Wednesday 22 February 2017
[Mr Adrian Bailey in the Chair]
Council Funding and Social Care
It is a great pleasure to conduct this debate under your excellent chairmanship, Mr Bailey, particularly as I hear you are going to Hull on Monday with the Industry and Parliament Trust, which is a great organisation. It shows that you are a man of discernment and great taste, and you will have a good time in the city of culture—and I would not dare to ingratiate myself with you at the start of the debate!
Adult social care in England presents the biggest domestic political challenge of our time, and that includes how to fund it, how to ensure it is more closely integrated with health and how to ensure that the system is sustainable in an ageing society where demand is bound to continue to rise. In the past week alone, while Parliament has been in recess, Age UK has said that the system is moving from crisis to collapse. A report by Oxford University and the London School of Hygiene and Tropical Medicine concluded that problems in adult social care are behind an unprecedented increase in mortality. If we look at the statistics we see that mortality has gone up, but the normal infant mortality measure is not the cause, nor is the mortality rate of babies born after 28 weeks, which is a big factor. However, the adult mortality rate has gone up by 5.7%, and the report says that is due to problems in adult social care in England.
The debate today is about one strand of the enormous challenge, and it is very much focused on the short term: how local authorities will be able to maintain, let alone improve, services over the next few years. In relation to the debate about the long term, I was Health Secretary 10 years ago, and I was heavily engaged in the internal debate within the Brown Government about the need to devise a completely new and substantial stream of funding for adult social care. My right hon. Friend the Member for Leigh (Andy Burnham) became Health Secretary after me. He managed to reach a consensus with the Conservatives and the Liberal Democrats that was disgracefully scuppered by Andrew Lansley during the 2010 general election campaign. That attempt to find new money was disparagingly referred to by the then Conservative Opposition as a “death tax”, complete with pictures of tombstones on their election posters. It may have helped them to dislodge Labour, but it did not help them to solve the problem.
The Dilnot inquiry subsequently made a number of suggestions, including the eminently reasonable one that people like me who are working beyond state pension age should pay national insurance. That was quickly dubbed the “granny tax”. Between the death tax and the granny tax, the national debate on how we find the means to tackle this crisis has rarely managed to rise above the glib and the facile.
I applaud the recent cross-party attempt to convince the Prime Minister of the need to find a new cross-party consensus. Perhaps the Chancellor is even now working on the final details of a great and imaginative scheme that can attract all-party support for a national solution to a huge and growing problem. His autumn statement was an enormous disappointment. While he may mistakenly believe that the biggest crisis he faces is how to defuse the considerable row over business rates, he needs to understand that the interlinked issue of adult social care—interlinked for reasons I will come on to— overshadows everything in his in-tray and in the Cabinet’s in-tray.
It is traditional in debates of this kind for somebody to say that the problems are not all about money. I have no doubt that the Minister is preparing himself to fulfil that role in this debate, but I am afraid that in respect of adult social care, it actually is all about money. According to the Institute for Fiscal Studies, direct funding to local authorities will have fallen by 80% by 2020. I repeat: 80%. Adult social care is not ring-fenced. Some £4.6 billion was slashed from those budgets in the last Parliament, with the result that we spend less on social care now than we did in 2010. Those are House of Commons Library figures obtained yesterday. It is less in cash terms, which is even less in real terms, and all parties agree that the problem is mainly caused by underfunding.
In written evidence submitted to the adult social care inquiry last year, the King’s Fund said that
“the fundamental cause of the problems in adult social care is inadequate funding.”
We can talk about innovative ideas and methods that councils across the country are employing, including my council in Hull—they are doing brilliant things to try to deal with some of the wider issues—but the basic fundamental problem comes down to cash and funding. Indeed, the scale of the problem is such that in evidence to the same inquiry, the chief executive of NHS England, Simon Stevens, said that were any extra money to become available from anywhere it should go not to the NHS—his own organisation, which he was representing—but to social care. That was a remarkable and unprecedented act of self-denial in respect of access to public funds.
Pending the Budget and the outcome of further deliberations by the Government on the issue, the solution that this Administration have pursued with the most vigour is simply to pass the buck to local authorities. Let us for the sake of this debate accept the premise that local authorities are best placed to deal with the issue and that the adult social care precept may be the new funding stream that has proved so elusive. Even if we accept all that, the first point that the Government must surely acknowledge is that the amount raised does not begin to match the scale of the problem. The precept in 2016-17 raised £382 million, which is less than 3% of council spending on adult social care. However, it would have been a very welcome 3% increase, were it not for the fact that implementation of the national living wage cost those same councils an estimated £612 million, wiping out the additional money and leaving councils with a deficit on this issue alone of £230 million.
There are some 850,000 people living with dementia in the UK, and their care is usually more expensive than standard elderly care. We have seen £160 million taken out of adult social care budgets between 2010 and 2016. When it comes to the adult social care precept at the local authority level, does my right hon. Friend agree that it is destined to create a postcode lottery and impact further on the services that people expect to receive in times of great difficulty?
My hon. Friend is absolutely right about that, and I will talk about the widening inequalities in a second. She was also right to refer to dementia sufferers. Too often in this debate—I am perhaps guilty of this, as well—we deal with dry statistics, percentages and precepts, when at the end of it there are people who are very vulnerable and need care, above all dementia sufferers. We have to tackle that and ensure that the inequality gap does not get wider. I will come on to that in a second.
I am following very closely what the right hon. Gentleman is saying and am finding myself in agreement with much of it. In the time left, will he also address the issue of the hidden cost of care? These are the carers who are looking after elderly relations and who have sometimes lost childhoods looking after disabled mothers. A huge army of hidden carers are providing free social care. When we look at the model, we should not forget those people.
The right hon. Gentleman is absolutely correct about that. I said at the beginning of my remarks that this is a wide debate, but I have chosen to focus on one strand: funding through council tax. I have met not only elderly people caring for similarly elderly people, and not only women trying to care for elderly parents at the same time sometimes as bringing up a child, but, most poignantly, children who care for their parents. They remained hidden to the extent that even schools did not know they had such responsibilities, and there was no obligation on schools to find out, so the right hon. Gentleman is absolutely right that the problem is far reaching. For Government it is a difficult problem to resolve, although I do not doubt their determination to try to resolve it. I am just pointing out that if we were to accept that the way to do it is by local precept on local councils—devolving the issue down to local level—the Government would have to accept that the route they have designed is woefully inadequate.
In addition to the fact that the national living wage costs councils £612 million against the £382 million that the precept at 2% raised last year, a combination of the Care Act 2014, case law in respect of deprivation of liberty safeguards and the proposed Department for Work and Pensions cap on housing benefit—if the Government are unwise enough to go ahead with that, they will create all kinds of problems that will come to councils through adult social care—has created and will create additional unfunded social care costs.
However, as my hon. Friend the Member for Great Grimsby (Melanie Onn) alluded to, the biggest problem with relying on the precept and the retention of business rates—the Government’s other new idea—is that it is grossly unfair and will widen existing inequalities, leaving those with the greatest need less able to raise the extra money that they need. Far from doing something to close the equality gap that the Prime Minister rightly made her mission in her first utterance in that role, it will exacerbate the problem and lead to Government-inflicted inequalities. The King’s Fund points out that the 10 most affluent areas will raise almost two and a half times more from this precept than the 10 most deprived will. If it was more money instead of less, it would be welcome. The fact is that all local authorities, wherever they are in the country, will be worse off overall from cuts to local authority funding, but through the precept and rates retention some will be worse off than others.
Allow me, if I may, Mr Bailey, ahead of your visit to Hull, to be parochial and talk about the city that I represent. Hull has 27% of its population living with a long-term health condition. It is a brilliant city, but not a wealthy one. Not many people have the £25,000 that, according to the Government, allows them—this is another controversial issue—to self-fund. Only 7% of the population is able to self-fund in Hull against the national average of 45%. There is, therefore, a huge and growing demand for adult social care services.
Hull City Council will struggle to produce any meaningful resources from the social care precept because 80% of our housing stock is in the two lowest bands. The net result—this is a neat little comparison—is that in Kingston upon Hull the increase in the precept to 3% will bring in £8.01 per person, but in Kingston upon Thames, which I have nothing against—it is a wonderful place—will raise £15.27 per person. There are even starker anomalies, incidentally, but that is a neat comparison. Kingston upon Hull, which has higher levels of deprivation, a greater need for social care and a lower council tax base, finds itself getting almost half as much as Kingston upon Thames. Because of the Government's failure to properly account for deprivation over the next three years, Kingston upon Thames will have £2.3 million more to spend on adult social care while Hull will have £2.2 million less.
Hull has, like all local authorities, been battling to protect its services through a vicious series of funding cuts, losing £115 million of core funding with a further £33 million of cuts to face by 2020. It has lost £18 million from its social care budget since 2010, with the need to cut a similar amount over the next three years. Overall, a combination of the financial pressures on Hull City Council, the clinical commissioning group and secondary health care—those are all combined in the interface of how we deal with these problems—means that we have a spiral of decline, as the CCG is unable to support community services and is pulling back funding at the interface of health and social care. That then impacts on the ability of the local authority to respond swiftly and robustly to a sudden and unexpected need for high-cost social care, such as somebody experiencing a stroke and awaiting discharge from hospital.
An increase in delayed discharges places an additional burden on the acute trust, which goes deeper into crisis and has to admit people later and discharge them earlier, often discharging them inappropriately and pushing the burden of funding support for vulnerable people back to the CCG and the local authority. The vicious circle then begins all over again, becoming more and more problematic and presenting even greater risks to individuals.
On this issue of keeping people in hospital, in some parts of the country the local authority is slow to find them beds because it is then its responsibility financially, but does the right hon. Gentleman not agree that all the evidence shows it is far better to keep people out of hospital, because of muscle wastage and suchlike, and to get them back home as quickly as possible?
There can be no dispute about that from anywhere. All the evidence says that that is the case. “Bed-blocking” is a terrible term, but it was around when I first came into this place 20 years ago. We thought we had resolved the situation, but it is becoming more and more acute. Keeping people in hospital is a problem because it is not good for the individual, never mind about the effects on healthcare services, the NHS and adult social care. It is not good for the individual to be placed in that situation. I might add that lots of charities and voluntary sector organisations do a great job in helping to deal with that problem. They depend for their existence on a bit of match funding from local authorities, sometimes £10,000 a year, which they are no longer able to get since that has had to be cut because of cuts to local authority funding, so that has had an impact even on the voluntary sector.
In November the Public Accounts Committee concluded that the Department for Communities and Local Government does not have sufficient understanding of the extent to which revenue pressures are affecting local authority finances. That has certainly been our experience in Hull, although we have tried to assist the Secretary of State by highlighting the anomalies that the precept creates. The Secretary of State wrote to the leader of Hull City Council, Steve Brady, on 19 July last year, shortly after he had taken over at DCLG. It was a lovely letter thanking Steve Brady for a letter to his predecessor about devolution in Yorkshire. The leader of Hull City Council’s letter also mentioned the problems being caused by the tax precept for adult social care. The Secretary of State said he understood and wrote:
“ I would be pleased to meet you in due course to discuss this further. My office will be in touch to arrange...a suitable time”
in the coming weeks. Hull City Council waited 13 weeks and then got a response that was not even from the principal private secretary in the Department. A correspondence clerk wrote to say that the Secretary of State no longer had any time in his diary: he was unable to commit to any meeting whatever and unable to commit to the meeting that he himself had suggested, unsolicited, in a letter to the leader of Hull City Council. That is at worst arrogant; at best, discourteous. Perhaps the Minister can suggest to his boss that he clear an hour—even half an hour—in his diary for the commitment that he himself suggested. His failure to do so has led to the suspicion that he is not really interested in gaining the sufficiency of understanding that the PAC alluded to in its report.
The problems in Hull and other cities represented by Members here today remain as acute as they were in July, and the local government funding settlement published late on Monday evening will do nothing to resolve them. The better care fund gives some weighting to local need, but nowhere near enough, with rising demand and reduced funding producing a £30 million funding gap for Hull by 2020, and a further £40 million to come if 100% business rates retention kicks in without some form of adjustment to account for deprivation. Again, places such as Hull with tightly drawn city boundaries—none of the suburbs are part of the Hull City Council area—will do worse from business rates retention than more prosperous areas.
Having failed in our quest to inform the Secretary of State of the effects of his policy on cities such as Hull, the three local MPs wrote to the Chancellor ahead of the autumn statement, seeking his assistance to ensure sufficient funding for adult social care. The reply came from the Minister who is here today, and it was full of reassuring statistics about the money we would be receiving. The only problem is that his figures were wrong by a factor of 45%. The 3% precept will raise around £2.1 million in Hull, not the £3.5 million the Minister claimed. Yes, we will receive £1.46 million from the new adult social care grant, but we will receive a corresponding cut in the new homes bonus of £0.8l million, so that £1.46 million is reduced to £0.65 million. In addition, although it is true that Hull will get £1.88 million from the better care fund, like all local authorities we were hoping to see that money front-loaded, not back-loaded. The £6.5 million we are due to receive in 2018-19 is badly needed now.
The cuts being made to local authority funding are what I would call reckless. Even in this new world of alternative facts, the Government cannot spin draconian cuts into extra funding. Instead of engaging in this kind of smoke-and-mirrors attempt to suggest that all is well, the Minister needs to understand, and then acknowledge, the real funding position for councils such as Hull and other local authorities whose Members are waiting to speak in this debate.
This is not a battle among local authorities; it is a battle by local authorities to achieve a proper understanding by the Government of the crisis they face. The Government must take levels of deprivation and the ability to raise finance from local tax receipts fully into account when considering the future fair funding model for local government. They must set out their plans for the promised land of rates retention in 2020, which may help in the south where, as we have been hearing, rateable values are high, but is a huge issue for local authorities in the north. It would also be handy if the Government sorted out their promised review of rateable values before passing that substantial buck to local authorities, as they plan to do in three years’ time. More urgently, they need to front-load the better care fund, so that services do not collapse before a fairer funding model is in place.
Local authority funding of adult social care on the current basis is unsustainable, but, in the absence of fresh thinking, it is all we have, and the people who rely on adult social care cannot wait any longer for the urgent help they need. The debate can get lost in dry statistics, but in reality it is about the elderly woman who is stuck in a hospital bed because there is no satisfactory provision in her community. It is about the disabled man unable to receive the help he needs to have a bath, the care home that closes and the dementia care that vanishes. It is about many of the things that make our society civilised—things that are diminishing daily, on this Government’s watch.
I am grateful to the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) for instigating this debate. It will be one of many, and I am pleased that there is some kind of consensus emerging.
At the outset, we should do two things. First, we should be careful in using the word “crisis”—it is an overused word in government—but in this case we do have something approaching a crisis. Secondly, although we should try to take the politics out of this, and I will argue why, I am not a deficit denier and we need to acknowledge the severe financial restrictions under which we are still operating. When we won the election and formed the coalition Government in 2010, the coffers were empty. To imagine that we can print and spend more money is irresponsible and would get us back exactly to where we started seven years ago.
The issue is nothing new. The Blair and Brown Governments failed to address it; successive Conservative Governments have failed to address it. This crisis has long been coming and it is now here. In a sense, I am sorry to see the Minister in his place. A Communities and Local Government Minister should not be involved in this at all, and this should not be a local government matter.
When we talk about additional funding, we are discussing three strains. The first is the precept, which is a problem for us in Devon just as it is in the constituency of the right hon. Gentleman, because we have a relatively low income and high needs. The second strain is business rate retention. Will my hon. Friend the Minister refresh our minds on where we are on business rates retention? The Secretary of State has said that 100% rates retention will mean £12.5 billion a year more to local authorities. Have the Government decided that that is the policy, or is it going to be 100% retention of any new business rates to encourage local authorities to grow business? There is a fundamental difference.
The third strain is the forthcoming Budget. I see that the financial figures are better than were expected, which gives the Chancellor some wriggle room. I would submit that social care is the one area where he could usefully spend money to avert the crisis we are discussing.
Any of those measures are by definition temporary, because they provide only a sticking plaster. A Minister from the Department for Communities and Local Government should not be here answering the debate. The model is completely ridiculous and outdated—I would go so far as to say that the model of healthcare through the NHS and social care is now outdated and needs a radical rethink.
There should be a seamless passage of care from cradle to grave. It seems utterly ridiculous to have a system whereby the NHS is funded by national taxation and social care is funded by local authorities. That model is completely crazy. It has emerged and grown up. We are in the position where, up and down the country, there are examples of hospitals retaining people beyond the date that they should be there, because as soon as they walk out the door they become a cost to the local authority. Where is the incentive for the local authority to provide an early care package for those people? The victims of that situation are at the mercy of the Government and need urgent help.
I am not going to rehearse the statistics from my part of the world, other than to say that we have a higher than average elderly population of over 85s, which is growing faster than the national average. I am trying to sell Ministers the idea of using Devon as a template for getting this right. Places such as Sidmouth in my constituency are demographically 20 years ahead of the rest of the country, so if we get it right in Sidmouth, we are going to get it right everywhere else.
I am enjoying the freedom of returning to the Back Benches—I can speak without fear or favour and make wild spending commitments without having to stand at the Dispatch Box to justify or defend them. I have the freedom to look at these things based on the knowledge I have accumulated as the local MP since 2001 in an area where social care funding is a major problem. The right hon. Gentleman alluded to the cross-party group under the leadership of the right hon. Member for North Norfolk (Norman Lamb)—I suppose it is his leadership, although the group has pretty flat management—to whom we should pay tribute because he has been at the forefront of discussions about social care. I am part of that group, which has been to see the Prime Minister.
I know all the arguments about what has gone on before 2010. Much of that is regrettable, but we should now look this in a radical way. This is about not just social care, but the whole NHS. Bevan himself, when he got the first invoices for the NHS—I think it was to do with penicillin or antibiotics—said, “This is not what I had in mind at all,” yet we have allowed the whole thing to grow enormously. We have to be realistic about what kind of care the state should provide from cradle to grave and how it should be paid for. We must be braver than we have been in the past. Politicians of all hues and shades need to face up to the fact that this is about not just social care but care, health, accident and emergency and GPs—we need to look at the whole thing.
I am interested that the right hon. Gentleman did not allude to cultural changes. I like to think of myself as his benefactor, as I put money in his pocket by buying his books—and very good they are too. I recommend that those who have not read them do so, and buy them rather than go to the library—cheapskates!—because the publishing industry needs our support. In those books, the right hon. Gentleman eruditely paints a picture of an extraordinary upbringing in Notting Hill in London. He was actually the original member of the Notting Hill set and set the bar for them—what an excellent group of people they all turned out to be, with some exceptions. But I bet—he did not say this, but he will correct me if I am wrong—that in the Notting Hill he grew up in, elderly people were more often than not cared for by their families, and were not left alone in their homes or put into institutions.
The majority of carers in this country are women caring for men. We have already talked about the hidden carers, such as the elderly lady looking after an infirm husband, not getting enough help or respite—respite for carers is another issue. We talked earlier about the child who is having their childhood stolen from them because they are not able to attend after-school events as they have to rush home to care for a disabled or a needful member of their family. All that is true, but we have to recognise the fact that, because couples are now on the whole in work, they are less able to care for vulnerable parents and relations than they were in the past. Perhaps we need to look at that more carefully. Perhaps we need to plan more carefully to make it easier for people to add on what used to be called granny flats, and try to encourage more people, through either fiscal incentives or behavioural change, to care for people at home. We have to decide where the family stops and where the state steps in. It cannot all be left to the state.
All those things need to be looked at. The more outrageous and controversial the suggestions that are made, the better, because that gets people out of their boxes and makes them think about how we are going to deal with this problem. Hon. Members are shaking their heads in disbelief, but this problem is not going to go away; it is going to get worse as the population becomes more elderly. We have finite resources, so we need to see how best to allocate them. At the end of the day, this is a prosperous country, and a prosperous country should be judged by how it looks after its elderly and vulnerable people. At the moment, we are not doing it well enough.
Others wish to speak, so I will say three things in summary. First, I call, as I have done in Parliament previously, for the £1.5 billion of funds for the better care fund to be brought forward, because currently it will not be available until 2019. We need that money now. Secondly, we need transitional funding to facilitate the change in the healthcare model in East Devon. Thirdly, as I have said, we need a cross-party review of the NHS and social care services.
I have a local councillor standing for re-election in my part of the world who believes that money grows on trees. Her stock answer to everything is, “Scrap Trident, tax corporations, tax the rich.” It is not terribly intellectual. We have to be rather smarter than that. If the Chancellor has some wriggle room in his Budget—he is looking at the many priorities and hard-pressed areas that come across his desk, from the NHS to local government finance and the military—he owes it to this country to put social care at the top to provide some relief. That is not the long-term answer, but we have a short-term problem, and I am looking to him to help us solve it.
It is a pleasure to serve under your chairmanship, Mr Bailey. I congratulate my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson) on his eloquent speech, in which he set out the key issues that we are here to address. The right hon. Member for East Devon (Sir Hugo Swire) is right that we live in a prosperous country. As politicians, we know that politics is about choices, but I think the choices being made at the moment about social care are wrong, so we need to revisit the Government’s decisions and put pressure on them to think again. I want to spend a few minutes talking about the human cost of the financial pressures that my council is facing and the impact that is having on individuals, care staff and the care sector in general. I want to emphasise some of the points that my right hon. Friend the Member for Kingston upon Hull West and Hessle made about the demographic make-up of Hull and what has happened to our funding since 2010.
We are the third most deprived local authority area in the country, and the cuts since 2010 will equate to £548 per head by 2020. By then, an estimated £40 million will have been cut from Hull’s social care budget, and its central grant will have been reduced by 55%. I am going to be political here—the right hon. Member for East Devon said we should take out the politics, but I am going to say this. The most recent analysis shows that Labour councils have faced cuts five times higher than Tory councils, but even those figures do not tell us the whole story. From now until 2020, the council expects that the cost of its social care services will increase by £25 million. Even with the social care precept, the better care fund and the adult social care grant, we will not be able to cover that. As my right hon. Friend the Member for Kingston upon Hull West and Hessle said, Hull City Council is doing its very best in those difficult circumstances. It is being innovative and trying to integrate social care with health as much as it can, but the council’s financial situation means that individual men and women in the city of Hull are not getting the care that they deserve.
I want to tell hon. Members about a constituent, Joyce Hensby. Mrs Hensby has a range of medical conditions, which mean that she relies on carers to come into her home. For example, every morning she needs a 30-minute visit from a carer to get her out of bed, shower and dress her, and make her breakfast. The staff who do that are hard-working and dedicated, but unfortunately they are working in an impossible situation.
