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Lords Chamber

Volume 701: debated on Thursday 22 May 2008

House of Lords

Thursday, 22 May 2008.

The House met at eleven o'clock: the LORD SPEAKER on the Woolsack.

Prayers—Read by the Lord Bishop of Chester.

Royal Assent

My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts and measure:

Channel Tunnel Rail Link (Supplementary Provisions) Act

Transport for London Act

Church of England Marriage Measure


asked Her Majesty’s Government:

What discussions at an international level they have had about the depletion of rainforests; and with what results.

My Lords, the Government have discussed efforts to reduce emissions from deforestation with developing countries and other parties in climate negotiations leading, among other things, to the establishment of the Forest Carbon Partnership Facility. The Government have also held negotiations with African and Asian countries about illegal logging, discussed the Congo Basin Forest Fund with the countries of central Africa and debated the conservation of rainforests under the Convention on Biological Diversity.

My Lords, I am grateful for that Answer. In spite of all the efforts that are being made, the global picture is still very worrying. Will the Minister look particularly closely at the situation in Brazil, where the enlightened environment Minister has resigned and where vast agribusiness interests are contributing to a net loss of more than 3 million hectares of forest per annum?

Before the international talks that are to be held later this year in Ghana, and as part of the Bali Action Plan, will the Government re-examine their whole policy towards tropical rainforest conservation so as to come up with more effective, lasting and better funded proposals for urgent international action?

Yes, my Lords, the Government, like the noble Lord, take this very seriously indeed. The depletion of the rainforest is something up with which we will not put. As the noble Lord mentioned, we have supported and funded numerous international treaties, conventions and initiatives that recognise the importance of sustaining forests and bringing regulation into the international trade in forest products.

The noble Lord talked about the resignation of the Brazilian Minister, Marina da Silva. Like him, the Government recognise the enormous commitment to the environment, and to the Amazon in particular, that Marina da Silva has shown. We look forward to working with her successor, Mr Carlos Minc, who, I understand, was the Environment Minister for Rio de Janeiro.

On the post-Bali agenda, the noble Lord is absolutely right that we must reinforce all our efforts. We are increasing funding and we are looking at demonstration projects of how we can better ensure that deforestation becomes very much part of the Kyoto process.

My Lords, will the Government be supporting local non-governmental organisations in countries with great rainforests? These organisations are doing excellent work for their local people and for biodiversity. Many of those working for these organisations, as we heard at the GLOBE meeting in Brazil in February, face great threats, even to their lives.

Yes, my Lords, we are extremely concerned about any threats we hear about from campaigners and those working for NGOs, who put their lives on the line when protecting our rainforests—the lungs of the world, if you like. We wish to say to my noble friend Lord Hunt that we work with many NGOs and many campaigners. We fund directly and through country programmes.

My Lords, do the Government not recognise that their policy and that of the EU on biofuels is adding to the pressure on the rainforests, which are being felled to plant crops in order to meet the biofuel requirement?

My Lords, as the noble Lord will know, there is a big difference between sustainable and unsustainable biofuels. The Government support renewable transport fuels produced from crops that can reduce carbon dioxide emissions by more than half when compared with conventional fossil fuels. There are good biofuels and bad biofuels. We very much support sustainable development of biofuels and the processes in agriculture to produce them. However, we do not support unsustainable biofuels.

My Lords, the resignation of Marina da Silva exemplified the winning of economic considerations over environmental ones. What sort of discussions will the Government have at the forthcoming summit about giving an economic value to rainforests?

My Lords, we continue to discuss this pivotal point of giving an economic value, because in the discussion about how you incentivise people not to go through the process of deforestation, you come up against the issue of whether you transfer funds to incentivise or whether you develop a carbon market. To do either of those, you have to work at finding a value and we are working at that. That is very much a part of the post-Bali work.

My Lords, further to the question of my noble friend Lord Forsyth, does the Minister appreciate that this is not just a problem in developing countries? The European advisory panel’s scientific committee has just published a report suggesting that deforestation in Europe is as bad, or even more rapid, than in some of the developing countries such as Brazil which my noble friend Lord Eden rightly mentioned. Will the Minister clarify whether Her Majesty's Government are prepared to break away from the 10 per cent renewable biofuel commitment of the European Commission, or are we still going along with it? It is important to know that.

