensure that we understand their plans and what they consider they need from the arrangements that we are negotiating with the EU.
My hon. Friend the Member for St Albans (Mrs Main) asked what was to stop TopCo moving to Germany. The deal has been voted on by shareholders in its current terms with the London headquarters. It is clearly part of a balanced structure designed to secure the approval of both sets of shareholders. Ultimately, the long-term location of the headquarters is a matter for the board and shareholders, in common with other companies, but importantly, it is worth noting that in this case, the articles of association of the combined company will contain a safeguard that the location of the company cannot change without the approval of 75% of the directors. Also, of course, under the Companies Act 2006, the removal of that safeguard from the articles of association could take place only with the agreement of 75% of the combined group’s shareholders. That is a significant point.
My hon. Friend the Member for Bedford (Richard Fuller) asked whether the companies would merge their central counterparties and whether that would create a systemic risk. The European market infrastructure regulation establishes a strict supervisory framework for CCPs, and in the UK they are regulated by the Bank of England. He was also keen to know more about the Government’s view on takeovers. I have said and will repeat that there is a formal and regular scrutiny system for takeovers of exchanges and CCPs, operated by the Bank and the Financial Conduct Authority. There is also a competition scrutiny process.
My hon. Friend the Member for Stone asked about TopCo moving to Germany. I reiterate my previous comments: the deal has been voted on by shareholders in its current terms with the London headquarters. There will be 50% of directors from each side, and the shareholders’ agreement provides additional and clear reassurance. He asked about the Treasury’s power to direct the Bank of England. It is true that the Bank of England Act 1946 includes that power, but the factors that the Bank can take into account are set at European level in EMIR, and the Bank would still be subject to those constraints in a scenario where the Treasury sought to exercise its power of direction. We can direct it only if we act lawfully, and we cannot direct it to act beyond the scope of its regulatory powers as set out in EMIR.
The Government take a close interest in the developments on the proposed merger and the assessments of the various regulatory bodies involved. Financial services represent an immensely important industry for the UK, and we have been clear that we will pursue a bold and ambitious free trade agreement involving the freest possible trade in goods and services, including in that sector. That is in not only our interests but those of member states across the EU. I thank hon. Members from throughout the House for being here today and sharing the commitment that we all have to the future success of the London Stock Exchange and the sector more broadly.
I am glad that the Government will consider the matter carefully, and that it is clear from this debate that everyone accepts the need to examine the issue rigorously, as so many have urged on me since I introduced the proposals. We look forward to that further examination, which may well be on the Floor of the House.
I do not have time to go into all the details of the essential questions now; I set them out in my speech. On the question of who calls the shots and the location of the headquarters, as I said, formally moving the headquarters to Germany would not be likely given the need for a significant shareholder vote, but that is beside the point. The real issue is who calls the shots and in whose interests critical decisions are made. It is no answer to say that the HQ will remain in the UK if the people who are really in charge just fly in from Germany for the day. Decisions must be taken in the UK, in the interests of the UK. I hope that the Government will take a proactive position on all of this.
I do not agree with the Minister’s assessment of the impact of the articles of association. I have been a lawyer for a long time, and I know that such things have an extraordinary capacity to disappear into the wind. I am not impressed by the 75% argument, whether it involves directors or the combined group. The key question is who calls the shots. The idea of 50% of the directors coming from each side is interesting, but basically it all comes down to the national interest.
With regard to the powers of the Treasury under section 4 of the 1946 Act, the European market infrastructure regulation is a European regulation. I inform the Minister, just in case he had not noticed, that we are leaving the European Union, which means that the European Court of Justice will no longer have a role in relation to the regulation. I do not say this cynically, but I strongly suggest that he goes back to his lawyers and assesses that point. The European Court of Justice will not have any jurisdiction over EMIR once the matter has been dealt with by our exiting the European Union, the repeal Bill and other measures. I thank you, Mr Hollobone, for your chairmanship of this debate.
Question put and agreed to.
That this House has considered the future of the London Stock Exchange.