Joyce’s care is funded by Hull City Council and provided by a private company, Direct Health. In June last year the Care Quality Commission judged Direct Health’s service as requiring improvement. The CQC said that the provider did not have sufficient numbers of suitably qualified, competent, skilled and experienced staff, or the appropriate systems in place to ensure that people received the services agreed. Some care co-ordinators were being forced to do two jobs at once, and some care packages were being given back to Hull City Council because there were insufficient staff.
Staff told Mrs Hensby that they were paid by the minute and that if they could not provide evidence that they were fully occupied for the full half hour they were meant to care for her, their pay was docked. The CQC expressed severe concerns during its inspection about that pay-by-the-minute system. Furthermore, some staff work 16-hour days, from 7 am to 11 pm, and many were asked to opt out of the working time directive on starting with Direct Health. The provider does not fund staff’s transport costs, and sometimes carers spend large parts of the day rushing between appointments but not getting paid for that.
As we might expect, Mrs Hensby likes consistent care with people she knows and trusts. She does not want strangers helping her every day with some of the most intimate and personal of care. Staff turnover, however, is extremely high because of the pressure on them and their low wages. In the past three months alone she has lost five carers with whom she had built a good relationship. Every day my constituent Mrs Hensby is left worried about who will be coming through the front door to help her. That is the reality of what the crisis in local council funding looks like day to day in many homes in Hull.
Shortly after the Government made their living wage announcement, I visited a residential care home in Hull. That announcement is to be welcomed, but the owners of the home told me they were worried about its future financial viability, although they have run it for many years, they have loyal and long-serving staff and the home has glowing reviews. The council in Hull pays £416.55 a week for an older person in residential care. The majority of people in Hull’s care homes are not self-funders—as my right hon. Friend said, only 7% in the city are self-funders, compared with 45% nationally—which means that the care homes rely on the amount of money that Hull City Council pays. The homes cannot generate extra income for themselves.
It is worth pointing out that the cost of booking into a Travelodge in Hull is £456.75 a week, although that obviously comes without any of the support that is provided in a residential care home. The social care precept, however, does not even make up for the costs of the new national living wage policy. In Hull that 1% increase in council tax will raise only £2.1 million a year, whereas the living wage costs for adult social care in Hull are £3.5 million a year. Quality private care providers are under enormous pressure to provide a good service, which is what they want to provide, but they have to do so with a very limited income, and on top of that they now have to meet new obligations such as the living wage. We will see many more care home providers—the good ones, such as the one I visited—saying that they simply cannot continue, that it is not possible.
It would be remiss of me not to comment on Surrey. To recap, Surrey County Council is the 150th most deprived local authority area in England, and Hull the third most deprived. Surrey County Council leader David Hodge commented:
“I believe we have a duty to look after people…We cut £450m already, we squeezed every efficiency and we can do no more. I am sick and tired of politicians not telling the truth. Surrey people have the right to know and I’m not going to lie.”
That, obviously, was in relation to social care. Those comments resonate for hundreds of councils up and down the land and in more deprived parts of the country even more than they do in Surrey, because the pressures in places such as Hull are even more severe. Yet when council officers in Hull did the right thing, told the truth and raised the issue, as my right hon. Friend the Member for Kingston upon Hull West and Hessle said, it seemed to fall on deaf ears. Sadly, they do not have a direct line to Tory special advisers, as Surrey obviously did. The plight of our vulnerable residents is going unrecognised by the Government, perhaps because they are not in the stockbroker belt and are not so immediately obvious to the Ministers making decisions in Parliament.
Many years ago Neil Kinnock warned about playing politics with people’s jobs. Failing to fund social care is playing politics with people’s lives. New academic research shows that cuts in social care and the problems in the NHS led to 30,000 excess deaths in 2015. The Minister needs to reflect on that, and I urge him to consider it. He should also listen to some of the suggestions being made, because it is not as if there are no proposals for how to plug this gap. For example, Unison has pointed out that although business rate receipts for central Government have gone up, the Government have not allocated that extra money to councils. In 2017-18 additional receipts will amount to £6.6 billion. If the Government gave only £1.8 billion of that unallocated money to councils such as Hull, it would go some way towards relieving the pressures in social care.
Now is the time for a radical rethink of social care. In 1948 the view was that we needed to set up a national health service that we all contributed to and that we could all access. We now need a national health and care service to be set up and paid for from general taxation to stop the existing postcode lottery and to ensure that people such as those who fought in the second world war and helped to build the country back up after 1945 get the kind of care that we all want them to receive in our communities.
I thank the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) for giving us the opportunity to discuss, on a cross-party basis, the need for reform and the challenges faced by our local authorities. I hope I can be forgiven for being a little more parochial in the time available to me than my right hon. Friend the Member for East Devon (Sir Hugo Swire) was. I want to talk about our challenges in East Sussex, but I will then touch on what the Government are doing and, ultimately, on the need for reform. That need is not only about looking at government but about encouraging reform and ideas at a local level, because the challenges are local. That is where I will focus the main part of my contribution.
To set the scene, we in East Sussex feel ourselves to be in a challenging situation, because those who make the decisions in London look south, see Surrey on the map—Surrey has already been mentioned—and perhaps think that things cannot be too bad in that direction, so money should go west or north. Further south than Surrey, however, is East Sussex. We are a relatively poor county with poor infrastructure, so our ability to create business opportunities is limited. Understandably, because we are on the south coast, we have also become a haven for retirement.
The Surrey scenario is real for us. It is extraordinary how, when I knock on doors in my constituency and speak to retired people, they tell me their stories about moving further south from Croydon, Caterham or wherever. That is fantastic, and those people add to our diversity, but the proportion of over-65s in my constituency is 28% of the total population, compared with a national average of 17%.
People will work and live in Surrey, perhaps in bigger properties, and then sell and downsize, but they will not pay the same amount of council tax in East Sussex. As they get older and into their advanced years, they will obviously need the services of East Sussex. Under the current model, the working age population of East Sussex largely has to fund those services. I agree with my right hon. Friend the Member for East Devon that there is a need to look at the model that requires us to fund social care locally but the NHS nationally, which does not make any sense at all.
Unfortunately, we also have a relatively poor working age population. I recall that, a year or so ago, I was given figures and told, “Congratulations—your constituency is in the top 10 for wage increases when it comes to the living wage.” That really means that 33% of my constituents are on the living wage and work in poorer areas, which is a challenge. I also make that point about the push for new money, which really means a push towards taxing those who are currently working. How will we get people who are currently working to save for their own good care if we tax them to the nines and they cannot afford to save?
The hon. Gentleman makes an important point. We need to fund social care from a separate source, not just normal taxation. Two ideas came up. The idea of taking money out of people’s inheritances was labelled the death tax. I made the point that I should be paying national insurance. I am 66 years of age and I am still working. Why did I stop paying national insurance at 65? As Dilnot said, that and other ideas need to be explored. We agree that this is not just an argument about sticking taxes up. We must look for a new funding stream, which has been so elusive.
I absolutely agree. As my right hon. Friend the Member for East Devon mentioned, we should look not just at reform of social care in isolation but at all the other related parts. We should ask ourselves whether we are overspending in certain parts, whether we can recycle in other areas, and whether people need to make fairer contributions, particularly as they get older. We could also throw into that pot contributions by retired people who have no issue at all with their income and have paid for their assets, yet are still entitled to free bus passes and other universal benefits. This is not Government policy, but I can say it because I am a Back Bencher: perhaps the time has come to look again at whether we can afford that when we cannot afford to look after people in social care.
I was not in the Chamber for the beginning of the debate, for which I apologise, so I am particularly grateful to the hon. Gentleman for giving way. He alluded to local experiences, and the demographics and wealth in East Sussex. There is also a disparity between north and south in how wealth is held in housing assets. There is an interesting opportunity for the Government to look at how the excessive housing wealth that is held in London and the south-east could be released in a fair way to ensure that constituents in my part of the country are not disadvantaged.
And constituents in the south-west. There are areas where housing wealth is low and therefore not a good source to pay for social care, but there are other areas where it is very high. I own a flat in central London, and that ought to be used to pay for my social care.
I very much take the hon. Lady’s points. I certainly do not advocate a mansion tax, and I do not believe that my right hon. Friend the Member for East Devon was calling for one either. There is an argument that, if social care continues to be funded locally, there needs to be an additional stamp duty so that, if an asset in Surrey is sold and downsizing occurs, the money actually follows someone into the county. That should not be required, because it does not really make sense for social care to be funded locally, but if it remains locally funded, I agree that we have to start thinking radically about how we spread the money around.
I recognise that the Government have acknowledged that there is a challenge in the system. That is the first step. The right hon. Member for Kingston upon Hull West and Hessle mentioned the concept “all is well”. We will hear from the Minister, but I constantly hear the Government acknowledge that there is a challenge and a requirement for reform. We need additional funds between now and reform so we can get through this stage, but reform is ultimately the answer. I believe the Government recognise the challenge, so I have great confidence that we will overcome it.
I also recognise that £3.5 billion of extra funding will be put in through the social care precept and the improved better care fund by 2019-20. I hear the point that some of that is backdated and will not come on stream until later, but the Government have listened to that point to a certain degree and allowed councils to increase the social care precept levy to 3%. My county is doing that. The levy will be 3% this year and 3% the following year, but of course it will then go down to zero, which is why reform will be needed at that point. The transfer of the new homes bonus from the district level to the county level has also buffered my county council against some of the increase in costs.
I welcome what the Government are doing and the tone that they have adopted, but ultimately we need reform. I absolutely believe that we need to look at the entire system, including financial services. For example, we talked about property. I believe that there is a problem with equity release, which people cannot get from their high street banks because they just do not offer that service. Anyone who wishes to tap into their property’s value to pay for their care in older age has to go via an insurance company, which is incredibly difficult. I have discussed that with the banks. They have a concern about their bills for recent mis-selling fiascos—they shy away from explaining what equity release means for people in their older age because they were sued so successfully for previous mis-selling scandals. We need financial services reform, too.
We must also look to the future. Why do we not have care individual savings accounts for people—perhaps for people of my age—who should be saving, in the same way that we have help to buy ISAs? We need to look more along those lines. We must be absolutely honest and open that an asset will be sold in totality to pay for care. I regard my house as the asset that I will use for that. I doubt very much that my children will ever see a penny from it. We need to have that conversation with the public, who I believe are ahead of us in this game. Ultimately, people who care for their relatives should be able to inherit, but people who do not should not expect to inherit, because the state will have to pay for that care and the cost will have to be recovered. We need to start talking in that language.
We must also look at reform of the care home sector. Of the 35 care homes in my constituency that were reviewed by the CQC, 29 were less than good. That is an absolute disgrace. The issue with care homes largely is that they are in old buildings with fire hazards, there are not enough staff to look after people and strangers still share rooms. There must be incentives in the system so that new care homes are built, which is why I recently called for care homes to be delivered by local government. Some people took that as a call for renationalisation of the sector, but I did not mean that; rather, when putting planning applications through, local government should require developers to build care homes in the same way that they require schools and GP surgeries to be built. If we put such incentives in the system, we will have the funding in place and the old buildings will be sold. Planning consent requirements should be lowered for the care home sector, which would lead to new buildings.
Local ideas are often the best ideas. The council house sale reform in the ’80s, which Opposition Members may not have agreed with, was a local idea. We have merged the two budgets in the East Sussex Better Together funding programme. We are taking a lot of money out of the primary care system—40% of the budget will come out of hospitals and go into social care. East Sussex is one of the three pioneers that recognise that this is one problem, so there needs to be one fund and one programme. That can be done locally and is being led locally by East Sussex. Rather than talking purely about the challenges, I will finish by talking optimistically. Answers and solutions are being found and delivered locally, and I very much hope they succeed.
We now come to the Front-Bench wind-up speeches. Will the Front Benchers between them leave a couple of minutes at the end for Alan Johnson to reply to the debate? I call Neil Gray.
It is a pleasure to sum up for the Scottish National party in this debate, which is crucial for all our constituents. I congratulate the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) on securing the debate and his erudite contribution, which others have remarked upon.
The right hon. Gentleman was right to say at the outset that this is a domestic political challenge of our time. Alongside the cuts to social security, this issue must be the one that is felt most by the people we represent in their day-to-day lives. In that vein, I am slightly disappointed that there is not a better turnout for the debate, although I understand that events happening tomorrow in Stoke and Cumbria might preclude people from being here today.
The right hon. Gentleman cited the cuts applied in England, whereas in Scotland adult social care spending increased by 29% from £2.3 billion in 2006-07 to £2.97 billion in 2014-15. He also highlighted the disparity in funding in different areas of England, understandably focusing on Hull. He did not mention, though the hon. Member for Kingston upon Hull North (Diana Johnson) did, the special deal given to Surrey. We should reflect on how Surrey and Hull have been treated, with them appearing to get different treatment.
The right hon. Member for East Devon (Sir Hugo Swire) was right to acknowledge in his contribution the critical role played by carers—especially kinship carers—who provide phenomenal service and save Government across these isles billions of pounds. He was honest enough to say that the situation is approaching a crisis in England, but he went on to blame financial pressures from 2010 for the crisis faced now. I remind him respectfully that austerity is a political choice. In spite of wholesale cuts to Scotland’s budget, although we still have challenges we are nowhere near the crisis point that England is at now.
In the right hon. Gentleman’s criticism of the health and social care model as he sees it in England, he appeared to be advocating the integrated joint health and social care boards model that has now been legislated for in Scotland. I would encourage him to look at what has been done there and the results that that has reaped.
The hon. Member for Kingston upon Hull North highlighted the fact that Labour councils face five times the level of cuts of Conservative councils and the difficulties faced as a result in her city. She rightly cited the personal story of Joyce Hensby to highlight the wider issues. Mrs Hensby’s needs are not unique, and Ministers must do better to provide for her and people like her across England.
The hon. Member for Bexhill and Battle (Huw Merriman) reflected on his area’s challenges, which will not be unique but are not being addressed. He was not afraid to consider ideas that will undoubtedly be unpopular in some quarters of his constituency. That is why I commend him, although I cannot necessarily agree with what he had to say. He also talked about equity release in property but not about those people who do not have access to that. I encourage him to look at the free personal care model north of the border.
Social care across the UK faces challenges. There is no doubt that changing demographics and an ageing population across the country mean new challenges for Governments to ensure that services are fit for purpose. Others have reflected on what is happening in their areas and I will do the same. The Scottish National party Government have been facing up to these challenges and have legislated for new integrated joint health and social care boards, which are now established. Partly as a result of local authorities and health boards working together, we have seen a drop in instances of delayed discharge, which is a major issue in acute care performance and in ensuring the best possible rehabilitation scenario for patients.
Taken together with other initiatives and investments, standard delayed discharge of more than two weeks has dropped by 43% in Scotland. As a result, A&E waiting times are also worth looking at: the four-hour target is hit in 92% of cases in Scotland, 79% in England, 76% in Northern Ireland and 65% in Wales. As part of the Scottish Government’s 2016-17 draft budget, we have allocated a further £250 million to health and social care partnerships to protect and grow social care services and deliver our shared priorities, including paying the real living wage to adult careworkers.
In spite of the cuts to Scotland’s budget, the SNP has increased funding for adult social care. As a result, the average time received for home care is 11.3 hours a week, compared with 5.6 hours in 2000. Through integration of health and social care and continued progress to self-directed support, more people are choosing what their support is and how it is delivered. In line with our vision, the proportion of adult social care expenditure in community settings has increased from 46% in 2006-07 to 52% in 2014-15.
The SNP Government will continue to shift the balance of care by increasing in every year of the next Parliament the share of NHS budget dedicated to mental health and primary community and social care. The protection of our social care services is vital, and we have taken action to do that. As highlighted in the Fraser of Allander Institute report of September last year and the Audit Scotland report on local government, social work spend in Scotland increased in the period from 2010 through to 2015, rising from £3.2 billion to £3.3 billion.
Challenges are faced by health and social care services across these isles. Despite what I have said about the much better picture north of the border, clearly Scotland is not immune to the challenges faced elsewhere. However, the SNP Scottish Government have taken a different path and made different choices. We still have some way to travel, but I am confident that the UK Government have much to learn from the SNP Government up the road.
It is a pleasure to serve under your chairmanship, Mr Bailey. I congratulate my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson) on securing this critical debate. There is a crisis, but we should be honest and say that it is a crisis of indifference. There are pleas from those who need care but cannot get it, pleas from families who see their relatives denied care that they ought to be receiving and pleas from local authorities that are in the hellish situation of trying their best to teem and lade a diminishing resource when pressure on their budget is going up all the time. We have also seen pressure and pleas in this place, but the Government seem determined to ignore the scale of a crisis of their own making.
It is a crisis of the Government’s making. I resent the idea that just because people are living longer and happen to have health conditions that need additional support, they are tagged as being the problem. People who have worked all their lives and contributed to our society have been let down by the Government when they needed them most. The Government labelled them as the problem instead of reflecting the fact that we want people to live a decent life in old age. If that is the measure of the type of society that we want, we ought to step up and treat people in the right way.
As well as there being a crisis of indifference, does my hon. Friend agree that the situation was entirely predictable? It was well known that the elderly population was going to increase, and no action has been taken to address the problem.
My hon. Friend is right. The reports, reviews and commissions that have looked into this issue have laid out clearly the scale of the problem. It has been made clear that the problem is bad today but will get worse year on year unless action is taken. Cross-party attempts have been made to resolve the issue, only to be undermined by the Conservative party, which wants to use it to wave the flag and scream at the Labour party with accusations of a death tax and a granny tax. We have heard about all that during the debate. The situation today is that the Conservatives are in Government, and it is the Government’s responsibility to come forward with a solution.
Suggestions can come forward from the Opposition—we have heard some today—and from local government, social care providers and charities. We have heard about that, but ultimately it is the Government’s responsibility. In many ways I pity the Minister. I would not like to be in a situation where my own party’s Prime Minister was completely clueless on the scale of the problem and the Chancellor of the Exchequer seemed completely careless about the scale of the problem. The Minister’s own Secretary of State seems to show little interest in the brief he has been given, investing little time in it and leaving it, with all due respect, to junior Ministers to come and take the brunt of the problem.
The truth is that the Treasury will not release the amount of money that is needed. What happens as a result? Further pressure is pushed on to departmental budgets, but because the DCLG has no more money it pushes it back on to local authorities. The result—besides the fact that we do not even touch the sides in dealing with the scale of the problem—will be that council tax will have increased by 25% by the end of this Parliament. In human terms that will mean that people living in towns such as Oldham, Hull or Rochdale will notice their council tax bills increasing by 25%; but the fact that those towns historically have a low council tax and business rates base will constrain their ability to generate the total amount of money needed to provide care.
I give way to my hon. Friend.
I agree very much with my hon. Friend’s points. Does he agree that people in constituencies such as mine, in Nottinghamshire, feel as if they are in a parallel universe? They tell us that there is not enough care, and people are stuck in hospital or unable to get the support they need. Everyone says there is a crisis, but as we shall no doubt hear from the Minister, the Government just say, “We recognise that there is a problem, and we are doing this and this about it”. In reality, there is a crisis on the ground, and the Government need to recognise it and respond to it.
That is right. I had the pleasure of facing the Minister across the Committee Room during consideration of the Local Government Finance Bill, where we debated that at length. I asked him clearly whether he believed there was a social care crisis, and his response was crystal clear: he did not believe that there was. That goes completely against the professional advice of people working in the sector, the 1.2 million people who need care but are denied it, and the advice of the Local Government Association, which represents its member authorities across political parties—the point is not a party political one at all. The Minister seems to want to hunker down and pretend there is not a problem on that scale.
Will the hon. Gentleman give way?
I need to make progress, with all due respect, so that the Minister can give a meaningful response to the debate.
Even with the 25% council tax increase, which will obviously put pressure on low-income families, particularly in areas with a low tax base, there will still be a £2.6 billion adult social care funding gap. The money will not even pay for a national insurance contributions increase, local authorities’ obligations under the apprenticeship levy requirements, or the national living wage. That is before we get to the point of tackling the poor quality of care provision in the private home care market in particular.
That is the scale of a problem that could have been avoided, and the cruelty of the situation we are in. I do not say that we could create a perfect system. We need to accept that although we will evolve a system far better than today’s, we have lost critical time for the reforms that are needed. In any transitional phase between systems there must be adequate resources in place to deal with the transition and, effectively, double-running of the system. People already in the system must be paid for, and new entrants to it must also be paid for, perhaps in a different way, to ensure that they will be looked after following the transition to the new way of working. That could be a 10, 15 or 20-year programme, and there is no appetite from the Government to look even beyond this Parliament, let alone so far ahead.
The total deficit in public service provision, at local level, is now running at £5.8 billion. That is the amount that councils need to fulfil their statutory obligations and provide basic public services. I do not agree at all that it is not a question of choices—it absolutely is. The corporation tax cuts cost us £5 billion, which could have been used either to offset the £2.6 billion adult social care deficit or even to make sure that councils could provide the 700 services that central Government require of them at local level.
Councils are being put in a difficult position. They will be expected to put up council tax by 25% at a time when the universal services that people can see, and that they believe they pay their council tax solely for, are being withdrawn—altogether, in some cases. The public will rightly ask, “What am I paying my council tax for? The park isn’t being maintained any more. The streets aren’t being cleaned any more.” In fact, most people believe they pay council tax only to get their wheelie bins emptied—and that happens less often than it used to, so where is the money going? The relationship between the taxes people pay and what they get in return is critical for democracy and for holding decision makers to account, and that link is being eroded. The truth is that a social care system reliant on 1991 property values is not a base on which to build a social care and health system for the future. It is not progressive and does not reflect people’s ability to pay, based on the income they earn. Of course, people in poorer areas ultimately pay more.
An offer has been made but not taken up yet, though it should be, to put party politics to one side. It is about choices, and we shall hold the Government to account where they make choices in favour of adult social care. There is a broad consensus across the political parties about the solution—about changing the system and ensuring that those who need adult social care can get it.
Will the hon. Gentleman give way, so that I can correct him factually?
In that case, yes.
The hon. Gentleman said an offer had been made for a cross-party group but not taken up. That is wrong. A cross-party group has been to see the Prime Minister, and we are in talks.
There is a world of difference between a cross-party delegation having an audience with the Prime Minister, who ignored what was said in that meeting, and a reach-out from the shadow Minister to the Minister in the Local Government Finance Bill Committee to say that we should work together.