My Lords, perhaps I may reply to the noble Lord by repeating the statement made by the Prime Minister on 22 April. He said that,

“we now know that biofuels, intended to promote energy independence and combat climate change, are frequently energy inefficient. We need to look closely at the impact on food prices and the environment of different production methods and to ensure we are more selective in our support”.

That was the gist of the answer I gave to the noble Lord, Lord Forsyth. The Prime Minister continued:

“If our UK review shows that we need to change our approach, we will also push for change in EU biofuels targets”.

My Lords, does the Minister accept that in our action against climate change, we should include not just reduction of emissions and protection of the rainforests, but protection and conservation of the plant biodiversity of the world, which is threatened as plants cannot adapt fast enough to climate change? I declare an interest as the chairman of Botanic Gardens Conservation International.

My Lords, I absolutely agree with the noble Baroness. Just one of the ways that we are attempting to do that is by working with indigenous people, who know the forest and have lived there for generations, and helping them to manage the husbandry of those forests.

Armed Forces: Pensions

My Lords, I beg leave to put the Question standing in my name on the Order Paper. In doing so, I declare an interest—not a pecuniary one—as honorary parliamentary adviser to the Royal British Legion.

The Question was as follows:

To ask Her Majesty’s Government whether they expect to lay before Parliament any statutory instrument that could affect the role of the Pensions Appeal Tribunal as a discrete specialised jurisdiction for determining war pension appeals; and if so, when.

My Lords, the Government published their response to the consultation on implementation on 19 May. Statutory instruments will be laid in the House before the Summer Recess to transfer the jurisdiction.

My Lords, while I am grateful to my noble friend, is he aware that it is understood that the statutory instruments for abolishing the Pensions Appeal Tribunal—seen in the ex-service community as their guarantor of fair treatment for the war-disabled and bereaved—were drafted even before the consultation period expired? Again, why were many ex-service organisations not directly informed or consulted on a policy change of such undoubted importance to the community as a whole?

Is this really the way to treat men and women who, uniquely, contract with the state to sacrifice their lives in our service? Moreover, when the statutory instruments are published, will Ministers also publish the admirably well documented criticisms of them by the PAT?

My Lords, I pay tribute to my noble friend for his work in this area and, of course, to service men and women. On consultation, a number of service organisations were able to comment; they did so. I understand their concerns, but we see advantages in changing the tribunal structure in the way that the consultation suggested. I want to make it absolutely clear to the House that the firm intention—this has been confirmed by the incoming senior president of tribunals—is that the undoubted expertise of the judges and members of the current tribunals will be transferred into the new service.

My Lords, does not this proposal mean that war-wounded applicants in England and Wales will be brigaded with criminal injuries and asylum support cases in one so-called Social Entitlement Chamber, whose judges and members will be required to handle multijurisdictional lists? Meanwhile, service personnel in Scotland and Northern Ireland will be able to appeal to a statutory PAT, with the dedicated expertise of its medical service and legal members. How can Her Majesty's Government claim that those arrangements are even-handed and serve the best interests of service personnel? Why have the Government failed to heed the very considered advice of the president of the PAT for England and Wales? Surely this is a failure by the Government to honour the military covenant.

My Lords, I am of course aware of the representations that the noble and gallant Lord has made. I do not agree with the word “brigaded”, which he used. I assure him that former service men and women will be treated with the utmost care and respect within the new tribunal structure. I repeat that the excellent work of the current members—including the judges and service members—will be transferred into the new structure.

My Lords, I declare an interest as a former war pensions Minister—one of a number in this House. I know the excellent work that the Pensions Appeal Tribunal has done and the extraordinary expertise that it has in looking after the interests of the ex-service community. I do not believe that this is a party political matter. I therefore ask the noble Lord to talk again to his friends in the Ministry of Defence and to those in the ex-service community and come back with a revision to these plans to allow the Pensions Appeal Tribunal to survive in England and Wales.

My Lords, I respect the advice of the noble Lord, who speaks with a great deal of experience in this important area. I think that it is fair to say that the Government have come to a view and published the results of the consultation. We will be bringing a statutory instrument before your Lordships' House. I note the issues that have been raised. I am sure that there will be further discussion with service organisations, but the intention is to get the benefit of the new structure while taking the expertise currently within the Pensions Appeal Tribunal to ensure that that is in no way or circumstance dissipated.

My Lords, the rationale of the mixed jurisdictional Social Entitlement Chamber is for members of these tribunals to work across the board in all these various matters. On 25 February, I asked the Minister how he expects armed services members, to whom he referred in a previous answer, to judge on criminal injuries compensation, social entitlement, and so on. How will that be listed? Will there be one war pensions case among 10 for an armed services member to go to, or will they all be listed together? If they are all listed together, why abolish the Pensions Appeal Tribunal only in England and Wales, and not in Scotland and Northern Ireland?

My Lords, the noble Lord raises a fair point. Listings will be important; it is not for Ministers to dictate on them. My understanding is that the intention is for cases that come within a particular jurisdiction to tend to be listed together so that, in the case of a service member, the undoubted expertise that they can give will be provided in as effective a way as possible. It allows appropriate judges and members, when they have gone through appropriate training and induction, to sit in other jurisdictions within the same chamber. That is not a difficult matter. It is surely a matter of gaining greater expertise and learning from it. That will enhance the whole decision-making process.

My Lords, the present system is proven and much admired and used by veterans and pensioners. By withdrawing a proven system to within the legal morass, if I may say, of the Minister’s department, how will the individual and personal service be maintained? It is very doubtful that one will be able to maintain it.

My Lords, I do not recognise the Ministry of Justice in that rather unkind description of it. I reassure the noble Viscount and the House that the intention is to get the benefits of the new system, but to take forward the excellent work of the Pensions Appeal Tribunal. I have no disagreement whatever with the noble Viscount when he pays tribute to that; he is absolutely right to do so. We will gain by taking that expertise and the expert judges and members through to the new system. That will help to enhance the system as a whole.

Economy: Cost of Living

asked Her Majesty’s Government:

What analysis they have carried out of the rise in the cost of living over the past 10 years.

My Lords, there is no universally agreed measure of the cost of living, but the Government conduct a broad range of analysis on factors that contribute to and influence the prices of goods and services. The Government are aware that recently the prices of some important items of consumers’ expenditure have increased by significantly more than the average inflation rate. This reflects developments in global markets; energy and food prices are rising across the world.

My Lords, the House would be interested to know what advice the Treasury is giving to the Bank of England and the Monetary Policy Committee. The governor recently said that inflation was running at above 3 per cent, and would rise to 3.7 per cent. Is its advice that he should adhere to the 2 per cent target that he has been set, and presumably raise interest rates; that he should lower interest rates and stimulate the economy; or that he should do nothing and we should suffer stagflation?

My Lords, the Monetary Policy Committee’s role at the Bank of England is laid down in statute. Its task is to have a target rate of 2 per cent inflation. The Bank will follow strategies to return to 2 per cent as soon as it can. We all recognise that that will not happen this year. In April, inflation was at 3 per cent. The indications are that it will go higher before it comes down. But the Bank of England’s remit is clear. The Governor of the Bank of England is merely reflecting the actions he will need to take to return to the target position.

My Lords, will my noble friend remind me of the average inflation and interest rates of the previous Government in the two decades to 1997?

My Lords, I am sorely tempted to spend considerable time on that record. But, succinctly, inflation rates over the past decade under this Administration have been about half those that the previous Administration were able to manage.

My Lords, to return to the current or at least the last decade, as the noble Lord has already pointed out, there has been a considerable rise in the cost of basic commodities. What are the Government doing to make sure that those on benefits or very low pay do not suffer as a result of this inflation?