There are two issues, one of which is public service delivery, responsibility for which sits with local authorities, social care providers and health providers. Fundamentally, however, it will come down to brass tacks—where is the money? In the Opposition, that question is the responsibility of the shadow Communities and Local Government team; and in the Government it is the responsibility of the DCLG. There has been an offer to work in a cross-party way to find a solution.
The Minister shakes his head, but he should read Hansard or pay attention in sittings of the Local Government Finance Bill Committee, where I made that offer. The cost of doing nothing is delayed discharge and more than 1 million people not receiving the care they deserve, but also the Government letting down people who have worked all their lives and contributed to society, and who deserve better than the lot they are given.
I congratulate the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) on securing this important debate. I know he has championed the issue of adult social care for some time. Social care funding clearly matters deeply to many Members from across the House, as we have seen today. That is not surprising, as it is a big and complex challenge.
As the right hon. Gentleman put it when he was Secretary of State for Health:
“We have no magic bullet to load and fire to solve this problem...there is no quick fix here.”
He was right. We are all living longer—which is a good thing. I do not agree with the assertion by the hon. Member for Oldham West and Royton (Jim McMahon) that any blame is levelled at anyone who is getting older and deserves good quality social care. This debate is precisely about the fact that we face the challenge of an ageing population, and need to provide for those people as they get older.
Will the Minister give way?
I will make progress first.
Last year councils spent more than £14 billion on adult social care, including more than £300 million more than they had budgeted for. It is a significant and growing cost pressure, and, despite what some have said today, it is one that the Government are seeking to relieve. We have added to the package that was put in place at the spending review—a package of nearly £3.5 billion of additional funding for adult social care by 2019-20—by providing councils with access to almost £900 million of additional funding over the next two years. That includes a dedicated £240 million adult social care support grant in 2017-18, together with allocations from the improved better care fund and the additional council tax flexibility that we have given to local authorities, which will provide up to a further £208 million to spend on adult social care in 2017-18 and £444 million in 2018-19.
There has been some objection to the social care precept on the grounds that central Government should pay for adult social care, but it is important to consider where funding comes from; whether raised at a local or national level, in the end it is all taxpayers’ money. The social care precept means that council tax payers’ money is spent in their areas on supporting vulnerable members of their community. As the right hon. Member for Kingston upon Hull West and Hessle touched on, some councils will be able to raise more than others, which is why the improved better care fund, which will be worth £1.5 billion by 2019-20, will take into account councils’ ability to raise funding through the precept, so in that sense nobody loses out.
However, more money is not the only answer. The right hon. Gentleman predicted that I was going to say that, but it is important to point out that there are discrepancies between outcomes in different areas that cannot be explained solely by funding or demographics. All areas are facing significant challenges, but some are still performing better, driving innovation and putting in place the best practice approaches that have been proven to be effective. More funding is required, and it is being provided.
We have also seen greater improvements in ways of working. One example is in Northumberland, where £5 million has been saved through joined-up working, which has reduced the demand for residential care by some 12%. The better care fund is already supporting that, with £5.3 billion of funding pooled between local authorities and clinical commissioning groups last year. However, we want to make sure that local authorities learn from the best performers and the best providers, and we will therefore soon publish an integration and better care fund policy framework to support that.
I will deal now with numerous points raised by hon. Members. The right hon. Member for Kingston upon Hull West and Hessle mentioned the national living wage, which is extremely important. It has been mentioned many times in the debate that we need to attract more people into the caring profession, and the national living wage will certainly do that, but as the right hon. Gentleman pointed out, it has to be paid for. The Local Government Association estimates that the national living wage increase will cost £49 million in 2017-18, with the adult social care precept, which it has been suggested on a number of occasions may not cover that cost, actually raising up to £1.23 billion this year. We can see that the actual precept that has been given to local authorities is significant.
Will the Minister give way?
No, I will make some more progress and deal with these points before I give way to the hon. Gentleman.
The right hon. Member for Kingston upon Hull West and Hessle also had concerns about the varying council tax bases across the country, which is an extremely pertinent point. That is why we have profiled the improved better care fund’s distribution—which is £105 million this year, £825 million the following year and £1.5 billion the year after that—based on an area’s ability to raise additional funding through council tax. I hope he is reassured by that. Taking into account his point about the short term, we have put in place the additional adult social care support grant of £240 million this year to give additional support to local authorities, bearing in mind that the improved better care fund is back-loaded, as the right hon. Gentleman said.
The right hon. Gentleman made another point about Hull and the implementation of 100% business rates retention. An assertion was made and, I think, a figure put on the amount that would be available to Hull under that system. At the moment, no allocations have been made and no baseline funding has been set. We have been clear throughout the process of setting 100% of business rates retention that we would take into account a local area’s ability to raise business rates. We certainly recognise that redistribution will need to be part of the new system, to ensure that just because one area does not raise as much in business rates as another it is not left behind.
The right hon. Gentleman also mentioned the difference in funding between Kingston upon Hull and Kingston upon Thames. I will deal with that issue head-on, because for 2017-18, putting together the potential 3% increase under the adult social care precept, the adult social care support grant and the improved better care fund, Kingston upon Hull will actually get £6.86 million from those sources, while Kingston upon Thames will get only £4.88 million from the same sources. I hope that deals with some of his concerns about how funding is being distributed.
My right hon. Friend the Member for East Devon (Sir Hugo Swire) almost said that my presence at this debate was an outdated model—I hope that Mrs Jones does not take the same view in due course—but I know he did not mean it personally. He made some important points, including about unpaid carers. The Department of Health is leading on the development of a new national carers strategy that focuses on raising awareness of caring and on helping carers to ensure that they have the right support. He also mentioned the business rates retention system and the additional £12.5 billion of business rates that will go to local authorities. We have been clear from the outset of that process that that will be fiscally neutral, with additional responsibilities therefore going to local government in that sense. We are in the process of determining what those additional responsibilities will be, and we are consulting on a number of things at the moment. However, we have ruled out devolving attendance allowance to local authorities.
The hon. Member for Kingston upon Hull North (Diana Johnson) mentioned skills in the care sector, which is an extremely important point. The Department for Health is doing a significant amount of work to try to improve skills in that regard, and I think the national living wage will also help. The hon. Lady also mentioned a particular incident in her constituency relating to the national living wage. We are absolutely clear that the national living wage should be paid to people working for whatever company on the basis of the hours that they work. If there is any abuse going on, I encourage the hon. Lady to contact Her Majesty’s Revenue and Customs.
The hon. Lady also mentioned the allocation of funding in relation to deprived areas. I hope it reassures her that the average spending power per dwelling for the 10 most deprived local authorities is around 21% more than for the 10 least deprived local authority areas this year.
Will the Minister give way?
I will, but I do not want to eat into the right hon. Gentleman’s time to wind up the debate.
He already is, so just in case I lose my two minutes, I have a question for the Minister. He has a letter from the chief executive of Hull City Council, Matt Jukes. I have mentioned the disgraceful behaviour of the Secretary of State not committing himself to a meeting that he himself had suggested. Will the Minister commit to having that meeting, at which we can look at the latest round of figures? The first ones were not too good; we will have a stab at this one. That is the short-term problem, but will the Minister also say something about the long-term issue, which my hon. Friend the Member for Oldham West and Royton (Jim McMahon) raised from the Labour Front Bench, and which Government Members have also raised? This must surely be a short-term issue, with a vision of something better for the longer term.
I will have that meeting to deal with the points that the right hon. Gentleman mentioned. I say finally that the Prime Minister was absolutely clear last week about the need to find a long-term, sustainable solution to this. The Cabinet Office is driving that work across Government, with my and other relevant Departments, to find that sustainable solution. Local authorities have a duty to care for our most vulnerable people, but we also have a moral duty—
Motion lapsed (Standing Order No. 10(6)).
School Funding: Cheshire West and Chester
I beg to move,
That this House has considered school funding in Cheshire West and Chester.
It is a great pleasure to see you in the Chair, Mr Bailey. I start by declaring an interest: both of my children, who I normally do not like to mention, are of school age and attend schools in my constituency.
It is tempting to use hyperbole when describing the looming education situation in Cheshire West and Chester—phrases such as “black hole” or “cliff edge” come to mind—but I will try to avoid such a tone, such is the gravity of the situation that my local schools face. I start by paying tribute to Chester schools. We are lucky to have a group of schools in my constituency at both primary and secondary level that provide quality education, despite the current pressures they face, with a team of headteachers giving strong and clear leadership, both educationally and pastorally. It is no surprise to me that 90% of schools in the borough are rated good or outstanding.
There have been issues with performance in a couple of schools in the past, but the hallmark has always been collaboration and mutual support, either across the city and the borough or with more locally focused initiatives such as the Blacon Education Village project, where the primary schools and Blacon High School, in the most deprived part of my constituency, work together to raise standards and expectations across their combined patch. I say that to demonstrate that my local headteachers are sober and dedicated professionals who are absolutely committed to the vocation they love and not in any way head-banging hard-line political agitators. When they tell me and local parents that there is a problem and I hear phrases such as “cliff edge”, we can be sure they mean it.
We know that, in the context of the current financial climate, as identified by a National Audit Office report, the schools budget faces a £3 billion gap. Schools funding is protected, but that does not take account of other costs such as salaries, maintenance costs, inflation, the apprenticeship levy, national insurance and, critically, rising pupil numbers.
Will the hon. Gentleman give way?
I give way to my next-door neighbour.
Does the hon. Gentleman agree that there is a problem with the 40 local authorities that are not fairly funded—the f40 group—which includes both Cheshire West and Chester, and Cheshire East?
I agree. The hon. Lady represents parts of Cheshire West and Chester, and Cheshire East, which is one of the few boroughs that is even worse off than Cheshire West and Chester. She has seen the harsh end of it, and I am sure she is fighting the corner for both boroughs.
The problem is that the situation was already tight before the new funding formula. Steve Williams, chair of governors at St Werburgh’s and St Columba’s Primary School, reminds me of the governors’ view nationally, which is that the £3 billion gap will lead to an effective 8% cut in school budgets on its own. They say:
“As far as budgets go we are now in the trenches. The new formula may mean pupils get a fairer portion but it will be a fairer portion of not enough.”
The Government then introduced the national fair funding formula.
In Cheshire West and Chester, we were already £400 per pupil below the national average, near the bottom of the pile. In 2015-16—coincidentally, a general election year—we received a £9.4 million uplift to bring us closer to the national average. The Government recognised we had a problem.
Will the hon. Gentleman give way again?
Oh, go on then—just one more time.
I am very grateful. I am sure the hon. Gentleman will appreciate that that £9.4 million was very hard fought for by members of the f40 and by a number of MPs. I certainly was fighting on behalf of my schools in Eddisbury to get that slice of funding, and we do not seem to see that coming forward in the current proposals from the Government.
The hon. Lady refers to the hard work that was undertaken, which is reflected in hard work being undertaken now, but the Government recognised a problem previously with the £9.4 million, whether that was because it was a general election year or not—who knows? I hope they now recognise that the structural problem remains, and that it needs to be addressed in the same way it was addressed just a couple of years ago.
We received the £9.4 million uplift to recognise that problem, so we have moved from the bottom of the pile to the top, but only in terms of suffering the biggest cuts. We stand to lose £4.2 million in the first year, rising to £6.4 million beyond that. Perhaps the best way to illustrate the damage that those cuts will make is to quote the headteachers’ public statements. Damian Stenhouse, head of Christleton High School, has said he faces a reduction in funding of £169,000, forcing him to reduce staffing, have larger class sizes, increase teacher loads, which runs the risk of increased sickness absence, and decrease support for more vulnerable pupils.
John Murray of the Catholic High School, Chester, has told parents that funding for his sixth-formers has dropped £200,000 since 2011 and that the school faces a further £54 cut per child next year, combined with £78,000 of local and national funding formula cuts, making increased class sizes much more likely. Paula Dixon, head of Upton-by-Chester High School, which is rated good with an outstanding sixth form, told parents:
“If the outcome of the NFF is to financially disadvantage schools like ours we will have little option but to further erode the breadth of our curriculum offer to our students at both Key Stage 4 and Key Stage 5 levels and increase our class sizes in order to generate sufficient staff savings to achieve the level required, as our non-teacher staffing expenditure has been cut to the bone already.”
Dave Wallace of St Oswald’s Primary School in Mollington has said that the cut of £429 per pupil will mean losing one of the 5.4 teachers he currently has, which will have, in his words,
“a significant impact on the standard of education in what is an oversubscribed village school.”
Marian Ryder, head of St Clare’s Catholic Primary School in Lache, another less advantaged area, joined the school when it required improvement and has been recognised with her staff by a positive Ofsted report for the improvements they are making. However, she tells us that the reduction of her budget means they will have to look at staffing structures.
At primary and secondary level, in the rural parts of the constituency, on the big estates and in the centre of my city, the story is the same: staff cuts, increased class sizes, fewer subjects offered, attainment levels likely to fall and support for the neediest pupils diminished. I am also fearful that areas such as sport and music will be the easiest options to cut. Those not only enrich our children’s lives but improve health. They get children active and used to being active, which continues into later life and has health benefits. Once again, short-term cuts lead to long-term damage; it is a false economy.
The Government’s response has been to call for greater efficiency savings, but I know that my schools are already running beyond maximum efficiency. One high-achieving local multi-academy trust, which includes Mill View Primary in my constituency and has twice been rated outstanding, is a case in point. It tells me that, since 2011, it has done everything possible to make cash stretch and cut costs, setting up businesses in catering and out-of-hours services, reducing the number of teaching assistants, turning off heating after lunch, limiting the amount of paper any member of staff is allowed to use, putting limits on photocopying and printing and asking to see a fully used Pritt Stick before a new one is issued. They still achieve top Ofsted marks because of their staff. However, staff cannot be expected to continue to achieve with ever dwindling resources.
This is back of the sofa stuff, scrabbling around for pennies, and that is before the new fair funding formula comes in. If we add to that the £57 million of Government cuts to the local council’s overall budget, there is no slack left. For the Government to tell the NAO that they expect schools to make savings through “better procurement”, and by using their staff “more efficiently”, wholly misjudges the scale and the nature of the problem, and is downright insulting to staff and parents at schools such as Mill View.
I note that several areas of the country have benefited from the funding formula. West Sussex gets an extra 1.9% and Hampshire gets 0.7%. Surrey gets an extra 1.7%—perhaps they had a special deal. I do not doubt that these funding formulas are hard to draw up, but it must surely be evident to Ministers that they have got this one wrong. I do not believe it was their intention to redistribute cash from north to south. When every single school in my constituency is looking to make staff cuts and almost every headteacher is writing to parents with, frankly, understated stories of impending financial chaos, it is evident that something has gone very badly wrong.
I urge Ministers to please reconsider this badly conceived idea. I will make one party political point. When attainment levels start falling, as they will, and when class sizes start rising, school trips are cancelled, swimming lessons are cut, opportunities for learning music no longer present themselves, teachers leave and are not replaced, teachers are asked to teach lessons in subjects that they are not qualified to teach and specialist support for needier children is cut, I will have to make it absolutely clear to my constituents where the responsibility lies. It will not be with the heroic staff at my local primary and secondary schools or the outstanding leadership of my local headteachers. I urge the Minister to see that his Department has got this one wrong. The national fair funding formula provides neither fairness nor funding, and must be changed.
It is a pleasure to serve under your chairmanship, Mr Bailey. I congratulate my hon. Friend the Member for City of Chester (Christian Matheson) on securing this extremely important debate, and I thank him and the Minister for allowing me to speak. I also thank my hon. Friend for the excellent work he does in championing education across Cheshire West and Chester. I, too, declare an interest. My wife is the cabinet member for children and young people on our local authority of Cheshire West and Chester, and I, too, have two children attending schools in my constituency that are affected by the cuts.
As my hon. Friend said, we are very proud of our schools in west Cheshire. It is not an accident that no schools in our area are rated as inadequate—it is the result of a huge amount of work by our teachers and by everyone involved in education. However, it is clear that, if the planned funding cuts go ahead, all that progress will be under threat. I have received letters from headteachers across my constituency who warn of the profound impact of the proposed changes. That includes warnings of reductions in staffing, difficulty in maintaining high standards, a reduction in the commitment to extracurricular activities, including sports and the arts, and, in some cases, threats to the future viability of schools.
I have received letters expressing concerns about the funding cuts from the following schools: Willaston Primary School, Little Sutton Primary School, Cambridge Road Primary and Nursery School, Woodlands Primary School, St Winefride’s Catholic Primary School, St Mary of the Angels Catholic Primary School, Neston Primary School, Sutton Green Primary School, Parklands Primary School, Woodfall Primary School, Bishop Wilson Primary School, Parkgate Primary School, Childer Thornton Primary School, The Whitby High School, Ellesmere Port Catholic High School and Neston High School. I have also received correspondence from the National Association of Head Teachers, representing all secondary schools in Cheshire West and Chester. The length of that list should indicate to the Minister the scale of the problem. It is only fair to make him aware that I am also receiving lots of correspondence from parents of children attending schools in the constituency who are deeply concerned about what they see as unfair and damaging cuts.
The cuts are not only deeply unfair; they break a promise in the Conservative manifesto, which stated:
“Under a future Conservative Government, the amount of money following your child into school will be protected.”
If the new national funding formula is implemented, that promise to the people of this country will have been broken.
Will the hon. Gentleman give way?
I am sorry, but I do not have time. We need to hear from the Minister as well.
In fact, that promise has been not just broken but comprehensively shattered, with 98% of all schools facing a real-terms reduction in funding for every child.
I will take the Minister through just a few of the comments that I have received from parents. They take a huge interest in their children’s education and can articulate far better than I can what the proposals might mean for their own children. One parent said:
“I have never contacted an MP before but I am so concerned…the thought of losing staff, support staff or cuts to opportunities is horrifying. The staff work so hard to provide them with enriching experiences that will disappear if cuts are made and their education will suffer”.
“The new funding scheme will see a serious reduction in standards, staff and teaching, ultimately lowering outcomes for children and young people across the country and in turn reducing opportunities for the next generation in society”.
It is very sad to see those letters from parents who are extremely concerned about the proposals.
Finally, I want to read out a letter that I have received from a head at one of the primary schools in my constituency, which sets out the scale of the challenge we face. He told me:
“Today, schools are expected to do more and more by politicians and society—overweight and inactive children—‘schools can sort that out’. The increase in childhood mental health problems—‘schools can sort that out’. The poor standards of speech and language when pupils start school—‘schools can sort that out’…Simply, we are expected to do so much more with so much less!
This is alongside the recent, ridiculous, increase in expectations in standards of attainment in the end of Key Stage tests and the negative impact that has had on staff, pupils and the teaching profession.
This year, to save money, I have started to teach some lessons and we will have to seriously consider the staffing levels at our school for 2017-18.
We have worked hard to create a team of talented, experienced and dedicated teachers and teaching assistants. These people are the vital ‘bricks’ in the education we provide. The proposed funding cuts will mean that some of these ‘bricks’ may need to be removed and, as a result, the weaker the team we have built will become, the poorer the education we offer will be and the weaker the ‘foundation’ we provide.
In my opinion—quality teachers and TAs make the biggest impact in education. Reducing the funding to schools will result in schools losing the very people we have spent years investing in and training. The result will be—less teachers, less TAs, larger classes and an even further decline in staff morale and attainment.
I believe that as a school we will also have to reduce the number of extra activities we offer our pupils—e.g. fewer clubs, fewer art days, fewer visits and visitors to school...We are already in a difficult position financially and attainment will suffer should the cuts go through under the new National Funding Formula. ‘Balancing the books’ has become one of the worst aspects of my job. Begging letters to parents for equipment, repairs and resources are common in some schools. I feel that class sizes will increase and the curriculum will be pared back to the basics as a direct result of the NFF. To put it bluntly—children will be the losers.”
That sums up perfectly the challenges that we currently face.
It is an honour to serve under your chairmanship, Mr Bailey. I congratulate the hon. Members for City of Chester (Christian Matheson) and for Ellesmere Port and Neston (Justin Madders) on the thoughtful and considerate way in which they have approached this debate. I am grateful also for the contribution of my hon. Friend the Member for Eddisbury (Antoinette Sandbach).
Today I am standing in for my right hon. Friend the Minister for School Standards, who has unavoidable duties elsewhere, but I am pleased to be here, because this opportunity has allowed me to look in more detail at the topic of fair funding. Now more than ever, no matter where they live and whatever their background, ability or need, children should have access to an excellent education, and I think there is agreement that the current funding system prevents that. We currently have a postcode lottery, which is random and haphazard and means that money is often not getting to the places that most need it and to the poorest students.
Few people will disagree that the system is unfair. One example that particularly struck me from the first consultation was that the same school, with the same kind of pupils, would get 50% more funding in Hackney than it would in Barnsley. We have to change the historical unfairness by introducing the national funding formula; that is why it was a key manifesto commitment. It will mean that the same child, with the same needs, will attract the same funding regardless of where they happen to live.
We launched the consultation in March. We asked for views to underpin the formula. More than 6,000 people responded, and there was widespread support for the proposals. In December, we launched the second stage. That document sets out the detail of the formula and shows how it would impact on every school in the country, but I stress that this is a consultation. We have allowed more than three months for the consultation. This debate is incredibly important, and I will feed back to the Schools Minister what Members have said today. Indeed, the consultation will stay open until 22 March.
The purpose of the proposals is to focus money towards the pupils who face the greatest barriers to success. The formula is designed to boost support for those who are deprived and live in areas of deprivation, but who may not be eligible for free school meals and the pupil premium. Those pupils are from the families who are just about managing—no doubt many constituents of Members here today, and many of mine. Overall, under the proposals, more than half of all schools will benefit from increased funding through the formula. They will see overdue increases in funding of up to 3% per pupil in 2018-19 and up to a further 2.5% per pupil in 2019-20. No school will face reductions of more than 1.5% per year or 3% overall per pupil as a result of the formula.
The issue is that the unfairness in the system, involving the f40 group of worst-funded councils, is locked in by that 3% cap. In fact, councils that transfer money from their general schools budget into higher needs are actually penalised under the current formula. I hope that the Government will listen to representations made in that regard.
Of course we will listen and, as I said, I will feed back all the comments made today to my right hon. Friend the Minister for School Standards.
A substantial part of the reason for the change in the formula is to ensure that money goes to the most deprived students. We want to ensure that every child can achieve their full potential and succeed, and that means directing funding to those who need the extra support. We know that disadvantage has a significant impact on pupils’ attainment. That is seen throughout the school system and is compounded in areas of higher deprivation.