My Lords, we are increasing pensions and benefits in line with the RPI rate in order that those benefits match the higher rate of inflation represented by the RPI, which measures the expenditure of pensioners and those on benefits more than the CPI. The advantage of the CPI is that it is internationally recognised as a comparator. On the more general matter, the noble Lord will appreciate that we have delayed, for instance, the increase in fuel duty by six months against a background of clearly rising fuel prices.

My Lords, the noble Lord has claimed on many occasions that under the last Conservative Government inflation rose by 15 per cent. Will he acknowledge on this occasion that we inherited from the previous Government a rate of inflation that had been running at 18 per cent? He said that he expects inflation to eventually come down. When is it likely to come down and why should it?

My Lords, when I say control, let us bear in mind that the previous Administration said that they had inherited inflation rates against rapidly rising oil prices, which doubled in the 1970s. However, they have more than doubled in the past few years, yet we are still talking about a rate of inflation which the previous Administration never really aspired to.

My Lords, in his penultimate answer, the Minister talked about fuel. Now that in many parts of the country the cost of petrol and diesel is up to 130p per litre, what has the extra revenue to the Treasury been in the past two months?

My Lords, I have not got those figures, but of course the Treasury gains from the increased price. As I stated a moment ago, we have forgone the increase in fuel duty out of regard for the increase of prices at the pumps. But, before the Opposition wax too strongly on motoring prices, I should say that the cost of motoring has reduced since 1999, even taking into account the very rapid rise in fuel prices that we have had in the past two or three years.

My Lords, does the Minister agree that the large supermarket chains, which receive so much criticism and an almost weekly investigation by the monopolies commission, have made a significant and major contribution to keeping the rate of inflation down?

My Lords, they play their part but they could do better. It is the commission’s job to make sure that competition is sustained vigorously between the supermarkets. They do not always act in perfect amity on the issue of pursuing competition but engage in other practices too. Nevertheless, I accept part of what the noble Lord had to say.

Iran: Baha'i Community

asked Her Majesty’s Government:

Whether they will consult other European Union member states on issuing a démarche to the Government of Iran about the arrests of leading members of the Baha’i community.

My Lords, the Government are deeply concerned by the arrest of the Baha’i leadership in Tehran last week and the ongoing persecution of the Baha’i community in Iran. Following a recommendation by the United Kingdom the EU issued a statement on 21 May, which expressed,

“serious concern about the continuing systematic discrimination and harassment of the Iranian Baha'is on the grounds of their religion”,

and called for the release of those detained individuals.

My Lords, while I am grateful to the EU presidency for its statement, in view of the fact that Iran accounts for the largest number of urgent appeals by the Working Group on Arbitrary Detention and that the working group, the special rapporteur on freedom of religion and the independent expert on minorities have jointly and separately drawn attention to the serious concerns felt about the treatment of Baha’is over the past two years, does the Minister agree that the situation warrants an emergency resolution at the forthcoming eighth Session of the Human Rights Council, which is to be held in the first half of June this year?

My Lords, I agree that it warrants one; we will have to consider whether we can achieve it. It is possible to ask for a special session of an emergency resolution at the Human Rights Council, but to date the way that we have had most success on Iran, including on the Baha’is issue, has been through the third committee of the UN General Assembly. We have used the Human Rights Council to raise issues of the treatment of the Baha’is, using the thematic special rapporteurs to which the noble Lord referred.

My Lords, the Minister may or may not be aware that we on these Benches have been mourning the death of Bishop Dehqani-Tafti, a former bishop in Iran, whose son was murdered in the early years of the ayatollahs. Will he accept that in states where there is a strong and predominant religious and political tradition there is a particular duty to protect the liberties, beliefs and styles of life of those whose beliefs are in strong contrast? Will he also accept that the Government in Iran do not have a good record in these matters?

My Lords, the right reverend Prelate is correct. A draft penal code is being considered by the Iranian Parliament, which makes apostasy, heresy and witchcraft punishable by death. We are concerned about the impact that those provisions would have on religious minorities in Iran. On 1 April my colleague, Dr Howells, called in the Iranian ambassador to express our concerns.

My Lords, is it not correct that as the right revered Prelate the Bishop of Chelmsford has reminded us, this persecution of the Baha’is has been going on a long time, ever since the ayatollahs took over? There have been horrific reports, even several years ago, of public executions of young teenagers for being part of the Baha’i community. While we are talking about Iran’s behaviour, did the Minister notice the comments made yesterday, or the day before, by the Russian ambassador to Israel, Mr Petr Stegniy, that Russia is just as concerned as we are about Iranian intolerance and aggression and about all Iranian nuclear ambitions, but that it believes that the containment of Iran should be approached in a different way? Bearing in mind the rather unsuccessful attempts we have had so far to bring Iran into line, will the Minister use his considerable diplomatic skills to bring the American thinkers and the Russian policy-makers together so that we have a more successful approach in the future to all these matters?

My Lords, the noble Lord is correct. The Russians, the Americans and everybody else are frustrated by the slow progress on bringing Iran into compliance with its obligations under the Nuclear Non-Proliferation Treaty. A meeting was held here in early May that included the Russian Foreign Minister in the so-called E3+3 which again agreed on a strategy, so there is no disagreement between us about using the Security Council and the IAEA as the channels through which to secure compliance. We are now seeking a further meeting in Tehran of the political directors, including the Russian political director, and along with Mr Solana, to present revised and refreshed proposals. However, we must recognise that if this channel does not bear adequate fruit, we need continuously to re-examine the ways in which we approach Iran diplomatically.

My Lords, I was proud to see at an official ceremony in Westminster Abbey some time ago that the Baha’i community in Britain is now treated as one of our many established faith communities. Can we not make it very clear to the Iranian Government, who see themselves as the protector of the global Shi’ite community, that if you want to be seen as the protector of your own community internationally, you have to recognise that others have some say in how you treat your religious minorities?

My Lords, the noble Lord makes a valid point. You cannot propose yourself on the one hand as a champion of religious freedoms and relations between civilisations, while on the other brutally abuse not just one but several minorities in your own country. Last year the European Union raised human rights concerns with the Iranian Government 28 times, and we did so on eight occasions. There is no doubt about the clarity of our message. The frustration arises from dealing with a regime which chooses not to hear.

My Lords, I want to express my appreciation of the Home Secretary’s action in giving asylum to Mehdi Kazemi, the young man who was to be forcibly removed to Iran. I am told that that happened yesterday. In view of what is going on in Iran and the possible treatment of those who are repatriated or forcibly removed from here, could there not be a total moratorium on the removal of failed asylum seekers to Iran?

My Lords, let me return the compliment to the noble Lord and to those in this House who have continuously raised the issue of Mehdi Kazemi. That was instrumental in the Home Secretary’s reconsideration of the case and the decision to grant him a five-year initial stay here in the UK. Equally, however, noble Lords will recognise that we must preserve the right to deal with these matters on a case-by case-basis. That is at the heart of our approach to asylum.

Hereditary Peers’ By-election

My Lords, with the leave of the House, I am now able to announce the result of the by-election to elect a Cross-Bench Hereditary Peer in accordance with Standing Order 10.

Twenty-six Lords completed valid ballot papers. A paper setting out the complete results is being made available in the Printed Paper Office and the Library. That paper gives the number of votes cast for each candidate. The successful candidate was the Earl of Stair.

Business of the House: Debates Today

My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the debate on the Motion in the name of Lord MacLaurin of Knebworth set down for today shall be limited to two hours and that in the name of Lord Freeman to three and a half hours.—(Baroness Ashton of Upholland.)

On Question, Motion agreed to.

Parliamentary Constituencies (Northern Ireland) Order 2008

Mutilations (Permitted Procedures) (England) (Amendment) Regulations 2008

My Lords, I beg to move the two Motions on the Order Paper standing in the name of my noble friend Lord Rooker.

Moved, That the draft order and regulations laid before the House on 31 March and 21 April be approved. 17th report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 20 May. —(Lord Davies of Oldham.)

On Question, Motions agreed to.