This is not about north versus south, to comment on what the hon. Member for City of Chester said. We can look at the biggest gains in the north: Derby is gaining by 8.6% and Barnsley by 6.9%. Deprived areas of the north-west, where there is much higher deprivation, and my colleagues’ constituencies, are getting significant increases. Halton local authority has very high rates of deprivation and is seeing a 2.2% increase in funding for its schools, as do St Helens, which is having a 1.6% increase, and Salford, which will have a 2.6% increase. Areas where there are high levels of deprivation are seeing increases in their funding. That is why we publish data for every school in the country—so that they can see how the formula affects them.
Both my constituency and that of my hon. Friend the Member for City of Chester (Christian Matheson) have areas of real deprivation as severe as in some of the areas the Minister has just mentioned. Does he accept that a local authority is a broad area that has different levels of wealth and poverty?
Of course every area will have areas of deprivation, but overall the hon. Gentleman’s area has less deprivation than others, and because we do not have an unlimited pot of money we are trying to make sure that the money goes to those in the most need. As I said, there is a consultation; we are hearing from parents, colleagues across the House, governors and schoolteachers so that we can get this historic change right.
The changes make it all the more important that we get funding right. We want to put schools on an even footing. As the hon. Member for City of Chester mentioned, all schools need to make the best use of their resources, ensuring that every pound has the maximum impact on standards. He was right to highlight that more than 93% of schools in his area and that of the hon. Member for Ellesmere Port and Neston are good or outstanding—148 of them, which is 37 more than in 2010. That suggests that although funding is incredibly important, it is about not just funding but the quality of teachers. I pay tribute to the teachers and schools in their constituencies who have made it possible to have such a good record in education.
We will continue to produce a comprehensive package of support. We have recently published a school buying strategy and will try to improve that model over the coming months. I know that the hon. Members here today have played an important role in the f40 group, which has campaigned for years for fairer funding. I recognise that because of that campaign, Members may have expected an increase in funding for schools under the national formula. I am sure that the hon. Member for City of Chester will understand that the national funding formula has been designed to ensure that funding is allocated according to need on the basis of up-to-date measures. However, we have deliberately set a long consultation period so that we might hear the widest range of views.
I thank hon. Members representing the Cheshire West and Chester constituencies for their dedication to this important topic and for raising it in the way that they have. We have continued to fund the pupil premium, which goes to the poorest pupils, and their constituents get a sizeable amount it. The schools budget does take pupil numbers into account and will rise as pupil numbers rise throughout the Parliament.
The introduction of the national funding formula will be a historic reform. It is the biggest change to school funding in more than a decade. Of course it is difficult, as the hon. Member for City of Chester was fair enough to acknowledge, but for the first time we will have a clear, simple and transparent system that matches funding to children’s needs and the schools that they attend. It will enable all schools equally to create opportunities for their pupils and provide a first-class education. I know that my right hon. Friend the Minister for School Standards is looking forward to engaging with Cheshire MPs later today. I hope that what I have said will reassure hon. Members that the Government are committed to reforming school funding and making it fair for all schools in the country.
Question put and agreed to.
[Philip Davies in the Chair]
I beg to move,
That this House has considered promoting trade with the Commonwealth.
May I say what a pleasure it is to serve under your chairmanship, Mr Davies?
“Brexit means that Britain is back. The country that gave the world the English language, common law and the Mother of Parliaments is once more to seize its destiny as a global leader. This is an exciting time for Britain and an exhilarating one for the countless millions elsewhere who appreciate Britain’s… contribution to western civilisation.”
Those are not my words, but the words of the hon. Tony Abbott MP, the 28th Prime Minister of Australia, in the foreword to a report produced earlier this year by the Free Enterprise Group called “Reconnecting with the Commonwealth”. He was reflecting a new feeling of optimism about global Britain following our vote to leave the European Union last year.
On 23 June the British people sent a powerful message to all politicians that they wanted Britain to be a strong, independent trading nation facing the globe, not merely the EU. It is worth noting that if Vote Leave had been a political party and the referendum a general election, that party would hold over 400 seats—a bigger majority than Tony Blair had in 1997 and a powerful mandate that all of us in Westminster would do well to heed.
Much of the talk since the referendum has, for understandable reasons, been focused on when, where and how Britain will trigger article 50. Although that has not been exactly finalised—the legislation is going through the other place—it seems that the matter will be settled and article 50 will be triggered in March. It is now time to move on to discussing the future of global Britain—I hope that today’s debate is an opportunity to do so—and what the country that our children and grandchildren will inherit from those of us who are now in Parliament will look like.
Although I share my hon. Friend’s positive, buccaneering hope and optimism, it is also worth saying that this country has never given up on having a global role. Notwithstanding our 44-year membership of the European Union, we should not forget that in the Commonwealth and beyond, we have been and will remain a strong global player diplomatically and in terms of trade and all the cultural elements to which I am sure he will refer.
It is undoubtedly the case that Britain ceded to Europe control of trade negotiations and the ability to go out in the world and create free trade agreements. That is now over, and following the vote to leave the European Union, it is time for us to decide whether Britain will be a sad shadow of its former self, beset by recession, or a globally outward-facing nation, which I believe can be a beacon of free trade—I hope we can debate that today. It is not just me saying that. The Prime Minister acknowledged it and set up the Department for International Trade, which is hugely positive for our nation. In a speech in Davos earlier this year, she correctly talked about not only wanting a strong European Union, which is vital for Britain to succeed, but creating a Britain that looks beyond the confines of Europe for its future trading relationships.
I join others in saluting my hon. Friend for securing the debate. Does he agree that the opportunity is not either for trade with Europe or with the rest of the world, but to do both better in a new context? Does he also agree that next month’s meeting of the Commonwealth Trade Ministers in London offers a great opportunity to get a coalition of the willing for a Commonwealth trade and investment agreement moving?
I will come to that point. We cannot offer enough plaudits to my right hon. Friend the Member for East Devon (Sir Hugo Swire)—he is sitting here on my right—and our noble Friend Lord Marland for all the work that they have done to ensure that that first Commonwealth Trade Ministers meeting takes place next month.
In 2010 when I became a Member of Parliament, I was given a fantastic opportunity by the Commonwealth Parliamentary Association to visit the Commonwealth parliamentary conference in Nairobi. I was delighted to attend, largely because I have always been a supporter of the Commonwealth, which is a unique family of nations, and all that it stands for and represents. In that meeting in Kenya, I was struck by an overwhelming message from parliamentarians from other Commonwealth countries: they had begun to believe that the Commonwealth did not matter to Britain anymore and that it had become of dwindling importance since Britain joined the EU. Notwithstanding the comments made by my right hon. Friend the Member for Cities of London and Westminster (Mark Field), successive Governments of all political hues have neglected the Commonwealth and its tremendous potential.
Despite the neglect, it is at the time of our greatest national need that these countries have stood shoulder to shoulder with Britain. They have stood by us when, as a nation, we have faced our darkest hours. Commonwealth soldiers have left home to fight and die alongside British troops on far-flung battlefields half a world away from their home, in Europe, Africa, the middle east and south-east Asia. They have not forgotten our bond of shared culture and history that binds the Commonwealth together. It is now time for Britain to remember its old alliances. We must celebrate the Commonwealth and all that it represents.
Does the hon. Gentleman agree that one of the best ways to tackle poverty in Commonwealth countries is through renegotiating the many exploitative trade treaties that were signed in the bad old days of colonial rule, as advocated by my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin)?
The best way for us to tackle poverty in the Commonwealth is for us to start trading freely and to make every single citizen of the Commonwealth richer. In truth, that is the best way of tackling it, along with other measures to which she referred.
I pay tribute to my right hon. Friend the Member for East Devon and our noble Friend Lord Marland. Together with the Maltese and the Commonwealth Enterprise and Investment Council, they have driven the issue of Commonwealth trade by organising the first ever Commonwealth heads of trade meeting, which takes place in London next month. That meeting has the sole purpose of increasing co-operation and trade between Commonwealth Governments and businesses. I hope it will put Commonwealth trade at the top of our Government’s agenda. Not only is it an exceptional meeting of Trade Ministers, but it is the perfect springboard for a successful meeting of Commonwealth Heads of Government meeting next year. I hope the Minister discusses next month’s meeting in his contribution to this debate, and takes the opportunity to put on record his commitment and that of our Government and his Department to expanding trade with our Commonwealth partners.
I congratulate my hon. Friend on securing this very important debate at this time, as we leave the European Union. It is fantastic that he speaks passionately about the Commonwealth, but does he also include the overseas territories and the Crown dependencies? There are 21 of them and they are not members of the Commonwealth in their own right. Does he agree that we must include them in any discussions about trade and co-operation in future?
I agree absolutely. I was in touch only this week with the Falkland Islands Government, who are watching this debate to see what is said about the Crown dependencies and overseas territories. I will come to how we must absolutely ensure that they are not left behind in any new Commonwealth trade deals.
Doing business in the Commonwealth makes sound economic sense for Britain. This is not a throwback to a sepia-tinted view of the Commonwealth; it is about ensuring that Britain’s economy grows. The facts speak for themselves. The Commonwealth is a market that comprises 52 largely English-speaking countries with a combined population of 2.6 billion, covering a third of the globe. Some 60% of its citizens are under 30, and half of the top 20 global emerging cities are in it. It should be noted that, although the UK has a trade deficit with the EU, it has a trade surplus with the Commonwealth that stood at £1.9 billion in 2015. The Commonwealth contains mature and open economies such as Canada, Singapore, Malaysia, New Zealand and Australia, exciting new emerging markets such as India, and developing economies in Africa, the Caribbean and the Pacific. It has a combined GDP of more than $10 trillion. It includes five G20 countries, with trade projected to surpass $1 trillion by 2020.
Among the mature economies and G20 countries that the hon. Gentleman mentions is Canada, and I hope he joins me in welcoming the House’s decision on 8 February to endorse the EU-Canada trade deal. In parallel with that deal, should not we look into a trade deal with Canada to take place shortly after we have left the EU? After all, if we cannot do a deal with Canada, where many of us have relations and with which we have strong links and a strong strategic and security alliance, who the hell can we do a deal with?
I believe we can do a trade deal with Canada. The whole country was recently united in shouting “Where on earth is Wallonia?” That shows that the European approach to negotiating trade deals is wrong—I will come on to how the Government can set out a better approach than the EU-Canada trade deal. Canada has indicated that it wants a trade deal with Britain.
The Commonwealth’s GDP does not match the EU’s, which is some $16 trillion. However, the EU’s growth rate has averaged only 1.7%, while the Commonwealth’s is currently more than 4%. As Britain prepares to leave the European Union, it is with the Commonwealth—our extraordinary family of nations—that we should seek to strike trade deals. A recent report on the Commonwealth states that on average it is 19% cheaper for businesses in the Commonwealth to do trade, because of our common legal systems, language and culture. The Commonwealth and its nations represent a growing and increasingly important market for Britain; Britain, in turn, represents the fifth largest economy in the world and a gateway into Europe for Commonwealth nations.
When it comes to trade deals, we in this country have a lot to learn from our Commonwealth partners, which are blazing a trail for free trade among themselves. Australia already has a free trade agreement with New Zealand and is negotiating a free trade deal with India, and both Australia and New Zealand are parties to the Association of Southeast Asian Nations deal. Britain should seek to emulate such trade deals. Unlike the EU, Australia and other Commonwealth partners have not made the perfect the enemy of the good. In many cases, they have opted for a sectoral approach. They are prepared to sign multiple trade deals—the one between Australia and Singapore is an example—and when areas of co-operation are agreed, they sign a trade deal about those areas and put the more divisive areas to one side. We should compare that with the eight years that it has taken the EU to negotiate with Canada.
I hope that at the Commonwealth Trade Ministers meeting next month the Minister and his Department will seek to start negotiations with Canada, Singapore, Australia, Malaysia and New Zealand, which are large, open economies.
I congratulate my hon. Friend on securing the debate. Does he agree that we should also consider trade deals in southern Africa, which is very much dependent on agricultural economies, and specifically in Malawi, which is dependent on tobacco, to deliver cheaper food for our constituents?
The issue of agriculture and Commonwealth trade is quite tricky to tackle. South Africa has said that it would like to sign a trade deal with Britain the day after Brexit—it is unfortunate that it cannot be signed the day before, but the day after would be very welcome.
I hope that the Minister will initiate talks with the large, open economies. They should be a key negotiating priority for Britain; indeed, several of them have already indicated an interest in exploring trade deals. New Zealand has reportedly even offered to help Britain by providing trade negotiators to assist the Minister and his Department.
We also need to open trade deal talks with India. That will be a huge challenge for the Minister and his Department, but we will be helped significantly by the Indian diaspora of 1.4 million people, which creates strong cultural ties between our nations, and by the fact that India is currently the UK’s largest export market in the Commonwealth. A recent Commonwealth study estimated that a UK-India free trade agreement would increase two-way trade by 26% and predicted that UK exports to India could increase by 50% every year. I hope that all hon. Members can see that that would be a huge prize, not only for Britain but for India. The Government must make it a priority next month.
My hon. Friend speaks about the benefit of such trade deals to the UK. Does he agree they would also provide the ability to bring stability, because of what we could do as a result to help countries in regions that are often quite troubled?
Yes, I agree that they are a good way of bringing stability. Sometimes Commonwealth countries have been frustrated that rather than talking to them about trade, the Government have simply talked about development, democracy and human rights while entering into trade deals, agreements and contracts with China. One of the best ways to instil stability, democracy and human rights is to have a good trading nation that makes its population richer.
Next month we must also ensure that we do not leave behind Africa, the Caribbean, the Pacific states and the Crown dependencies. We should offer tariff-free and quota-free deals with access to the UK market, and we should pursue deals with South Africa, CARICOM—the Caribbean Community—and the east and west African groupings. Achieving those deals will be complicated and time-consuming—we have seen and heard that trade deals take several years to agree—but the time to start the negotiations is at the Commonwealth Trade Ministers meeting next month, not in 2019 as the Minister’s Department has indicated.
Other practical steps that we need to take include looking at departmental reform to eliminate silos. Trade Ministers should be able to move freely between the Department for International Development, the Foreign and Commonwealth Office, the Department for International Trade and the Home Office. To strike trade deals, we will need to tackle issues such as visa reform, aid and the FCO’s use of soft power; we will also need to use our influence to promote the Commonwealth and all its benefits and trade deals.
I commend the hon. Gentleman for securing the debate. On the subject of the Commonwealth Trade Ministers meeting next month, does he agree that although the EU has been quite insistent on its restrictions on when it will begin discussions and negotiations, no such inhibitions apply to Commonwealth nation states? We should quickly get down to trying to negotiate with our willing partners the type of deals that he has outlined.
I agree wholeheartedly, and I hope the Minister will confirm that approach. The Government said in response to a parliamentary question that we would have to wait until 2019, but I hope that that is not the case. If we are leaving the EU, we should be negotiating with the Commonwealth and should not be as worried about what the EU has to say about it.
The issue of visas is a tricky one. I am sure the Minister is aware that 40 Conservative MPs signed a letter that was published in last week’s Sunday Telegraph asking for simple changes at our border to extend the hand of friendship to the Commonwealth nations. We are not calling for changes in visa restrictions; we are simply asking that border officials acknowledge the importance of the Commonwealth when people arrive here.
Finally, I call on the Minister to consider whether he could publish a White Paper on trade, and specifically on Commonwealth free trade, following the meeting in March. The Government published the last White Paper on trade in 2011. Clearly that was before Brexit, and it was produced under the coalition Government. A new White Paper on Commonwealth trade could set out a road map for Britain’s new relationship with our Commonwealth partners and, crucially, could focus bilateral meetings at CHOGM next year on trade and co-operation.
I hope that such a White Paper can cover, among other issues, what steps the Minister will take to increase the number of trade envoys deployed to Commonwealth countries; which Commonwealth countries the Department has prioritised for trade agreements; which Commonwealth nations have come forward seeking trade agreements post-Brexit; how many Departments’ new trade audits have been set up with Commonwealth countries; and what steps he is taking to improve exports to Commonwealth destinations.
As we have heard, the task is legion, but next month’s meeting is an important rallying call to the Minister and his Department. If Britain is truly back, it is time to demonstrate that the Government accept that the Commonwealth is a key trading partner for this country and that the distance between our nations is no barrier but a natural highway, over which we will see international trade flourish.
I must get to the Front-Bench spokesmen as close to 3.30 pm as possible. There are around 10 colleagues seeking to catch my eye, so I must impose a time limit. The most generous time limit to get everyone in equally is four minutes, but I must add that if people take interventions that will reduce the time left for people further down the line. However, if everyone sticks to four minutes without intervention, we should be okay.
It is a real pleasure to serve under your chairmanship, Mr Davies.
I thank the hon. Member for Rossendale and Darwen (Jake Berry) for securing what is a very timely debate. In a way, it kills two birds with one stone: where can we find trading opportunities after we leave the EU, and the age-old question, “What is the purpose of the Commonwealth?”
In November 2012, a Foreign Affairs Committee report highlighted concerns that Commonwealth member states were not making the most of the economic and trading opportunities offered by the Commonwealth. However, the same report concluded:
“It is clear that the creation of a free trade area with Commonwealth countries would require a fundamental and potentially risky change in the UK’s relationship with the European Union, and the benefits may not outweigh the disadvantages.”
That “change” is now going to happen, and while increasing trade with the Commonwealth might not be the silver bullet to ease all of our country’s economic uncertainties, it is common sense.
We have historical ties to Commonwealth countries, and while much of our colonial history is shameful, close ties still exist, such as the English language and a similar administrative and legal system, which break down communication barriers between our businesses and foreign traders, as the hon. Member for Rossendale and Darwen has pointed out.
Will the hon. Gentleman give way?
I will not give way; I will try to make progress.
We also have dynamic diaspora communities here in the UK. In Rochdale, for example, we have vibrant Bangladeshi, Kashmiri and Pakistani communities, which all make a real contribution. Such communities can play a bigger role in driving trade between the UK and the Commonwealth, and in increasing investment. Members of those communities speak not only English but their native language and regional dialects which are unfamiliar to many Brits. They often know Commonwealth countries better than any of us sitting here in Westminster: they know local customs, traditions and tastes. Such communities can act as a valuable bridge to new markets.
There is huge scope to enhance trade with our Commonwealth partners, but that cannot be at the expense of our values. An open Britain that enjoys the benefits of free trade cannot mean that we pursue a crude transactional foreign policy. For all its flaws, the EU was a great democratising force. To join the EU club and gain access to its economic perks, countries have to uphold basic liberal values. We saw that in the late 1990s and early 2000s, when countries that had formerly been suppressed behind the iron curtain were encouraged by the EU to embrace free trade and a liberal, democratic political system.
I worry that in the coming years Britain will turn a blind eye to police brutality in Kashmir in order to secure a free trade deal with India; or that Awami League Government attacks on political and press freedoms in Bangladesh will be ignored as Britain increases economic ties with that country; or that—as the hon. Member for Rhondda (Chris Bryant) highlighted yesterday—promoting British businesses in African republics will be at the expense of promoting lesbian, gay, bisexual and transgender rights across the continent.
If we turn a blind eye to injustices and human rights abuses in such countries to secure trade deals, it would be a damning indictment of our country and would completely hollow out the Commonwealth. By all means let us promote trade with the Commonwealth, but while we do so we must remember that it is our values that make both the Commonwealth and Britain great.
I join colleagues in congratulating my hon. Friend the Member for Rossendale and Darwen (Jake Berry) on securing such an important debate. I also draw attention to my entry in the Register of Members’ Financial Interests, as I am the deputy chairman of the Commonwealth Enterprise and Investment Council.
No one cares more passionately about the Commonwealth than I do. I ceased being Minister for the Commonwealth in July 2016, after just over four years in the post, and I am absolutely delighted to have joined the board of the CWEIC, which designed the meeting on 9 and 10 March at Lancaster House and is also hosting it.
That meeting is incredibly important. It will be an opportunity to discuss the significance of Brexit for international trade, and we will cover six themes: financial services; ease of doing business; technology and innovation; business and sustainability; creating an export economy; and attracting investment. Also, there will be roundtables on the second day, each one designed to identify areas where Commonwealth countries can co-operate, to promote the agenda for growth and to help achieve the $1 trillion intra-Commonwealth trade target.
I will not reheat some of the arguments put forward so eloquently by my colleagues, but we need to be aware of the Commonwealth advantage: when bilateral partners are Commonwealth members, they tend to trade 20% more and generate 10% more in foreign direct investment flows than when one or both are non-Commonwealth nations.
Commonwealth trade and investment flows of all kinds are now growing noticeably faster than overall world trends, and currently account for some 15% of total world exports. The Commonwealth has a combined GDP of $8.4 trillion and an annual growth rate of 3.7%.
However, we do not need to get hung up on this idea of free trade deals; they are not the be-all and end-all. The CWEIC is also encouraging exporting, which is absolutely critical, especially exporting by UK small and medium-sized enterprises. Our Commonwealth First programme aims to help 100 companies to trade and invest across the Commonwealth over the next three years.
Currently, the UK exports around £220 billion-worth of goods and services to the EU, and as a result it has withdrawn from a lot of the Commonwealth countries over time, so the opportunities of Commonwealth trade are absolutely huge.
It is also worth bearing in mind the fact that the UK is the largest EU goods export destination for numerous Commonwealth countries, including Australia, Canada, India, New Zealand, South Africa, Pakistan, Sri Lanka and Jamaica. I believe that this meeting in March will be critically important.
I will therefore ask the Minister some questions. Given that we hope to follow up the meeting with a business forum, as we had in Sri Lanka and then in Malta, can he tell us today when the date and location for CHOGM will be announced? Also, can he confirm that the Commonwealth Heads of Government have been notified of that proposed date and that it has been discussed with them? Will he take the opportunity today to reaffirm the Government’s commitment to the Commonwealth, and to congratulate the CWEIC on the initiative that it has shown in setting up this meeting in March? Will he clearly state on record today the Government’s commitment to the Trade Ministers meeting, to the work that the CWEIC is doing and to the idea that CHOGM in 2018 should largely be focused on trade and business and that the Government will support a business forum at that time?
It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate the hon. Member for Rossendale and Darwen (Jake Berry) on securing the debate. With all the focus on Brexit—we are all looking towards that—and import and export issues to the fore, we must remember that there is a wider market to explore. The aim of $1 trillion of Commonwealth trade by 2020 is a goal we must all work hard to achieve. That should be the focus of Ministers and Members of Parliament, in proud partnership with the Commonwealth.
I can always remember watching the Commonwealth games and being amazed by the number of countries that made up the Commonwealth. I was proud that they were happy to respect and be tied with the Queen and this great nation. There is a natural bond there, which the hon. Gentleman referred to in his introduction. It should be strongly explored and enhanced for the benefit of all those involved. We are all winners from enhanced trade and economic co-operation, but it will take time and effort to build it up.
Plenty of facts about trade are available, and other Members have mentioned them. In 2015, UK exports of goods and services to the Commonwealth were worth £47.4 billion, while imports from the Commonwealth were worth £45.5 billion. That gives an idea of the stats. It is clear that great work is being done, but there is massive potential for more to be done. The UK’s trade is heavily focused on a small number of the 51 Commonwealth countries. In 2015, Australia, Canada, India, Singapore and South Africa accounted for 70% of UK exports to Commonwealth countries and 65% of UK imports from the Commonwealth.
This is not a debate on Brexit, but it would be remiss of me not to point out the opportunity in the Brexit negotiations to enhance trade with our Commonwealth brothers and sisters. The Government have intimated that intention through the response of the Under-Secretary of State for International Trade, the hon. Member for Wyre Forest (Mark Garnier), to a written parliamentary question, in which he stated:
“We cannot negotiate and conclude trade agreements while we are a member of the EU, but we can have discussions on our future trading relationships. We have already announced working groups and dialogues on our future trading relationships with seven markets: Australia, China, India, New Zealand, Norway, South Korea and the Gulf Cooperation Council, which comprises six countries.”
My belief is that negotiations must range more widely to make the most of all avenues and ports of call within Commonwealth countries. That will help to develop those countries and will benefit our own. There should be a mutually beneficial system that allows small businesses and local economies to have access to the global network.
Does the hon. Gentleman agree that this is also a great opportunity to encourage the Republic of Ireland to join the Commonwealth and to include it in any possible arrangements for free trade across the world? There is an opportunity for the British Isles. Does he agree with that?
Of course I do; I wholeheartedly agree with that. Indeed, I would go the further mile and make it happen. It would be great to have the United Kingdom of Great Britain and Ireland, and not just Northern Ireland, together as one. That would be special, but I will settle for it being in the Commonwealth.
It is clear that deals with countries such as Australia, Canada and New Zealand will be important. They can open up big areas of new trade. It all depends on the terms we decide we will abide by in coming out of Europe, but we must ensure that we reach further. The initial talks with New Zealand have indicated the position that we will be seeking to establish post-Brexit: a foundation of respect and a hope to see winners in all areas. If we can do that across the Commonwealth and the United Kingdom, we should.
For too long we have had to labour under trade rules that did not allow for the foundations of the Commonwealth to be explored. Now is the time to seize the opportunities and to enjoy the benefits of the ties to our Queen and her aims, which we all hold dear in this place and further afield.
I will conclude, as I am conscious that I got an extra minute for taking an intervention. One Commonwealth charter principle is that
“international peace and security, sustainable economic growth and development and the rule of law are essential to the progress and prosperity of all.”
Let us enhance our links, so that we pay more than mere lip service to that charter principle. Let us start the planning right now.
It is a pleasure to serve under your chairmanship, as always, Mr Davies. I commend my hon. Friend the Member for Rossendale and Darwen (Jake Berry) on securing this important debate. To the extent that it is relevant, I declare that I am co-chairman of the Conservative Friends of India group.
Our existing trade with the Commonwealth is not insignificant. In 2015, our exports to the Commonwealth totalled £47.4 billion, and our imports from the Commonwealth totalled £45.5 billion. The Commonwealth is comprised of 53 member states, representing a quarter of the world’s landmass and 2.2 billion people. Some 60% of the Commonwealth’s population is under the age of 30. There can be no doubt about the massive opportunities that lie ahead for our country. Forecasts by PwC suggest that India will be the world’s third largest economy in 2030, behind China and the USA. That is hardly surprising—according to the most recent United Nations global population estimates in 2015, people aged under 35 comprised 64% of the population of India.
Some say we should concentrate on only a handful of Commonwealth countries. UK trade is heavily focused on a small number of countries. For example, in 2015, Australia, Canada, India, Singapore and South Africa accounted for 70% of UK exports to Commonwealth countries and 65% of UK imports from the Commonwealth countries. It is important to remember that, as members of the European Union, we did not simply concentrate our efforts on Germany, France and Italy, but also made efforts with the smaller nations. Likewise, it is important that we do not just concentrate on the larger nations of the Commonwealth, big though they may be.
Will my hon. Friend consider that America could be invited to join the Commonwealth, thereby allowing for a trade deal to be done much more simply, as with other Commonwealth countries?
My hon. Friend makes a valid point, but I hope he will appreciate that it is not for us to invite countries to join the Commonwealth.
We are equal partners, and it is important to remember that, in the Commonwealth, we should not pick favourites. We should give the smaller nations equal treatment, particularly given that our aim is to increase trade. There is the potential to increase trade with those smaller countries, too. I will not abuse the extra minute I have received by virtue of that intervention and will make hasty progress.
Britain remains a popular destination for Commonwealth citizens, both for business and non-business purposes. It is right and proper that the Government take seriously the suggestion of my hon. Friend the Member for Rossendale and Darwen on making things easier at our airports. It would send a powerful message to the rest of our Commonwealth partners. Next month’s Trade Ministers meeting seems an appropriate place. I hope the Minister will not say that it is logistically not possible because we are only days away from the meeting. It is perfectly feasible to make the announcement at the Ministers meeting and say it will take effect in three months, six months or whenever we have gone through the logistical procedures.
The Prime Minister has said that we want to build a
“truly global Britain… one of the firmest advocates for free trade anywhere in the world.”
At the Commonwealth Trade Ministers meeting next month, we have the perfect opportunity to make a powerful statement to our Commonwealth partners by doing just that.
It is a pleasure to serve under your chairship, Mr Davies. I congratulate the hon. Member for Rossendale and Darwen (Jake Berry). It is good to see so many of his colleagues here after his shameless promotion of the debate yesterday in Foreign and Commonwealth Office questions. I also welcome the many Government Members who want to promote trade with Commonwealth countries, the overwhelming majority of which have become independent from the UK.
On an unrelated note, Scotland is a proud trading nation. Supporting Scottish business to export and attract direct foreign investment is good for Scottish business, for our economy and most importantly for the people of Scotland. Three out of Scotland’s top 20 export destinations in 2015 were Commonwealth nations: Australia in 15th place, Singapore in 16th and Canada in 18th. Scottish Development International has eight offices in multiple locations around the Commonwealth to assist companies looking for opportunities in Scotland. SDI’s support has helped businesses settle and invest in Scotland. For example, around 50 Canadian companies located in Scotland support more than 5,000 Scottish jobs, and Indian companies have made investments of around £700 million in the past five years, providing around 2,500 Scottish jobs.
Scotland’s international exports were worth £28.7 billion in 2015, excluding oil and gas, which represents a 17.3% increase from 2010. Under the SNP Scottish Government from 2007 to 2015, the value of international exports has increased by nearly 40% from £20.4 billion to £28.7 billion.
In two days’ time we will celebrate four years since Scotland became a fair trade nation. On Monday, we will mark the start of Fairtrade fortnight, which will run from 27 February to 12 March. Fair trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions and securing the rights of marginalised producers and workers. I urge the Government to bear those important factors in mind when embarking on Commonwealth trade deals.
I am sure the House will join me in welcoming today’s launch of the Scotland Malawi Partnership’s “Buy Malawian” campaign, which encourages people to buy ethically produced, fairly traded Malawian products in Scotland and is a great way to support farmers, entrepreneurs and small businesses in Malawi. That supports the creation and sustainability of livelihoods for people right across the supply chain, from smallholder farmers in rural Malawi to local fair trade retailers in Scotland. Malawi is, of course, a country of the Commonwealth and one with which Scotland has close ties as a result of Dr David Livingstone. Through his travels, Dr Livingstone fought against the slave trade and looked to open new trade routes into Africa to support its economic development. More than 150 years later, the Scotland Malawi Partnership has continued that mission and is hoping to cement Livingstone’s birthday on 19 March as an annual “Buy Malawian” day to promote Malawian produce and sustainable economic development.
The sustainable development goals can influence trade with the Commonwealth. As a supporter of the HeForShe campaign, sustainable development goal 5 on gender equality is very important to me. Future trade deals must recognise the rights of women and the economic gains of gender equality and an empowered female population. That applies both to the UK and to the countries that it seeks deals with.
I firmly believe that promotion of the SDGs must play a major role in any future trade deal and hope the Government respond positively.
Sitting suspended for a Division in the House.
It is a great pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for Rossendale and Darwen (Jake Berry) on securing the debate. I want to use the example of one country to illustrate some of the points that he and other Members have made. The country is Nigeria, where I am the Prime Minister’s trade envoy. [Hon. Members: “Hear, hear!”] I thank hon. Members for that endorsement of my role. My appointment was a pre-Brexit one, although admittedly it has relevance in a post-Brexit world, which goes to show how much this country values the relationship it would like to have with Nigeria. Trade is of mutual benefit—it benefits not just one but both of the countries concerned. We can do enormous good when we operate in a country if, as well as ensuring that our own markets are fulfilled there, we ensure that that country’s markets are also developed.
Nigeria’s size is significant in that respect—with 170 million people it is, I think, the most populous Commonwealth country in Africa—but it also has enormous regional importance. At a dinner organised for me in Lagos recently, the common theme around the table of Nigerian and British businessmen was that it was impossible to see sub-Saharan Africa taking off without the development of Nigeria. Anything we can do to help Nigeria to develop will bring stability to that part of the world. We need to show that we are doing that, as a good member of the Commonwealth family. It is an important part of the message we want to give.
I am trying to do something about the status of our trade relations with Nigeria, which are currently abysmal because they are based on one factor—oil and gas—that has seen an enormous drop. We and the President of Nigeria are determined to diversify the economy to ensure that British companies across the board have a role to play in the Nigerian market.
In terms of the way of doing business, there is a tremendous amount of low-hanging fruit. I am happy to gather that low-hanging fruit as I go, but I am more interested in the long-term business relationships that will cement the UK-Nigerian way forward.
Will the hon. Gentleman give way?
I will not. We are too pressured for time.
I know from my experience in central and eastern Europe that those business relationships take a tremendous amount of management time to get right.
There is a way of doing business that depends on getting people together to hunt as a pack, to ensure that all views are known and that we do not act for just one company. I have gathered those companies together in an advisory group that I have set up, with PwC as the secretariat. That group is just about to have its first meeting, and will take forward the approach of operating as a UK group in Nigeria, as our French and German colleagues do with their companies.
I echo the comments made about the diaspora. We have the second largest Nigerian diaspora in the world in this country and I recommend that we make the best use of that.
It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate the hon. Member for Rossendale and Darwen (Jake Berry) on securing this important debate. I am sure it will be the first of many debates as we seek to develop business with the Commonwealth.
I come to the debate wearing two hats. First, I am a vice-chair of the Commonwealth Parliamentary Association, and through that association I want us to develop closer ties with the Commonwealth. Secondly, I am chair of the all-party parliamentary university group and want to promote our universities. I want to stress to the Minister how important a business sector the higher education field is. It delivers about £73 billion to our economy and supports more than 800,000 jobs. In international standing, it is second only to the US. International students are a significant source of finance, not just to universities but to the wider UK economy, and non-EU students, many of whom are from Commonwealth countries, contribute about £3.2 billion in tuition fees to UK universities. Overall, their contribution is more than £7 billion to the UK economy, and that could grow.
Our Commonwealth partners are already doing that. As the Minister will know, universities compete in an increasingly globalised economy. It is a growing economy, where there is a great deal of competition. Australia wants to grow its international student numbers by 2025 and is doing that by putting in substantial funding and post-study employment opportunities. Since 2004, the number of international students in Australia has grown by 50%. Canada is doing the same.
I notice that the priorities for the Department for International Trade include “negotiating plurilateral trade deals”, focused on specific sectors, and
“providing operational support for exports and facilitating inward and outward investment”.
It seems to me that the higher education sector would benefit from being promoted through the new Department and that Ministers in that Department will do what they can to make it easier for international students, particularly those from Commonwealth countries, to come to the UK. That means looking at whether the visa system can make it easier for students to come here, and ensuring that students are taken out of net migration figures.
Unfortunately, the message that has been given to international students is that they are not welcome here. In the post-Brexit era, universities need to be able to grow their international offer—not only in respect of students coming here, but in respect of universities operating more easily in Commonwealth countries, and developing educational opportunities and business start-ups from which UK companies can benefit. There could be a win-win for the higher education sector and for the Government if they encourage growth in that sector with Commonwealth countries.
I apologise to the Front-Bench spokespeople that I have to leave the Chamber to deal with a statutory instrument in a few minutes.
I congratulate my hon. Friend the Member for Rossendale and Darwen (Jake Berry). He was right in his exposition to point out that we already trade with the Commonwealth. I have some brief remarks on how we can facilitate greater trade within the Commonwealth to our mutual benefit, and extend the partnership of equals that it must be.
Notwithstanding my hon. Friend’s remarks about trading with all nations in the Commonwealth, a priority for us must be to start with looking at the most developed Commonwealth countries right away. My right hon. Friend the Member for East Devon (Sir Hugo Swire) was right that that does not need to be free trade agreements, although we want those to come. We want to start trading and exporting, and exporting more. One thing we can do before any free trade agreement is look at the certification regimes and non-tariff barriers, which are burdensome in regulation and do not need to be there.
Secondly, there is an opportunity for our services sector, especially in emerging markets where we see the middle class growing. There is a demand for banking, accountancy, insurance, cyber-technology and all that goes with that. We have expertise in those areas, and can export and grow it to mutual benefit. Services are affected far more than goods by factors such as language and legal differences, so harnessing our ties with the Commonwealth in those areas, combined with our already world-leading services sector and the growing demand in most of those countries, makes that an obvious area for immediate post-Brexit opportunity. It is therefore clearly essential that we join the Trade in Services Agreement as soon as possible.
Several speakers have talked about the Commonwealth trade advantage. Recent study has shown that factors such as geography and regional trade blocs mean that Commonwealth counties trade among themselves more than they do with other parts of the world. It is therefore key that we do everything we can to build the capacity for trade. Several hon. Members have pointed out that the ministerial meeting happening next month is a big opportunity for us to start building on the Commonwealth trade advantage. It is not a trade organisation as such at the moment, but over the years to come, a greater role, exposition and commitment from Ministers to trade will see opportunities for economic growth for everyone across the Commonwealth.
I am interested in what the infrastructure sector can do with trade across the Commonwealth more immediately. Some deals struck by other countries in the last decade are beginning to unwind, in all sorts of areas of physical infrastructure such as roads, ports and airports. Across the Commonwealth, there are opportunities for British firms, particularly with high-end contracting skills, to make a contribution to improving and streamlining those projects, and to look at customs procedures between members. Building a trading infrastructure as well as a physical infrastructure will lead to opportunities in the world for financial services. Embedding skills that we have into capital markets, a number of which are growing rapidly across Commonwealth countries, would be a huge benefit not only to the United Kingdom but to the whole Commonwealth.
I am delighted to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for Rossendale and Darwen (Jake Berry) on securing this debate.
We talk freely about free trade and opening barriers. I have a couple of declarations to make. First, I belong to the National Farmers Union in this country. Secondly, as hon. Members can tell from my accent, I have a dual nationality: New Zealand and the UK. When we went into the Common Market, New Zealand’s trade with this country teetered from 90% to 50%. After an agreement by Holyoake, the Tory Prime Minister, it dwindled to 5%. Later, a New Zealand Prime Minister called Muldoon, whose politics were really Labour even though he was a Tory, built up barriers right across the country. He was a very difficult man and was renowned for the statement—I apologise to our antipodean colleague, the hon. Member for Edinburgh North and Leith (Deidre Brock)—that any New Zealander moving to Australia increases the IQ of both countries at a stroke. The barriers he introduced crippled the economy. We then had a Labour Government, who introduced what we in New Zealand called Rogernomics. They tore down barriers and told the whole of the agriculture industry, “No ties, no restrictions, no subsidies.”
I think of that when I look round my farms. We have a dairy farm in my area that is supposed to be big—it has 350 cows. We have sheep farms with perhaps 1,000 sheep, and some of those farms get 90% of their income from subsidies. If we are going for free trade, I think we are going to have to wake up. We are going to have to give our farmers—I am concentrating on farmers—the opportunity to wake up and do something before the avalanche arrives.
On the North Island of New Zealand, there are square miles of vineyards. I have the biggest vineyard in Europe in my constituency—it is going to have to wake up. We have got dairy farms, but they are nothing compared with the dairy farms I know of in New Zealand, where 1,500 to 2,500 cows are milked twice a day. The farm I came off in the middle of the South Island had 1,000 head of cattle, 1,000 head of deer and 23,000 lambing ewes—when they lambed we had 50,000 sheep. There is nothing to compete with that here. The size and power of that industry in New Zealand could shatter us because we are not ready.
I know we are keeping subsidies till 2020, but we need to be aware that while we are welcoming people in, we need to be braced for what is going to hit us. I hope that our NFU is going to wake up. It wished us to stay, but my farmers voted to leave. They are going to have to wake up, organise and be expeditiously more efficient than they are at the moment. I welcome the potential deals, but we must be warned.
It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for Rossendale and Darwen (Jake Berry) on securing this debate. I declare my interests: I am chairman of the all-party group for the Commonwealth, and I am the former Foreign and Commonwealth Office Minister for the Commonwealth in the Commons, although I was reporting to the right hon. Lord Howell of Guildford at the time.
It is a pleasure to follow my hon. Friend the Member for Mole Valley (Sir Paul Beresford). His expertise on New Zealand is greatly appreciated. I think our total bilateral trade with New Zealand is about £6 billion. With the Republic of Ireland, it is about £32 billion, so there is a lot of ground to be made up.
There has been much discussion about the Commonwealth Enterprise and Investment Council meeting on 15 March. I congratulate my right hon. Friend the Member for East Devon (Sir Hugo Swire) on the work he has done on that superb council and initiative. It is going to be co-hosted by the UK and Malta, and I think it really gives us an opportunity to look at where we go post-Brexit. We can—I hope the Minister will confirm this—start the pre-negotiations with many of these countries. We obviously cannot negotiate trade deals with Commonwealth countries until we actually exit the EU, but surely we can do a lot of the background work. I would be grateful if he could confirm that.
I recently met up with a number of Commonwealth high commissioners, who really want to be fully engaged in this process. They are the key link personnel in London, and they have a vital role to play. May I suggest that before the summit on the 15 March, the Minister has a pre-meeting with the Commonwealth high commissioners in London? I think that would be a really good initiative.
The hon. Member for City of Durham (Dr Blackman-Woods) made an excellent point about Commonwealth migration. I, too, would take student numbers out of migration figures. When we get control of our borders, we need to be sensible and ensure we have the right talent when people come to this country to work. For example, Russell Group universities have on average twice as many non-EU students as EU students. When EU students finish their studies they can do a postgraduate course or work here, whereas many of the non-EU students cannot work and have to go back to their country, as in many cases they find it very difficult to get a work permit or a visa. I think that industry and business need the advantages that will come from our being able to pick the brightest and best without any discrimination in favour of one country or another.
I absolutely agree with what my hon. Friend the Member for North West Cambridgeshire (Mr Vara) said a moment ago about border controls. How we treat Commonwealth citizens is going to be really important in the future, and what clearer and more emphatic innovative signal can we send than changing our border arrival arrangements? I suggest that, post-Brexit, we should have one queue for UK citizens, including citizens of the overseas territories and citizens of the realm—the Commonwealth countries that chose to keep Her Majesty as Head of State—another queue for Commonwealth citizens, or perhaps Commonwealth and EU together, and another for the rest of the world. That would show our trading partners where our loyalties and interests lie. After all, the people side of trade—the services side, and the exchange of people and ideas—is incredibly important.
On that very point, does my hon. Friend agree that the Commonwealth realms have been neglected? The constitutional link that they have with the United Kingdom in sharing Her Majesty the Queen as the Head of State should be cherished. Their citizens should be given preferential treatment not only when they arrive at Heathrow and enter this country, but in other ways. We should build a closer relationship based on sharing Her Majesty the Queen.
My hon. Friend is absolutely indefatigable on that issue. Of course he is absolutely right. I hope the Minister will take notice of that point and respond to it.
There are huge opportunities out there. It is incumbent on this country and the Government to seize them now.
We now come to the Front Benchers. Our new finishing time is 4.14 pm, so if each of the Front Benchers speaks for eight or nine minutes we might even have a few seconds at the end for Mr Berry to wind up the debate.
It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate the hon. Member for Rossendale and Darwen (Jake Berry) on securing this really important debate. I hope we can continue the debate over the next two years in the main Chamber of the House of Commons, because it is really important, particularly in the light of statements that were made in advance of the EU referendum about how strong our links with the Commonwealth are going to be.
Coming to debates on any issue surrounding Brexit, it is particularly interesting to hear about the wonderful fantasy world in which some people live. I obviously campaigned for remain, and I believe we are economically, as well as culturally, better off as part of the European Union. I do not believe in the wonderful land of milk and honey and beautiful free trade arrangements that is being proffered to us for a number of really good reasons. The European Union has free trade agreements with 32 of 51 Commonwealth countries, so we are going to have to renegotiate those 32 trade agreements. It is not as though we will be suddenly free to negotiate with the Commonwealth; we will lose those trade agreements when we leave the EU. Why would those countries choose to give a better deal to the UK, which has a population of 65 million, than they give to the EU, which has a population of 500 million?
We will also be negotiating under time constraints, because we will be desperate to ensure we can export. We will have a time imperative that the EU did not have when it was negotiating its deals, so for us to get a good deal will be more difficult .
I voted the same way as the hon. Lady in the referendum, but I am sure she accepts that the EU sometimes made trade deals with Commonwealth countries on terms that were not always favourable to the United Kingdom, such as on the free movement of medical professionals. For example, medical professionals from Australia and New Zealand, nurses in particular, were prevented from coming to the UK by prohibitory EU rules on training requirements. There will be advantages to Britain being able to negotiate its own trade agreements with some countries.
I absolutely agree that some small areas for some industries in some sectors have been disadvantaged by some of those EU trade deals. Some companies talk about how disadvantaged they have been, such as Tate & Lyle because it imports cane sugar, but it is important to note that in any trade deal with another country we might still have to cede some of our sovereignty, because that is how trade deals work—we have to concede some things and to compromise when we make a trade deal. That is what such deals are about—a level of compromise—so we will lose some of the ability to make our own decisions, because it will be wrapped up in the trade deals.