Financial Assistance Scheme (Miscellaneous Provisions) Regulations 2008

My Lords, I beg to move the Motion on the Order Paper standing in the name of my noble friend Lord McKenzie of Luton.

Moved, That the draft regulations laid before the House on 29 April be approved. 18th report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 20 May.—(Lord Davies of Oldham.)

On Question, Motion agreed to.

Building Societies (Financial Assistance) Order 2008

Building Societies Act 1986 (Accounts, Audit and EEA State Amendments) Order 2008

Cash Ratio Deposits (Value Bands and Ratios) Order 2008

My Lords, I beg to move the three Motions standing in my name on the Order Paper.

Moved, That the draft orders laid before the House on 2, 3 and 21 April be approved. 17th report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 20 May.—(Lord Davies of Oldham.)

On Question, Motions agreed to.

Land Registration (Network Access) Rules 2008

Compensation (Claims Management Services) (Amendment) Regulations 2008

My Lords, I beg to move the two Motions standing in my name on the Order Paper.

Moved, That the draft rules and regulations laid before the House on 5 March and 22 April be approved. 13th and 17th reports from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 20 May.—(Lord Hunt of Kings Heath.)

On Question, Motions agreed to.

Economy: Enterprise, Taxation and Manufacturing

rose to call attention to the role of enterprise in the United Kingdom economy, the effect of taxation on the competitiveness of small and large businesses, and the current situation and future direction of manufacturing; and to move for Papers.

The noble Lord said: My Lords, it is a great privilege to open this debate and to see so many of your Lordships here to take part.

The success of business and enterprise is fundamental to a free and prosperous society. Yet for too long we have heard too little about what industry and commerce contribute to the wealth of our country and too much about how much money is being spent. It seems to have become a badge of pride to spend while the need to earn it first is forgotten. More and more of the nation’s earnings, which are desperately needed for future investment, are being spent and wasted today—past earnings that are stored in pensions, present earnings that must be fought for every day in a harshly competitive world, and future earnings that are mortgaged increasingly by reckless government borrowings. This would worry me at the best of times, but now that the clouds of economic slow-down are gathering, even the Governor of the Bank of England says that the nice times are over. This makes today’s debate especially timely.

It would be easy to look back and be critical of the hubris that declared an end to boom and bust or that failed to prepare in the good times for the harsher days that inevitably come, but it is important that this nation should do what every good businessman must do—analyse and learn from past mistakes, look forward to ways in which we can first minimise the effects of the coming downturn, rebuild this country’s competitive edge in a rapidly changing world and strengthen our manufacturing base.

Our best companies still thrive on excellence, know-how and entrepreneurial drive, but they face difficult times. The credit crunch will obviously have an impact on business investment, but rising inflation poses other risks. If strikes in the public sector spark inflationary pay claims in the wider economy—fortunately there is little sign of this at present—even more jobs will be jeopardised. We are already seeing cutbacks in financial services, in retailing and in construction, and I have no doubt that other sectors such as distribution and transport will soon join them.

Ministers are right to say that some factors are beyond their control, but that makes it doubly important that we deal with the challenges that we can remedy. In my business career, I have been privileged to work for some of Britain’s finest and most innovative companies. My experience of large, medium and small start-up companies is that every business shares similar hopes. We all need a business environment that embraces stability, offers certainty, practises simplicity, rewards success and attracts the most talented. Far from there being simplicity, business at every level is being encased in complexity. Annual Finance Acts of around 600 pages are frankly shameful, and it is even worse when Ministers reverse financial rules that they have only just put into place. Constant changes to the tax system undermine certainty and are a disaster for long-term planning. We have to face an annual crop of new taxes, new revenue-raising regulations and new rules that affect the workplace. It is unpredictable, unsettling, and worst of all wholly unproductive for front-line managers trying to control costs, to improve services, to motivate staff, to win new orders and to develop new ideas. It is simply ludicrous when medium-sized companies complain that they are spending more on accountancy fees than they can afford to pay job-creating managers.