I tried to intervene on the hon. Member for Henley (John Howell) to mention this, but I have a huge Nigerian population in my constituency because so many people have come to Aberdeen North to get involved in the oil and gas industry. If the Government are truly keen to create better links with such Commonwealth countries, however, they need to have better relationships now, because in 2015, the most recent year for which figures are available, the UK Government refused 33% of visitor visas from Nigeria. If the UK Government want better relationships, they need to up such numbers—they only approved 57% of visitor visa applications from Ghana and 50% from Pakistan. Members were talking about special Commonwealth lines at airports and so on, but we need to change the high levels of visitor visa refusals, which are continuing and getting worse, if we want to have a better relationship with those countries and eventually to make free trade agreements with them.
The other point about free trade agreements was mentioned by my hon. Friend the Member for Edinburgh North and Leith (Deidre Brock) and was in connection with the private Member’s Bill promoted by my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin). The Double Taxation Treaties (Developing Countries) Bill sought to look at the tax treaties we have historically signed with countries to their disadvantage. A number of Commonwealth countries are affected. If we want to pave the way for smooth, positive trade deals, we need to look at the ways in which we have created disadvantage for those countries. A good way to generate some positive feeling would be for the UK Government to look at things such as tax treaties, because that would encourage those countries and increase the likelihood of a favourable trade deal.
The World Trade Organisation has requirements for what should be included in a free trade arrangement in order for it to be a free trade arrangement and not simply something that falls into the most favoured nation category. A free trade arrangement cannot be made for only one type of good or service—that is not acceptable to the WTO—but needs to be much wider. We will not easily be able to make agreements with New Zealand on lamb, for example, or on any such specific; we will need to make much more wide-ranging free trade agreements in order for them to be acceptable and not challenged in the WTO. Furthermore, the WTO is not dissimilar to the European Union in that, for schedules to be approved and so on, the WTO members need to agree them. The WTO road is not smooth, but bumpy, and a huge number of problems will be in our way, not least the cliff edge we are likely to fall off.
Finally, I want to talk about the historical links with the Commonwealth. For people my age or younger, in many ways our only link with the Commonwealth is the Commonwealth games. That is pretty much the only thing. I do not know whether this is generational, but some people believe that the empire was a sort of wonderful, historical panacea and an amazing relationship, but people of my age do not think that. We do not hark back to those days of empire; we look back to the subjugation that we—
The hon. Lady must know enough to know that some countries in the Commonwealth were never part of the British empire.
That is the case, but most countries in the Commonwealth were. My point is that we will be trying to make trade deals with countries with which we have not necessarily always had a positive relationship. Fair enough, we have the Queen as a figurehead, but that is not necessarily enough for us to give them a positive trade deal, or for them to give us one, and it is not enough for the WTO to agree that we should give preferential agreements to each of those countries. The WTO will not agree to that unless we have given them to all countries.
Your firm guidance and chairmanship, Mr Davies, are always much appreciated by Members.
This has been an excellent debate. I pay tribute to my hon. Friend the Member for City of Durham (Dr Blackman-Woods) and to the hon. Member for North West Norfolk (Sir Henry Bellingham), both of whom spoke very powerfully about the importance of education and visas connected with education. I especially want to draw out the remarks of the hon. Member for Mole Valley (Sir Paul Beresford), who spoke with great knowledge and understanding of the dangers that exist for our farmers.
I pay tribute, too, to the hon. Member for Rossendale and Darwen (Jake Berry) for initiating the debate. I thought it could have been subtitled “The importance of old friends”, because long before the Common Market became a twinkle in Edward Heath’s eye we had the Commonwealth. At a time when we are loosening the bonds with our nearest friends after a 40-year partnership in the EU, we have come to realise the value of those old friends. We seek to strengthen our ties with India, Canada, New Zealand, Jamaica, Australia, Pakistan, Bangladesh, South Africa, Kenya, Nigeria and all 52 Commonwealth members.
Trade is one of the most effective means of creating shared prosperity and decent jobs. Opposition Members understand the power of fair and open trade. We share the dream of the vast majority of people around the world who want to see closer ties between countries. We want to build trade links, not protectionist walls. We are therefore emphatic in our support for promoting trade with the Commonwealth and in welcoming the Commonwealth Trade Ministers conference to London next month. In that regard, I pay tribute to the work of the right hon. Member for East Devon (Sir Hugo Swire).
[Albert Owen in the Chair]
It would be foolish, however, to think that we in the UK may simply pick up where we left off before we joined the EU. The world has changed, the power balance has changed and the nature of global trade has been transformed beyond recognition. Yesterday, His Excellency Y. K. Sinha, the new high commissioner for India in London, made that absolutely clear at a conference in East Anglia. He said that the key to a post-Brexit free trade agreement would be to resolve the issue of workers’ mobility—how familiar does that sound from our Brexit debate? He made it clear that, for India, it is essential to ensure that its financial services and IT professionals could come to and go from the UK freely. He said:
“For India mobility is key”
and went on to point out that a recent study suggested that a free trade agreement could increase UK-India trade by 25%—I use that figure, but the hon. Member for Rossendale and Darwen said 26%. That would boost UK exports by only 0.4% of total exports. The hon. Gentleman spoke of the “huge prize” that that would be, but let us be clear and do the maths: none of the UK’s top 10 export partners is a Commonwealth country. Indeed, in respect of those Commonwealth countries for which the Government have announced trade working groups and dialogues, the volume of exports from the UK is extremely low. India accounts for 1.7% of our exports, Australia 1.7%, Canada 1.2% and New Zealand approximately 0.2%. Let us add Singapore, given the Secretary of State’s recent visit—that accounts for an additional 1.2%.
Will the hon. Gentleman give way?
Because of the time, I will not.
The Conservative Free Enterprise Group think-tank identified those countries as the priority target for trade agreements. It also recognised that the 10 largest Commonwealth export markets for the UK account for no more than 8% of our total exports but almost three quarters of our exports to the Commonwealth. Clearly, any shift away from the EU would require a substantial uplift in our export growth to make up for the potential loss from the European Union.
It has properly been said that trade between Commonwealth countries is enhanced and facilitated by the context of shared languages, cultural familiarity and particularly common legal and regulatory frameworks. The various communities in the UK from Commonwealth countries, including those in my borough, Brent, are our very best trade advantage. It is estimated that the so-called Commonwealth effect reduces overhead costs for businesses trading between markets by up to 15%.
However, there has been a move to greater regional co-operation through formalised partnerships and institutions very like the European Union, and the increased regulatory harmonisation that goes with that, which has unlocked similar benefits for those Commonwealth countries. It can be no coincidence that the countries mentioned by the hon. Member for Rossendale and Darwen are all members of the Trans-Pacific Partnership agreement. That drive to regional partnerships is significant. We must consider that, although the United Kingdom has determined that it will withdraw from the EU, many Commonwealth countries seek precisely to strengthen their own participation in such regional agreements, and not to recreate the Commonwealth’s old links with the UK. Two Commonwealth countries—Malta and Cyprus—remain members of the EU and will find themselves similarly restricted from pursuing the trade agreements that the UK now seeks.
I will try to move to a close in the next couple of minutes, Mr Owen, as I was asked to. That means leaving out a great deal, but let me pick up one essential thing. By withdrawing from the European Union, we will leave the EU’s generalised system of preferences, which allows developing countries favourable market access through generous tariff reductions, which essentially remove tariffs on approximately two thirds of imports from those countries.
I want to ask the Minister about the GSP-plus enhanced preference scheme for countries that have ratified and implemented core international conventions relating to human and labour rights, the environment and good governance, and the “Everything but Arms” arrangement for least developed countries, which grants duty-free and quota-free access to all products from those countries except arms and ammunition. Will he give us a strong reassurance that, when the UK leaves the EU, those very poorest countries, many of which are Commonwealth countries, will not see their exports to the UK effectively fall off a cliff edge? Will he assure us that the Government will continue the generalised system of preferences arrangements after the UK leaves the EU?
I call the Minister to respond to the debate and perhaps allow Mr Berry a minute at the end to wind up.
It is a great pleasure to serve under your chairmanship for the first time, Mr Owen. I congratulate my hon. Friend the Member for Rossendale and Darwen (Jake Berry) on securing this debate about our current and future trading relationships with the Commonwealth, which has truly been remarkable, uplifting and enormously encouraging. It is testimony to the popularity of the debate that I counted some 26 Back Benchers in the Chamber, most of whom stayed for the duration despite the Division. That shows the strength of interest in this subject.
In an uncertain and increasingly challenging world, the Commonwealth is more important than ever. It is an enormous market, but it is more than just a market. The Commonwealth charter has prosperity at its very centre. Members are
“committed to an effective, equitable, rules-based multilateral trading system”
“the freest possible flow of multilateral trade”.
I will try in the limited time available to answer the many questions and points that were made, but I am happy to meet or write to Members if I miss anything. My hon. Friend made a strong and compelling speech and presented a comprehensive vision of our future trading relations with the Commonwealth. He began by referencing the Commonwealth Parliamentary Association, which was most appropriate here in the mother of Parliaments. We should recognise the importance of parliamentary diplomacy. Like many Members in the Chamber, I am a long-standing supporter of the Commonwealth Parliamentary Association. My hon. Friend mentioned a recent CPA conference. I went to the one in New Delhi in 2007, which was quite an experience, and have also participated in CPA visits to Nigeria, Sierra Leone and Sri Lanka.
My hon. Friend mentioned that we have stood shoulder to shoulder in conflict with the Commonwealth countries on our side. I am reminded whenever I go to a Commonwealth country that there are sometimes war memorials to our common endeavours in different conflicts in small and surprising places. I remember seeing a memorial in the town of Kumasi in Ghana to the important service of Ghanaian forces in the small and in many ways forgotten—it is probably not forgotten in Ghana—conflict with German-occupied Togo. That is not to mention the millions of people from Australia, New Zealand, Canada, India, Pakistan and other countries who have participated on our side in conflicts.
My hon. Friend mentioned the kind offers from New Zealand and other countries to help prepare our Department for negotiating free trade agreements. We took up New Zealand’s offer, and a senior official from New Zealand was seconded to the Department. I expect that we would look favourably on further such offers, including from Australia and Canada.
My hon. Friend mentioned that trade deals can take several years. That is not necessarily the case. He mentioned the Comprehensive Economic and Trade Agreement with Canada, which I will come back to, but the North American Free Trade Agreement, which is pretty comprehensive, took only 14 months to negotiate. That is not necessarily the model for where we go from here, but it indicates the potential spread of dates.
My hon. Friend also asked whether we should wait until 2019. I say to him clearly that we will not. We are already out there. We have working groups on trade with Australia, New Zealand and India. Notably, the Prime Minister made her first bilateral trade mission to a Commonwealth country—India. The Secretary of State and I accompanied her on that mission. We have also made ministerial visits to Australia, New Zealand, India, Singapore, Malaysia and so on. We have six Commonwealth trade envoys—one spoke in the debate and at least one other was present. My hon. Friend the Member for Gloucester (Richard Graham) rightly referred to the inaugural meeting of Commonwealth Trade Ministers.
The hon. Member for Rochdale (Simon Danczuk) made important points about the importance of human rights in trade talks. The UK has always been at the forefront of ensuring that important issues such as human rights, the environment and consumer protection are at the heart of such deals.
My right hon. Friend the Member for East Devon (Sir Hugo Swire) has in many ways been the very embodiment of the Commonwealth in Her Majesty’s Government for the last four years. He and I had several interactions during that time in all kinds of roles. He is quite right about the importance of the coming meeting of Commonwealth Trade Ministers. I expect that all four trade Ministers will play a role in support of the Secretary of State. No. 10 will come to a decision about the date and location of next year’s CHOGM in due course, but I am sure other Commonwealth leaders will be consulted. After all, we want them to come, so it stands to reason that we will check that date as far as we reasonably can to ensure that we maximise their attendance.
Businesses will of course be involved. At the very centre of trade is commerce and at the very centre of commerce is business and businesses. How they will be involved at CHOGM will be a matter for ongoing engagement. The Secretary of State and I meet businesses on a regular basis.
The hon. Member for Strangford (Jim Shannon) and my hon. Friend the Member for North West Cambridgeshire (Mr Vara) mentioned the importance of smaller countries. Some 80% of Commonwealth countries benefit from preferential access to the UK via the general scheme of preferences, economic partnership agreements, market access regulation and so on. That is an important part of it.
My hon. Friend also mentioned the Commonwealth immigration channel. I am keenly aware of a recent letter to the Home Secretary. I understand that a meeting with my hon. Friend the Immigration Minister is coming up for the people who wrote that letter. Immigration queues are a matter for the Home Office, with input from the Foreign Office and the Department for International Trade. We in the Department for International Trade are always interested in how we can make business travel easier so that those people we depend on for the free flow of trade between the UK and other nations are not unfairly penalised when entering the country.
The hon. Member for West Aberdeenshire and Kincardine (Stuart Blair Donaldson) said that trade was good for Scotland, and I totally agree. That is exactly the point I was making earlier today in front of a Scottish Parliament Committee on the European Union. What I have to say to the Scottish National party is this: the most important market for Scottish exports is the rest of the United Kingdom. Some 64% of goods and services leaving Scotland go to the rest of the United Kingdom, compared with just 15% to the European Union. Moreover, the rate of growth in trade with the rest of the UK has been almost 10 times as fast as that with the European Union over the past nine years.
My hon. Friend the Member for Henley (John Howell), who is a trade envoy to Nigeria, made an important point about trade with Nigeria. Within that was an incredibly important point about the importance of the diasporas to trade. That is a key UK unique selling point in terms of our ability to trade with the Commonwealth, whether those are from Nigeria, India, Pakistan, Bangladesh, the Caribbean or so on.
The hon. Member for City of Durham (Dr Blackman-Woods) mentioned the importance of higher education—trade and business is incredibly dependent on access to the best talent—and of ensuring that universities are a key part of the UK offer in attracting foreign direct investment.
My hon. Friend the Member for Wimbledon (Stephen Hammond) talked about the importance of services. Some 80% of our economy is in services and we need to ensure that the UK is playing an active role in the Trade in Services Agreement, which we are.
My hon. Friend the Member for Mole Valley (Sir Paul Beresford) mentioned the importance of New Zealand. We have no better friend in the world when it comes to trade than New Zealand. I mentioned earlier the support it has been providing, and the recent visit of the New Zealand Trade Minister was a strong sign as well.
My hon. Friend the Member for North West Norfolk (Sir Henry Bellingham) is another person who has taken a strong interest in the Commonwealth in recent years as head of the all-party parliamentary group for the Commonwealth. I will take back his idea of a pre-meet with Commonwealth high commissioners in advance of the trade meeting and discuss that with the Secretary of State to see whether it is practical in the time available.
I did not get a chance to address the main issues, but hopefully I have got across the importance of the Commonwealth to the Government. In the limited time I have left, I do have to say to the official Opposition that they must sort themselves out. We heard from the right hon. Member for Warley (Mr Spellar) in an intervention. He has said that, if we cannot do a trade deal with Justin Trudeau-led Canada, with whom can we do one?
The incredible sight last week of the official Opposition and the nationalists on Monday deciding that they supported CETA, changing their minds on Tuesday and calling a deferred Division, and then on Wednesday voting against that very matter, was amazing to behold. I am sure that was noted widely not only in the European Union but in Canada and across the Commonwealth.
Order. The Minister has taken his allocated time.
Motion lapsed (Standing Order No. 10(6)).
Lancashire County Council
I beg to move,
That this House has considered local government funding and Lancashire County Council.
It is a pleasure to serve under your chairmanship, Mr Owen. I have called for this debate because I am concerned that Lancashire County Council has trouble in managing its budget. It talks about Government cuts as an excuse for any problem, and I do not have confidence that it understands how to manage a budget in its entirety. Its deputy leader, David Borrow, recently presented a no-change budget. He went on to say that the budget was
“in the face of massive savings needed because of massive Whitehall grant cuts imposed by this Tory Government”,
which was quite perplexing.
On the back of that statement, I looked up the answer to a question I had asked, which said that on 31 March 2016 the council had £716 million in reserves. Out of that £716 million, £314 million was not ring-fenced, while £402 million was. Figures are bandied about all over the place in the county council, the press and wherever. I am not bothered about that. What I am bothered about is trying to get to the bottom of what is allocated by central Government to the county council in its various forms.
The leader of Lancashire County Council, Jennifer Mein, said:
“These cuts in the Government grant are shocking…They are unprecedented.”
She also said:
“The county council faces the greatest financial challenge in its history, a challenge so great that within a couple of years we will not have the money to deliver the statutory services we must deliver by law.”
All of that focuses on only one area of Government funding, I might add, which is the revenue support grant. That grant is only part of what central Government gives to the county council. In 2016-17, Lancashire County Council received £118.8 million in revenue support grant—that was 7.1% of its actual spend. In 2017-18 it is due to receive £81.5 million, which on last year’s budget, without any savings, would be 4.8% of actual spend.
The revenue support grant is a small amount of the county council’s overall budget. Although it was acknowledged by all political parties after the financial downturn that savings needed to be made, that is not the reason for all the problems the council seems to have in balancing its books. Lancashire County Council’s political leadership seems to focus on the revenue support grant as if it were the only factor in the budget. In fact, in 2015-16 it received £1.1 billion in different Government grants, and only 14% of that was revenue support grant.
As I said, I called the debate to get to the bottom of how much funding Lancashire County Council is getting from central Government. I asked the House of Commons Library to compile a list of the different streams of funding given to Lancashire County Council. They are settlement funding grant; the new homes bonus; adult social care grant; transition grant; rural services delivery grant; the improved better care fund; learning disability and health reform funding; Care Act funding; local welfare provision; the early intervention fund; and lead local flood authorities funding. There are also ring-fenced grants such as the public health grant; the dedicated schools grant; housing benefit administration subsidy; and the former independent living fund grant. Figures show that for that last grant, Lancashire County Council received the largest grant of any council in the country in 2015-16—£4.8 million in nine months. In 2016-17 it is getting £6.07 million, in 2017-18 it will be £5.9 million, in 2018-19 it is projected to be £6.7 million and in 2019-20 it will be £5.5 million, which will still be the largest amount of any county council nationwide. The list continues: the council receives council tax support administration subsidy, as well as money from the highways maintenance fund and the potholes action fund, with funding to fill 23,415 potholes in this financial year and further funding to fill 32,415 potholes next financial year.
As Member of Parliament for Morecambe and Lunesdale, my main concern has been that the political leadership of the county council is failing my constituents. It seems that the leadership seek to hold back my constituency. They blame Government cuts, but they have consistently held back my plans for an enterprise zone—I know those zones may be phased out, but I am sure they will be replaced with some other kind of funding stream—and ensured, with their seats on the local enterprise partnership, that funding for my constituency was not applied for. I firmly believe that.
In response to that charge, Jennifer Mein said:
“I’m proud of our track record of promoting jobs and growth right across the county and particularly in the Lancaster & Morecambe area. I can think of several initiatives that the county council, the Lancashire Enterprise Zone and Lancaster City Council have worked jointly on: The delivery of the long-awaited Bay gateway which has opened huge opportunities for employment and business growth across the county.”
Incidentally, neither she nor the current Labour administration had anything to do with the bay gateway; I secured the funding and it was a Tory-led county council that enacted it.
Mrs Mein went on to wax lyrical about funding from the Government, which features no cuts at all and in most cases is awarded to stakeholders outside of the county council’s direct influence:
“Working with the University and the Enterprise Partnership, as well as the City Council, we have: assisted in bringing forward the Health Innovation Campus with an investment worth over £17m; Secured Garden Village status for South Lancaster—”
which is effectively a new town—
“(one of only 14 such designations in the country) with extra funding for infrastructure work at Junction 33—”
on the back of the new town—
“Seen investment of £2.5m in the Lancaster Teaching Hub of Cumbria University aimed at training new nurses and care workers; Facilitated £4m of commercial lending in support of the Luneside East development. Our Business Growth Hub, ‘Boost’, has worked with over 140 growing SME businesses in Lancaster over the past two years. This work looks to continue and grow following the County Council’s further investment of £3m to support the work of ‘Boost’.”
I am sure that is very welcome in those vicinities, but in response to my charge, she failed to list one project that the current administration has directly funded in Morecambe and Lunesdale. The link road was given the green light before the local enterprise partnership—and that administration—came along, so I fail to see exactly what she claims has been done in my constituency.
On the hon. Gentleman’s comments about the failure of political leadership in Lancashire County Council, is he aware that the leader of the council, together with the deputy leader of the Conservative group and the leader of the Liberal Democrat group, all recently attended Parliament to meet Labour MPs? All were of one voice in speaking of the inadequate funding provided by the Government.
I know that the leader of the county council also went to see the special advisers in the Department for Communities and Local Government. They told her categorically, if she needs more money or thinks the council will go bankrupt, to go and see the Secretary of State.
The politicisation of the LEP seems to be a huge problem in Lancashire. It is extremely rare to have county council officers also officiating over the LEP. The LEP’s agenda seems to be the same as the county council’s, meaning that the growth deal funding is used in Preston and is Preston-centric. Lancashire County Council also prioritises Blackpool, presumably because of the combined authority proposals. The LEP currently presides over £1 billion of funding, of which not one penny has been scheduled to be spent in Morecambe and Lunesdale.
The county council commissioned a £7 million-plus report from PricewaterhouseCoopers, which stated that, if the council does nothing, it will go bankrupt and the Government will need to take over statutory services—that is what I was alluding to in my answer to the hon. Lady’s question. That money was wasted on a report that told the council that it needs to take action to manage its budget, with PwC also asking what services could have been protected for that money. The report into statutory services cost £1 million alone, and the social care report cost £6.6 million. That money was spent to find out how to save £36 million, but the report’s proposals are the same as what is happening in the “Better Care Together” strategy that is already being piloted in Lancashire.
Will the Minister tell me the full breakdown of each grant given to Lancashire County Council by central Government over the past four years? Will he assure me that the Department will investigate Lancashire County Council, to ensure that money is being spent appropriately and not on vanity projects while services are being cut? Will he also reassure me that political neutrality is being adhered to on the LEP, and that the political leadership of the county council does not have undue influence over the running of the LEP by county council officers who are effectively dual-jobbing?
Finally, I would love the Minister to assure me that any changes announced within the last hour by the Secretary of State for Communities and Local Government, either to devolve further spending and revenue responsibilities or to form a combined authority, are heavily scrutinised and are given the green light only once Lancashire County Council can prove that it can manage its budget.
The mover of the motion, the hon. Member for Morecambe and Lunesdale (David Morris), and the Minister have agreed that the hon. Member for Preston (Mr Hendrick) can make a short contribution. The debate will end at 4.44 pm.
First, I congratulate the hon. Member for Morecambe and Lunesdale (David Morris) on securing the debate. I will make a few brief points and then await the Minister’s response.
The hon. Gentleman rightly referred to the independent PricewaterhouseCoopers report, which made the point that Lancashire County Council is currently underfunded and has been for many years—we do not have the time to go into the figures. Lancashire County Council has the third lowest tax base of any of the shire authorities. The list of grants to which the hon. Gentleman referred showed the top-slicing of local government, which is such that prescriptive packets of funding are now given in addition to the rate support grant. He quoted the rate support grant as being only 14% of the total amount of money received. That is right, but only because the RSG has been reduced such that the Government can be more prescriptive about how other grants are spent.
The adult social care grant is obviously important. Despite the linkage between adult social care and the health service, we have seen a £4.6 billion hole in adult social care funding over the past five years, which needs to be filled. The Minister and myself were in the Chamber just now to hear the Communities and Local Government Committee Secretary talk of increases in adult social care funding. Those increases are welcome, but they will not get anywhere near the £4.6 billion required to fill the hole that has been generated over the past five years.
The hon. Gentleman also mentioned that Lancashire, of which Preston is the centre, received the highest rate support grant of any shire authority. It has, because it is the second largest authority in the country after Birmingham City Council. It is a huge area that spends huge amounts of money, much of which has been taken away from it in recent years. Lancashire also has a much higher proportion of older people and people who cannot pay for their own care than any other shire authority. That ageing population puts particular pressures on social services.
Levying the 2% precept on council tax to pay for adult social care will raise just less than £8 million, but Lancashire County Council needs £14 million annually to keep up with the living wage and cost of living increases. However, levying the 2% precept in Surrey will raise £12 million. Is it not time that the hon. Member for Morecambe and Lunesdale does what those Conservative politicians in Surrey did and perhaps asks for a sweetheart deal with the Government that could make Lancashire better funded?
PricewaterhouseCoopers says that, even if Lancashire County Council is in the lowest quartile of spend on every service, it will still have a £94 million gap by 2021— even if the 2% precept is levied every year.
Given the brief word the hon. Gentleman and I had before this debate about it not being party political, I was surprised to hear him mention consistently points made by County Councillor Jennifer Mein, the leader of the council. The county council is supposed to be—
Order. I am sure the hon. Gentleman is coming to the end of his contribution.
Yes. I will be 30 seconds.
The hon. Gentleman talked about funding being Preston-centric. He has not accepted invitations to county hall or Westminster to talk about these issues with other MPs from Lancashire. If he looks at the reports from the LEP, he will see that many of those projects are spread throughout Lancashire and are not focused particularly on Preston.
It is a pleasure to serve under your chairmanship, Mr Owen. I congratulate my hon. Friend the Member for Morecambe and Lunesdale (David Morris) on securing this important debate. He is a doughty champion for Morecambe and Lunesdale, with a record of delivering for his constituency on a whole range of issues and helping to secure funding for it. This afternoon he is, again, battling away for his constituents and, indeed, for Lancashire.
Only this morning, I was in what I consider Lancashire —albeit Manchester now, which has been slightly carved out. This is an area of the country I take some interest in, given my direct role through the northern powerhouse portfolio. I apologise on behalf of the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Nuneaton (Mr Jones), that because of what is going on in the main Chamber, he is not able to respond to this debate.
We should start any debate on local government finance by being honest about what we, as politicians and political parties, went into the last election promising. I am not so sure about the manifesto policies of the Democratic Unionist party and the Scottish National party on local government finance in England at the last election—or, indeed, whether they had such policies; I suspect not. However, it is certainly true that the Labour and Conservative manifestos both included a commitment to no extra funding on top of that which is being delivered for local government. We all need to be honest about that. Nobody promised the electorate that there would suddenly be a cash windfall for local government if there were a change of Government. That is the appropriate starting point.
Local authorities are democratically elected organisations. They are independent of central Government and are, of course, responsible for managing their own budgets themselves. I must pick the hon. Member for Preston (Mr Hendrick) up on this nonsense about a special deal for Surrey. That has been wholly debunked and disproven, and it is completely inappropriate for Opposition Members to continue peddling that line. It is not the case.
Order. We need to stick to the subject before us.
Indeed. I am simply responding to a point made by the hon. Member for Preston, but I will take your guidance on that, Mr Owen.
Over the previous Parliament, councils showed that they are capable of finding savings and efficiencies, and some have delivered them very well. Many councils that have much lower proportionate per head funding have been able to deliver incredible savings and services as a result. A lot of this is down to local leadership, as my hon. Friend the Member for Morecambe and Lunesdale made clear.
Our sustainable financial settlement, which we are confirming at the moment, means that local authorities can take on the challenge of making savings, while continuing to provide excellent local services if they have the appropriate leadership. We have provided councils with a financial settlement that is over the next few years essentially flat in cash terms, moving from £44.5 billion in 2015-16 to £44.7 billion in 2019-20. Over the course of this Parliament, councils will have £200 billion to spend on local services. When we talk about local government finance reductions, we often forget about the £200 billion of spending on local services over the lifetime of this Parliament.
We have recognised, as both my hon. Friend the Member for Morecambe and Lunesdale and the hon. Member for Preston highlighted, that social care pressures for councils are very significant at the moment, as our population ages and as, I am afraid to say, we reap the failure of Governments of both colours years ago to properly plan for demographic shifts. However, we have enabled local authorities to access up to £7.6 billion in dedicated social care funding over this spending review period.
I shall now look specifically at Lancashire County Council over the course of this Parliament. Its core spending power is set to increase from £730 million in 2015-16 to £751 million in 2019-20. Unfortunately, the figure for 2019-20 is indicative. The staff who work at Lancashire County Council, as is true of council staff across the country, are dedicated to delivering local services, so this is not a criticism of them. However, the council is sadly among the 3% of local authorities that have not signed up to the long-term funding settlement, so that is an indicative figure. I am disappointed that Lancashire has not accepted our multi-year offer.
The majority of Lancashire County Council’s core spending power is raised locally, as my hon. Friend pointed out. In 2016-17, £402 million will be raised in council tax, and £7.9 million in the adult social care precept; so £410 million of spending for Lancashire County Council is raised locally, and £118 million is provided through the revenue support grant, which, to be perfectly honest, reduces over time, as Members know. We all are committed to local government playing its part as we try to deal with the deficit we inherited.
We accept the particular issues with the changes that the hon. Member for Preston highlighted, which is why we are providing £1.1 million of transition funding this year to Lancashire and will provide £1.2 million in 2017-18. Last month we introduced the Local Government Finance Bill, which will mean that by the end of this Parliament, local authorities will retain 100% of local business rates to spend on services. That move towards self-sufficiency is one that I strongly supported, as a former local councillor for 10 years, and that local government generally has been an advocate of.
As I said, Lancashire County Council is receiving £1.1 million in transition funding this year. That will ease the change between those two systems for Lancashire. The fair funding review, which we heard a lot about in the statement this afternoon, will also establish what the relative needs assessment formula should be in a world in which local government spending is funded mainly by local resources and not central Government grants. It is nearly 10 years since the current local government funding formulae were looked at thoroughly. Demographic pressures, which we also heard a lot about in the main Chamber this afternoon, such as the growth of the elderly population, may have affected areas in different ways. It is appropriate that we have this review.
I know that one of the pressures in Lancashire, as in many parts of the country, relates to social care. Earlier today, we confirmed the new adult social care precept flexibilities and the introduction of the adult social care support grant, which will enable Lancashire County Council to access an additional £9.7 million in funding for adult social care in 2017-18 alone. That is an ability to bring forward the precept increases. It is 3%, 3% and then zero. Unfortunately it is sometimes presented as though in the final year there will be no increase. That, of course, is built into local funding in the council tax base. That is real money, realised in every single one of those years, and bringing it forward levers in nationally nearly £1 billion extra.
I am aware of the independent statutory services budget review by PwC that took place in September last year in respect of Lancashire’s budget to deliver statutory services. As was mentioned, the council met officials in my Department in October last year following the review to discuss the findings. However, it is the responsibility of elected members and officers of the council in Lancashire to find solutions to address the challenges it faces. Similar changes are faced by other councils, which are responding appropriately. In so doing, they can make use of the sector-led support from the Local Government Association, which is funded by this Government.
We expect local authorities to act in an open and transparent way about their service provision and spending locally. It is important that local councils are honest with their constituents. In many of these debates, including in my own area, it is almost as if the entirety of local government spending is what the Government provide to it. When cuts of 20%, 30% or 40% are referenced, it is in a deliberate way to lead people to conclude that the council’s finances are being cut by 20%, 30% or 40%. That is simply not the case. We must all be honest; we all have a responsibility to be honest with our constituents about that. In relation to particular challenges in Lancashire, I urge the council to consider all options to drive forward public service reform and achieve appropriate efficiency savings.
My hon. Friend the Member for Morecambe and Lunesdale also talked about other funding that we have put into the area. It is important to reference that in this debate, because although we can look at the revenue support grant and the changes to it, we must also look at the other Government support. Just this morning I was pleased to launch the northern powerhouse investment fund, which will provide £400 million of lending and debt financing and equity to small and medium-sized enterprises across the north. That is Government funding and funding from other partners as well. It will enable businesses in Lancashire to grow and expand, and of course there will be a knock-on effect on local government finance as a result of that growth.
I hear my hon. Friend’s concerns about the local enterprise partnership and the distribution of some of the projects. He will forgive me if I cannot intrude too much on local grief; it is not for me to dictate to the LEP where the project priorities should be. All I will say is that it is important that the LEP is cognisant of the fact that it represents the whole of its geography and that the funds and projects that it puts forward should be for the benefit of all. Within the £70 million of local growth funding just for Lancashire that we announced just a few weeks ago—I remind hon. Members that that was from a £556 million pot for the north of England; the biggest share of the budget for the whole of England came to the north—there were some projects that will benefit Lancashire on a county-wide basis.
It is not unusual for LEPs to have people who are double-hatting, as my hon. Friend said, in terms of being from local authorities in the area. That is normal and appropriate so long as they always remember that their responsibility is to the whole of the geography of the LEP area.
My hon. Friend referred to the work of the LEP. Through the growth programme, it has been able to invest nearly £1 billion of public investment. The LEP has also established, with the support of the Government, one of the largest enterprise zone programmes in the northern powerhouse, with four EZ sites at Samlesbury, Warton, Blackpool airport, which I visited recently, and Hillhouse. Again, we are talking about significant Government commitments. Those zones come with big incentives for local businesses in Lancashire. Again, all of that helps to create jobs and wealth and to generate tax revenues for the local area.
I was pleased to visit only two weeks ago Lomeshaye industrial estate in Pendle, which my hon. Friend the Member for Pendle (Andrew Stephenson) advocated and lobbied for. That will receive £4 million from the Government to expand and create up to 1,000 jobs. Again, there is an absolute Government commitment to Lancashire in the form of that growth deal.
The Preston, South Ribble and Lancashire city deal is delivering an infrastructure delivery and investment programme worth over £430 million, which will expand transport infrastructure in Preston and South Ribble, create 20,000 new jobs and generate the development of more than 17,000 new homes. It is anticipated that that will leverage in £2.3 billion in new private investment.
The LEP has commercially invested its £20 million Growing Places fund in eight major developments across Lancashire. I cannot comment on the locations of those; that is of course a matter for the LEP. The LEP has also supported the development of four regional growth fund business growth programmes, valued at £40 million. It has an important role to play, but, as I said, must always be cognisant of the geographical challenges and demands of the area.
I will also just say, in terms of another Government commitment—
Order. The Minister will have to save that for another time.
Motion lapsed (Standing Order No. 10(6).
Cerberus Capital Management: Purchase of Distressed Assets
It is a pleasure to speak under your chairmanship again, Mr Owen. This is a very complex issue. I shall try to cover it as briefly—
Order. The hon. Gentleman needs to move the motion.
Indeed. I shall move the motion that we are to consider—actually, I do not have the official piece of paper with me; forgive me, Mr Owen.
As I said, this is a very complex issue. I want to be as fair as possible to everyone, including Cerberus itself. I will take interventions, but I ask hon. Members to delay introducing any individual cases until I have developed, as rapidly as possible, the—
Order. Will the hon. Gentleman take his seat? I want to start doing this properly; we have already had two debates in which the Member did not move the motion. If the hon. Gentleman just reads from the Order Paper, his motion will be in order.
I beg to move,
That this House has considered the purchase of distressed assets by Cerberus Capital Management.
Cerberus Capital Management is an American private equity firm that specialises in distressed investing—purchasing so-called distressed or non-performing loans. Few people in the UK have heard of Cerberus, but it is the biggest purchaser of distressed assets in the world. Since 2010, Cerberus has acquired more than 1.2 million distressed or non-performing loans, worth more than $80 billion. Simply put, Cerberus is the world’s largest debt collector.
Let me begin by saying that so-called distressed loans are often anything but. Since the banking crisis of 2008, we have seen a sorry catalogue of thousands of instances in which banks have forced legitimate borrowers into distress or even insolvency through no fault of their own. The so-called distress that we are discussing is largely manufactured. That has come about for a variety of reasons: interest rate swap mis-selling, the infamous Royal Bank of Scotland global restructuring group’s dash for cash, and outright criminal fraud such as occurred at HBOS Reading.
Even where such egregious or criminal behaviour has not taken place, there are too many instances of banks deciding that they no longer wish to support small and medium-sized enterprise customers in sectors that the lender now considers non-core to its shrinking loan book. As a result, thousands of legitimate customers find themselves being sold on to firms such as Cerberus without their knowledge or against their wishes. Because loans to SMEs are unregulated, those customers have little or no redress. My intention today is to put on record the plight of those badly served bank customers and to expose the exploitative and often inadequate business model used by Cerberus—a model that is also bad for the British taxpayer.
I thank the hon. Gentleman for bringing this matter to Westminster Hall for consideration. In the light of what he has said, does he agree that although the mortgages and loans are currently owned by entities licensed by the Financial Conduct Authority, they, like any UK mortgage, could be sold in the future to an entity that is not regulated, meaning that customers would need to seek redress under the Consumer Rights Act 2015? Does he agree that the Government must consider additional protection for people whose lives have been turned upside down since the collapse of the Northern Rock bank?
I agree, and the hon. Gentleman gets to the heart of the issue that we want to bring before Treasury Ministers, which is that even when loans were initially regulated, they can be sold on to unregulated parties, such as Cerberus, at which point there are no guarantees about the behaviour of those companies and how customers will be treated.
Will my hon. Friend give way?
If my hon. Friend will forgive me, I will not, because I need to develop my case a little so that the Minister knows where I am going.
Cerberus has taken advantage of the situation. It is now the biggest purchaser of distressed real estate debt in Europe. It has acquired loans from such banks as Santander, RBS, Clydesdale, Yorkshire, Lloyds and banks in Italy and Scandinavia. It purchased £13.3 billion-worth of Northern Rock mortgages in 2015. Cerberus has also—we may come to this, and I will treat it in a very gentle fashion—purchased the Northern Ireland loan book of the National Asset Management Agency, which was set up by the Irish Government to dispose of property loans inherited from failed banks. We know that that is subject to serious fraud inquiry, and I will be very careful not to step into those legal areas.
The key question is how Cerberus makes its money. It claims to make a return for its investors in the range of 17% to 20% per annum, which is a staggering amount. The key way it makes its money is through tax avoidance. That is perfectly legal, but hardly the business model that the Treasury should be encouraging.
Cerberus manages distressed debt bought in the UK and Europe through a multiplicity of shell companies based largely in the Irish Republic. Those entities usually have the word “Promontoria” in their titles. They are, in turn, subsidiaries of other Cerberus Group companies registered in the Netherlands. Essentially, the Dutch companies lend money to their Irish subsidiaries at high interest rates to effect the asset purchases. That ensures that most of the cash generated from the purchased loans, or from liquidating distressed assets, flows back to the Netherlands in the form of transfer payments. According to an investigation by The Irish Times, six key Cerberus Promontoria holding companies in Ireland collectively paid a miserly €15,500 in tax in 2015.
The tax avoidance scheme means that Cerberus can offset the risk of purchasing so-called distressed loans. With the bulk of the financial risk removed, the true surplus profit for Cerberus comes from squeezing the distressed assets. That explains why Cerberus has been prepared to outbid rival US equity firms to acquire swathes of European distressed debt. My question to the Minister, and my key point, is this: has the Treasury made any calculation of the tax loss to the UK of the purchase by Cerberus of British so-called distressed assets, mortgages and properties? In particular, what corporation tax has Cerberus paid on the loan book purchased from United Kingdom Financial Investments Ltd in 2015—the Northern Rock portfolio?
Does my hon. Friend agree that trying to get answers from Cerberus Capital Management on this issue is like drawing blood from a stone? Attempts to communicate with it, by both myself and my constituents who have been impacted, have proven entirely fruitless, and calls for a meeting have fallen on deaf ears.
My hon. Friend reveals something that many other Members, and people in other jurisdictions, have discovered: the company is unwilling to engage publically and is known to be highly secretive in its operations.
I want to continue on the issue of how Cerberus makes its cash. Cerberus is not a bank. Its business is not to make loans and earn interest. It is an investment fund that seeks a capital return, and that means it has to extract more value from the loan book than it paid to acquire it. Cerberus appoints local agents to review the loan books that it purchases, and it either squeezes more revenue by increasing lending rates or puts the client into liquidation in order to realise the value of the property.
Of course, it is theoretically open for SME clients to pay off their loan by refinancing with another lender. The problem is that Cerberus and its agents have no interest in letting that happen unless they can extract facility fees, which make such a transfer prohibitively expensive in most cases. Such fees often represent a significant percentage of the overall size of the original loan. For instance, the support group working with clients caught in the mis-selling of interest rate swaps by the Clydesdale and Yorkshire banks—clients transferred to Cerberus without their consent—reports that in many cases Cerberus or its agents refuse to accept full repayment of the loans. Instead they insist on adding backdated default interest and break clause costs, which were the subject of the original mis-selling.
I will now turn briefly, if you will indulge me, Mr Owen, to events in Northern Ireland. Again, I refer to the sale by NAMA—the Northern Ireland toxic bank agency—of property loans in the north of Ireland. That is subject to criminal investigation, and I will not go there, but I want to give some of the timings and the background of what happened.
The original bidder for the NAMA assets in Northern Ireland was a company called PIMCO, which is a California-based global investment company. PIMCO withdrew from that sale when it became aware of a £15 million private fee arrangement involving PIMCO’s US lawyers, Brown Rudnick, and two Irish individuals close to NAMA. After PIMCO withdrew, Cerberus had an unsolicited approach by agents acting on behalf of NAMA itself on 6 February 2014. Barely a week later, on 14 February 2014, Cerberus asked to be, and was, admitted to the bidding process for the NAMA loan book. Cerberus submitted a bid of £1.24 billion on 1 April 2014, a scant six weeks after entering the bidding process. The Cerberus bid was accepted on 3 April. Altogether, that is a breathtaking pace for a purchase of that magnitude—from entering into discussions on 6 February to the winning bid on 3 April.
We should note that at that point Cerberus had no investment history in Ireland, north or south. So why did the company feel confident enough to make such a large purchase—£1.24 billion of distressed loans in the north of Ireland? The answer is that Cerberus hired the firm of lawyers that had been employed by PIMCO, Brown Rudnick, which had previously been involved in the abortive sale. It did so on 24 March 2014, a mere week before Cerberus submitted its winning bid. Cerberus admitted to the Public Accounts Committee of the Irish Parliament that it paid Brown Rudnick £15 million for that one week’s work. Why was Cerberus willing to pay so much? As it admitted to the Irish Parliament, it was to gain detailed knowledge of the debts it was buying. However, NAMA had specifically banned prospective buyers from engaging directly with debtors or key stakeholders. Irish Deputies have accused Cerberus of paying Brown Rudnick so much—£15 million for one week’s work—precisely to obtain knowledge of debtors that it would not have been able to acquire through the formal bid process. Cerberus denies that—I put that on the record—but I leave it to others to assess why the company paid Brown Rudnick so much money for such a short amount of work.
That brings me to my next line of questioning to the Minister. Will he agree to conduct an inquiry into the NAMA sale of its assets in Northern Ireland once the legal proceedings have run their course? That way the issue can be aired, and if there was wrongdoing it can be found out, but if there was not everyone can be cleared. I make no allegations of illegality against Cerberus, but I do criticise its business methods and its growing stranglehold over so-called distressed assets in the UK and Europe. Its business model is bad for small companies and bad for the UK economy. In that context, I have a final question for the Minister: is there any substance to the persistent rumours that Cerberus has approached the Treasury with a view to buying debt from Her Majesty’s Revenue and Customs?
It is a joy to serve under your chairmanship, Mr Owen. May I first of all apologise for the earlier interruption as a result of my phone going off? I congratulate the hon. Member for East Lothian (George Kerevan) on securing this debate. The issue of how Cerberus has dealt with the distressed loan books that it has purchased and the impact that has had on individual businesses is of great importance in Northern Ireland.
I say at the outset that I do not want to deal with the issues raised by the hon. Gentleman at the end of his speech about the sale of the NAMA assets to Cerberus, other than to say this: there was an acknowledgment at that time in Northern Ireland that NAMA had taken £4.7 billion of loans in Northern Ireland under its auspices for a number of years and had been in charge of those loans, but that there were flaws in how it was dealing with the loans. It was felt that there were very good reasons for getting away from a Government-controlled agency, which had difficulties making decisions because of the political connotations and political constraints, and that it was better that those loans were moved from NAMA to another body.
Indeed, there was support for that in Northern Ireland. It was seen as a way of freeing up the market. Having taken the loans on and written them down, and with the Irish taxpayer having been responsible for the costs of the write-down of many of them, it was a difficult decision for NAMA to make and for the Irish Government to allow. They tried to get the market moving again, and allow those people who had borrowed money and defaulted on loans some liberty—they wanted to get equity or money back into the market, and allow people to develop assets and perhaps make money from them. It was therefore felt that moving the assets to a separate body would be better. That is the background to the sale of the assets, for which Cerberus was eventually the successful bidder.
At that stage Cerberus made a number of promises, which it conveyed to the Northern Ireland Executive. First and significantly, it said that it would adopt a long-term strategy and was not involved simply to make money quickly by moving in, closing down the businesses, selling off their assets and leaving. Many of the businesses were viable in their own right but had moved into the property market during the property boom and found that their core business was affected by the loans they had taken on for property. Cerberus made it clear that it would adopt a long-term strategy and look for assets that could grow in capital terms over a longer period and that had an income stream. It indicated that it would be prepared to make money available because it had funds not only to purchase the assets, but to lend to owners of the assets when it was felt that there was potential to enable them to develop and grow, and pay back the loans.
Secondly, Cerberus made it clear that there would be no fixed period and that it was not looking at a time horizon. Again, that provided assurance for many businesses.
Thirdly, Cerberus said that it would use local staff, and that it would employ people who understood the market and the businesses. Significantly, I remember dealing with one case that perhaps shows how Cerberus were much more aggressive. An individual faced a staff member that Cerberus had employed from the bank that he had previously banked with and which held his loan. That same person was demanding far harsher terms from him when working for Cerberus than they had offered as a bank employee when the loan rested with that bank. That shows what happened, despite the promises that were made. By the way, the banks were not easy on their customers, and yet the same employee, when operating for a different firm, was much more aggressive and hard-headed.
Fourthly and very importantly, Cerberus indicated that—I do not know whether this is true of the loan books that were purchased from other banks—it does not pay and build into the value of any loans that it purchases the value of personal guarantees. Cerberus made a virtue of that, saying that, as no value was attached to the personal guarantees, it would be easy to exempt people from personal guarantees. Very often, the personal guarantees prevented businesses from being able to borrow, and to try and develop an asset, because they always had the value of the personal guarantee hanging over them.
Fifthly, Cerberus said there would be a presumption in favour of the incumbent—in other words, where possible, it would try to work with the people who held the loans. That made good sense. They knew the assets and were probably already involved in the business, so they would be easier to work with.
Lastly, Cerberus indicated that it would find ways of trying to liquidate the companies through equity finance and loans, and in other cases by writing down debts.
As I am sure Members have found time and again, Cerberus claimed that it wanted to work with individuals and to have a consensual approach with the people who held the loans. That has not been the experience, although in some cases, businesses will testify that it worked. I can think of large businesses in Northern Ireland that were able to do deals, but by and large, the approach has been aggressive—aggressive to the point of incompetence, in fact, as one financial adviser put it to me. Sometimes there was a deal to be done, but when those working on behalf of Cerberus saw a chink of light and that a business was able to pay, they went even further and pushed harder until they pushed them to the brink. In one case when they were on the brink of a deal, some of the assets that were part of the deal were sold, which brought the deal down. There was aggression to the point of incompetence. It might be argued that what happened was good for Cerberus. In some cases it might not have been, but importantly, it was often not good for the businesses. Viable businesses were put to the wall. In some cases, when they did survive, individuals and business owners were driven almost to distraction and had health issues.
Another difficulty was reaching an agreement—I think of what an individual I dealt with said. Cerberus would only speak to businesses when it wanted to speak to them, and businesses wanting to try to move on often found that they were hitting a blank wall—so much for the consensual approach. Even when that did happen, trying to get information about what a deal would look like was very difficult. Rather than trying to help businesses, the approach has almost been more about staring them out, and businesses have been adversely affected.
In most cases—financial advisers tell me this—despite the fact that no timescale was set, Cerberus is loth to do deals beyond two years. A two-year horizon is much too short for businesses when there have been large debts and a big fall in the assets, and when they have been relying on building up an income stream and looking for capital increases in the value of assets as the economy picks up. That has forced many businesses simply to say, “Look, we can’t continue. We will have to accept bankruptcy or constrain ourselves much more than we had anticipated.”
This is the important point: there is very little if any oversight of this area and no regulation, yet it has a huge impact on our economy. Businesses that employ people, pay tax to the Treasury and provide local services are put in jeopardy as a result of loans that can be easily transferred from one financial institution to these companies. There is little or no regulation and the people who originally took out the loans have no say. The terms of those loans can then be changed at the whim of the business that has taken over. I do not believe that that is good for the economy. Some strengthening of the regulations and oversight of the businesses is needed. There also needs to be protection for those who have taken out loans in the first place on certain terms, so they cannot have those loans changed.
Finally, the Treasury needs to look at a point that was well made by the hon. Member for East Lothian: as a result of transfer pricing, the local subsidiary is given loans at high rates of interest to purchase the assets, which keeps its profits down in the United Kingdom, thus avoiding taxes. I would be interested to hear the Minister’s response on the levels of corporation tax paid by businesses such as Cerberus.
Order. While Mr Mullin takes his seat on the Front Bench, let me say that the debate will finish at 5.44 pm, so Members have plenty of time, but they should leave at least 10 minutes for the Minister to respond to the debate and two minutes for Mr Kerevan to wind up.
It is a pleasure to serve under your chairmanship once again, Mr Owen. Thank you for inviting me to take my seat on the Front Bench.
We all owe a great debt to my hon. Friend the Member for East Lothian (George Kerevan) for securing this debate, especially the companies that have been driven to the wall or destroyed by the actions of Cerberus. I know that some of those companies are represented in the Public Gallery today; I hope they find that we have done justice to their cause. My hon. Friend certainly has.
I have a constituent who was affected by the behaviour of the Royal Bank of Scotland’s global restructuring group. Does my hon. Friend agree that there is a huge lack of trust in such major institutions, particularly RBS, which is largely owned by the public purse? It falls to the Government to get a grip on the situation and take the necessary actions that my hon. Friend the Member for East Lothian (George Kerevan) outlined, so that public confidence can be restored and some of the businesses affected can have some hope of restitution.
I agree wholeheartedly. Indeed, in a debate on a related issue last week, I raised the fact that many people and small businesses will find it extraordinary that banks such as RBS have no duty of care towards the customers they deal directly with. Given all the tales of misery caused either by the banks directly or by Cerberus, surely we need to ensure that there is proper regulation and a proper duty of care towards those who suffer at the hands of such institutions.
The hon. Gentleman makes a point about banks’ duty of care and their improper behaviour. The coalition Government commissioned a review into that matter, but it has never been published. One wonders why its contents have not been made open for debate so that we can see the banks’ practices.
I agree entirely. Perhaps the Minister will give a more detailed response to that point than I can, because it dumbfounds me that such secrecy has surrounded so much of this.
Yesterday I spoke on the Criminal Finances Bill, so I feel particularly at ease speaking about this matter a day later. As we have heard from a number of Members, much of what has happened has involved what ordinary members of the public would call criminal activity. Indeed, some legal actions are under way; obviously I cannot speak about them in detail, but the fact that they are being pursued speaks for itself. I am not sure what the correct term is, but if there were ever an example of a company that operates to standards that are the very reverse—[Interruption.]
Order. The Minister and his Parliamentary Private Secretary may pass notes to each other but not speak. There should be only one speaker at a time.
If the messages that are being passed are going to answer some of my questions, I will not object too severely.
As I was saying, Cerberus is an example of a company that operates to standards that are the very reverse of a duty of care towards small businesses in our country. Surely we can expect the Government to be concerned about the effect on the good people who have suffered at its hands. In my constituency, a perfectly good trading company of many years’ standing was completely destroyed by the actions of Cerberus, in a similar way to another company mentioned earlier. It was willing to repay the loan, but the additional fees that it was stuck with and the way in which Cerberus operated drove it to bankruptcy. I will not name the company, because like other hon. Members I do not want to embarrass anyone who may be listening, but I am genuinely concerned about the health of the family who were treated in that way.
Let me comment on some points made by other hon. Members. My hon. Friend the Member for Ayr, Carrick and Cumnock (Corri Wilson) said in an intervention how difficult it has been to get a conversation between Cerberus and those affected by its actions. It seems that it is unwilling to speak except in the remarkable case that the hon. Member for East Antrim (Sammy Wilson) mentioned, when it sought to buy assets in Northern Ireland and was only too happy to make promises such as adopting a long-term strategy—that would be a novel thing for it to do.
On the subject of secrecy and Cerberus, is my hon. Friend aware that Stephen Feinberg, Cerberus’s founder, is the leading candidate to undertake the review of the American secret service under Donald Trump?
Yes, I am aware of that. One can be fairly confident that that review of the secret service will itself be done in the greatest of secrecy.
I was also taken by some of Cerberus’s other promises that the hon. Member for East Antrim mentioned, such as making a presumption in favour of the incumbent and not squeezing value out of assets. It would appear that Cerberus has decided to act in a way that is precisely the reverse of its public promises.
I must pay yet more tribute to my hon. Friend the Member for East Lothian for the clear way in which he set out one or two facts that I hope the Minister will respond to, particularly the manufacturing of distress by the operation of such institutions and the movement from regulated to unregulated markets.
Cerberus proudly proclaims that it can make profits of 17% to 20% out of the tax avoidance schemes that it engages in, extracting value by moving between the UK, Ireland and the Netherlands. It is therefore not only small and medium-sized enterprises that are victims of the way in which Cerberus is operating, but the Treasury as well. I particularly look forward to the answer that the Minister must surely give to the question that my hon. Friend asked in his opening remarks: what has the loss been to the taxpayer in the UK from the actions of Cerberus? Everyone deserves to receive an answer to that this afternoon.
It is, as ever, a pleasure to serve under your stewardship, Mr Owen.
Hon. Members have already made excellent points in the debate, particularly the hon. Member for East Lothian (George Kerevan), who I know has been interested in this matter for some time and has a great deal of knowledge of it. I appreciate that he has enabled us to have the opportunity to consider this matter and that he has shared his thoughtful views, which were, as always, penetrating.
This matter has its origins in the financial crisis. I do not want to regurgitate the debate about the origin of that crisis, but increasingly it is apparent that it is not simply about the claims, for example, that the last Labour Government “maxed out” on the country’s credit card—a hackneyed claim, if ever there was one, and one that does not go to the heart of why this situation has occurred.
The 2008 crisis almost brought down the world’s financial system; it took huge taxpayer-financed bail-outs to shore up the industry. In that regard—this relates to the last point that the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin), the Scottish National party spokesman, made—it is important that taxpayers get value for money when assets are sold. The process must be as open and transparent as possible, and it must stand up to scrutiny at the time and thereafter, especially when public services across the board are under such strain. The Government ought not to sell on assets when the people at the other end of the process are going to be treated unfairly and unjustly at some point. That is not acceptable. As has been said, the Government have a duty of care.
I will concentrate my comments today on the here and now, as other Members have covered the pertinent background and context of this matter, for which I am grateful. I will not repeat what they have said, other than to say that issues about on-selling, the plight of customers, business models, tax avoidance, the cost to the taxpayer, the regulatory issues and—fundamentally—the duty of care to people and businesses have gone completely and utterly out of the window.
The Government’s response to the Public Accounts Committee’s 24th report of this Parliament was sandwiched in between the PAC’s reports on “Universal Credit and fraud and error”, and the “UnitingCare Partnership contract”, and those reports do not exactly show Government management in those policy areas to be particularly competent either. I believe that the PAC’s report on this matter is a good place to start, as it is the current Government who made the decision to dispose of this £13.5 billion of mortgages and loans to Cerberus.
As you know, Mr Owen, in Greek mythology Cerberus was the three-headed “hound of Hades” who guarded the doors of hell, to stop the dead from leaving and the living from getting in. That is a metaphor for this organisation; it stops people from leaving. It gets them by the throat and they are trapped forever, and that is not acceptable. I am not sure what to make of that name for a company, but it is well worth leaving that in the air for people to ponder on for a moment.
As hon. Members will be aware, we have been led to understand that the sale of these assets represented the Government’s largest ever financial asset sale, and we have been told that it was “value for money”. I would expect the Government to claim nothing less, so there is no surprise in their making that statement. However, it prompts the question: what evidence have the Government given to support that assessment? The answer is, “Very little”.
If the Government’s claims stack up, why are they so reluctant to accept certain recommendations set out in that PAC report, not least those on the issue of transparency? Why have the Government rejected the recommendations regarding the setting up of an independent panel of valuation experts for all major sales, to review and challenge valuations in advance of all large asset sales and the reliability of the organisations that those assets are going to? If that had been done in this instance, we might not be in this situation. Surely such an evaluation would vindicate the Government’s position that what they did was correct, above board and transparent, and that no one is any worse off for the decision they took. However, that has not happened.
Similarly, the Opposition find it difficult to understand why, if the Government are committed to tackling tax avoidance and evasion, they rejected the PAC’s recommendations that Government Departments should be required “as far as possible” to discount gains from tax avoidance that may be factored into bids, and that the Treasury should produce unambiguous guidance, for both selling Departments and potential bidders, on how tax will be taken into consideration as part of a sale or a contract award. The Government have done nothing about those recommendations either, and their answer to the PAC’s report is incredibly vague. It goes around and around in a circle, and no one can break into it.
Nevertheless, the Government are proud of their enormous financial asset sale, claiming, as I have said, that it was a good deal for the taxpayer. I am not convinced about that, and it certainly was not a good deal for the end users who were on the receiving end of it.
It is true that the National Audit Office said that some aspects of the sale were conducted appropriately, but the NAO also raised a number of key concerns about the Government’s approach. Mortgage holders who are worried about the future will not have been reassured by anything that the Government have done, and the NAO pointed out:
“While the mortgages and loans are currently owned by FCA-licensed entities, they, like any…mortgage, could be sold in the future to an entity which is not regulated. If…customers needed to seek redress, they would have to do so under the Consumer Rights Act”.
That is not right. The Government have a duty of care, but they did not seem to care, as they wanted these assets off the books.
It does not stop there. The NAO criticised other aspects of the sale, saying, for example, that UK Asset Resolution Ltd’s
“limited competitive tendering in the procurement process for its financial adviser was not good practice.”
That refers to the sale of assets, which was not done under appropriate good practice. Similarly, the financial advising company involved—Credit Suisse—also acted as financing bank to the bidder. The NAO said of that:
“Due to a potential conflict of interest, this had not been permitted under previous sales.”
So I ask the Minister—what of that? Or is that detail unimportant?
When it comes to people’s lives and businesses, and for example to public sector staffing, we should note that, according to the NAO:
“UKAR identified an alternative sale option which had a higher…valuation.”
So the assets might have gone to someone more appropriate, but UKAR
“did not have enough staff capacity to run multiple transactions concurrently”.
There is something wrong with that situation, and it goes to the heart of the duty of care not only to the taxpayer but to the people affected by this matter, who in effect got a double whammy.
The Government have a lackadaisical attitude to this matter; indeed, it borders on the insouciant. Surely, given that there was such value for money for the taxpayer, it is not unreasonable to ask how it can be that our hospitals and schools are in a state of crisis and starved of funding, because they are being affected by this as well. When Opposition Members hear the phrase “value for money”, which has been rammed down our throats time after time in relation to this matter, we ask, “Which values?”, and, “For whom?”
This week, NHS trusts posted a massive deficit of almost £1 billion at the end of the third quarter, and yet we are told that this sale is value for money. Meanwhile, social care is in crisis, with 1.2 million elderly people needing care, but we are still told that this is value for money. Selling off assets not in the interests of the many, not in the interests of the taxpayer and not in the interests of the people sitting behind us in Westminster Hall today, but just to fund a failed deficit reduction programme, is not acceptable. It is a false saving.
Finally, the Government say that they will learn lessons from these reports, and I applaud them for that. The question is, when will they share those lessons with the rest of us and prevent this dreadful scam from ever happening again?
Will the hon. Gentleman give way?
Order. The hon. Gentleman has finished speaking. I will call the Minister, who may want to give way to you.
It is a pleasure to serve under your chairmanship, Mr Owen. I congratulate the hon. Member for East Lothian (George Kerevan) on securing this debate. I will give way if the hon. Member for South Antrim (Danny Kinahan) wishes to contribute.
I want to ensure that we are going to put in place or ask for regulations to stop people being able to move from one side of a deal to another. It does happen, and we need transparency and the duty of care. Will the Minister look at the issue? One person moved from being on the board to being on the other side and making money out of the deal. They were then caught taking a bribe in a car. We need a very clear system.
It is the long-standing policy of this Government to unwind the interventions made in the financial sector during the banking crisis of 2007-09 and return the assets acquired then to the private sector. That is a key part of restoring normality to the financial system, but in that we need to ensure value for money in getting back taxpayers’ money. We are making good progress in that. UK Asset Resolution, which is responsible for the assets of the former Northern Rock and Bradford & Bingley, has already reduced its balance sheet from £116 billion in 2010 to £37 billion last year. The sale of £13 billion of former Northern Rock mortgages to Cerberus Capital Management was another important step along the way.
As with any transaction of such complexity, the sale required careful analysis and meticulous planning. First and foremost, the Government had to consider whether the sale would meet one fundamental condition: good value for money for the British taxpayer. Secondly, however, the deal needed to ensure the continued fair treatment of existing customers. In this case, they held around 270,000 mortgages and unsecured loans. We are confident that as a result of the detailed preparation we conducted, those conditions were fully met.
It is perhaps worth providing a brief outline of the processes followed. The sale was initially announced at the 2015 Budget, following various expressions of interest and favourable market conditions. A full sales process was then launched that summer. It attracted a good level of competition, with multiple bidders involved, as the National Audit Office noted. At each stage of the process, experts in UKAR worked closely with UK Financial Investments and independent external advisers to assess against the four main criteria used in any public sale, namely: propriety, regularity, feasibility and value for money. Cerberus is an active buyer of assets across the UK and elsewhere, and UKAR carried out thorough due diligence before it was selected. Its bid represented a £280 million premium to the book value of the loans, and, importantly, it maintained the fair treatment of customers.
I accept what the Minister is saying—it has been justified by the National Audit Office—but in the assessment of the bid from Cerberus, was any account taken of the likelihood that it would use tax avoidance measures to complete the sale?
The hon. Gentleman raises a fair point. I will answer it shortly, if he bears with me.
Not only were customers’ mortgage terms and conditions unchanged by the sale, but they continued to be served by the same mortgage company with the same skilled and dedicated staff. In the contract with Cerberus, UKAR went further to ensure that specific additional protections were in place, including a one-year lock-in period that limited any increase in interest rates to changes in the base rate. All the mortgages are still protected by Financial Conduct Authority regulation. Owing to comprehensive planning and preparation, it was a well-executed sale, achieving good value for money and a good outcome for customers.
Various Members have expressed their views concerning purchases of assets by Cerberus. Unsurprisingly, I will not comment specifically on sales made by other parties to a private bidder. However, in the context of our sale, I will turn to some of the specific points raised by Members, including the hon. Members for East Antrim (Sammy Wilson), for East Lothian and for Bootle (Peter Dowd). They made thoughtful and helpful contributions.
One point that was raised was the tax domicile of Cerberus. UKAR’s sale was structured as a UK sale, and the taxes resulting directly from the sale are paid in the UK. However, we do not consider a bidder’s tax jurisdiction as part of the selection process for three reasons: first, to do so would greatly reduce the number of bidders able to participate, which would risk losing the competitive tension that is essential for maximising value; secondly, companies can and do change their tax arrangements, so there would be no guarantee that a UK-domiciled company would continue to be so in the future; and thirdly, to discriminate against a company based on its tax jurisdiction would risk our being exposed to legal challenge.
The hon. Member for Bootle mentioned the Public Accounts Committee. I note that its conclusions were that the transaction was executed successfully and that there were many positives from the sale. The Treasury response to the recommendations was clearly set out in a report, “The sale of former Northern Rock assets”. He also mentioned the NAO’s criticisms and touched on the important area of lessons to be learned. As the NAO report notes, UKAR and UKFI carried out a complex transaction “professionally” and “within a tight timeframe”. As the NAO suggested, we have increased transparency around the objectives of Her Majesty’s Treasury, UKFI and UKAR and ensured that strategic documents are drawn together in one place. UKAR has now published its framework document.
We heard about Project Eagle and the sale of Northern Irish loans by the National Asset Management Agency in Ireland. Specifically on that issue, Cerberus provided UKAR with suitable assurances consistent with the detailed submission it made to the Northern Ireland Committee for Finance and Personnel, which conducted an inquiry into the sale. That provided sufficient comfort. When we selected Cerberus as a preferred bidder, it was on the shortlist for another portfolio in Ireland. More generally, as UKAR would for any bidder, it carried out thorough due diligence of Cerberus as part of the selection process.
The hon. Member for East Antrim expressed various concerns about the treatment of businesses by Cerberus. I listened to those concerns carefully. When it came to the UKAR sale, customer treatment was a key consideration. Our sale did not contain any commercial loans. The NAO report states that the FCA protections for the borrowers whose mortgages were sold remain in place, and that the FCA continues to be satisfied.
We are aware that Cerberus is a buyer of assets across the UK and further afield. It is subject to the UK regulatory regime here and other regulatory regimes in other jurisdictions in which it operates. I am proud to say that the UK Government have ensured that we have a strong system of regulation here in the UK.
We have heard today about other asset purchases by Cerberus. It is an active buyer of assets across the UK and further afield. As I have said, it is not for me to comment on sales made by other parties to a commercial bidder, but we assess all bids thoroughly through our extensive due diligence carried out on any bidder for any assets. We particularly assess value for money and, importantly, continued fair treatment for customers. The assets in the recent £13 billion sale were not distressed assets. Having been originated a number of years ago, they were considered well seasoned assets, and Cerberus paid above book value for them. In any case, ensuring the continued fair treatment of existing customers is a key consideration in all sales, as I have said.
In short, the sale of £13 billion of former Northern Rock assets to Cerberus was a successful step on the way to returning assets to the private sector. It meant £5.5 billion coming back into the national purse, as well as the transfer of nearly £8 billion of liabilities from the public balance sheet to Cerberus. The sale was managed effectively, and it attracted good competition and secured a good price.
Minister, you have been talking for some considerable time. Am I being unfair in saying that the gist of your argument is that you do not consider that Cerberus has acted in any way unfairly—
Order. I know that the hon. Gentleman was referring to the Minister, not to me, but the Minister must respond now.
It is important that the Government attract good competition and secure a good price, but at the same time safeguard the rights of existing customers. It is not just our assessment that that happened but the conclusion of the independent National Audit Office. The Public Accounts Committee also concluded that the sale had been well executed. There is still work to be done in returning to the private sector assets that we acquired in the financial crisis. We will continue to do all we can to meet the same high standards and keep delivering the highest possible value to the British taxpayer.
Mr Kerevan has a minute to wind up the debate.
I thank all Members who have taken part in the debate, and I thank your good self, Mr Owen, for ensuring that the debate was in order.
I know that the Minister has tried to be helpful, within his brief, but the point still stands that Cerberus uses a tax model across all its purchases that is not beneficial to the Treasury. We will continue to press on this matter in the days to come.
Question put and agreed to.
That this House has considered the purchase of distressed assets by Cerberus Capital Management.