Companies are not experimental playgrounds for Ministers and civil servants. Where changes are wanted, they must be properly considered and consulted on. The bodged form of capital gains tax was another classic example of inadequate consultation triggering unforeseen consequences. While there was widespread acknowledgment for the need for reform and probably support for moving to a simple flat rate, without proper consultation the ship struck rocks that could so easily have been avoided. It was bad for business, bad for Britain and bad for Ministers, whose reputation suffered, probably irreversibly.

Then again, the threatened exodus of companies relocating themselves abroad in response to government plans to tax foreign profits shows how easily the wrong decisions can undermine our country’s competitive appeal to international businesses. International competitiveness is fragile. You have to work to maintain it every day, and then come in the next day and, maybe, start all over again. There is immense mobility in a modern economy and unprecedented freedom to relocate. Tax is a major consideration for any business, and poorly thought-out action by government may win a headline one day or a party conference cheer the next, but it is not much good when the lights go out in offices across the City of London. Imposing tax on worldwide income will inevitably impact on the UK’s competitiveness compared to other countries, not just tax havens but other EU states.

I am ready to join those who salute the benefits of economic immigration, but economic emigration is far easier to do and far harder to prevent. Poor consultation and a failure to listen are at the heart of this and other problems. I urge Ministers to stop levying new taxes, stop introducing complicated structures that only lawyers will read in pairs and stop thinking that they know better than people who have a lifetime of experience in business running successful companies. Proposals such as the supplementary business rate and the community infrastructure levy will only add to the burdens and complexities that businesses face. Increasing tax on business in a time of economic slowdown is akin to shop owners putting up their prices when customers stop walking through the doors. It does not work on the high street and it certainly does not work for our country.

My right honourable friend David Cameron struck a chord with millions when he said that the tax burden has risen beyond the tolerance of mortal man, and certainly beyond the capacity of large and small businesses in this country to absorb. On business tax, do Ministers agree that a cut in the main rate of corporation tax from 28p to 25p would provide a real boost to the competitiveness of British business in these troubling times, even if that means some reliefs have to be withdrawn? I cannot ask the Minister to write a new Budget: we have just had two in two months, and I certainly do not want a third. However, I hope that she will take that message to her colleagues.

Excessive and invasive regulation is another major worry—not just the principle, but the unprecedented scale and bureaucratic interference that is now belching out of Whitehall like an old lorry’s polluting emissions. This regulatory culture represents a real threat to enterprise and business in the United Kingdom, both through direct costs and also through the uncertainty and inefficiencies that it generates in the business environment. The ABCC has estimated that the financial burden of new regulations on business has reached a staggering £65 billion since 1998.

I am told that an since the Government came into office, average of 14 new regulations have appeared every working day. Yet, despite repeated assurances, promises and task forces, the Government are still manufacturing regulations like widgets. This Session there was yet another Bill before this House on deregulation. Incredibly, it contained new powers—as your Lordships exposed—to allow bureaucrats to impose penalties without independent appeal and without trial. Clearly, Big Brother is watching us all. Inevitably, it is the small businesses that will be the first to be caught up in this mess. It can and must be stopped.

Cutting regulation means cutting tasks, cutting jobs and accepting risk. Unless we have more courage, we will go on as we have been: one week enacting new regulations and the following week promising fewer. In the mean time, companies and managers are worrying whether what they are doing today might be unlawful tomorrow. I hope noble Lords will join me in commending a formula to Ministers. Regulations should be compatible with enterprise and the public interest. Their impact should be fully costed in advance. They should have sunset clauses where they can be renewed only if they have proved to have been worth while. Regulations which cost jobs should be repealed. Regulations which cost more than the benefits they provide should be scrapped. Regulations which have perverse effects should be suspended immediately. Finally, regulations should be applied fairly and efficiently.

None of us wants to see companies exempt of any regulation. Equally, however, we must never allow the companies on which our prosperity depends to be second-guessed and micromanaged by platoons of political appointees and civil servants. The current trend to give regulators far-reaching investigatory powers backed up with threats of draconian penalties may sound consumer-friendly but if the consequences are suspicion, fear, wariness and fatter bills for the lawyers, neither customers nor shareholders will benefit.

What targets do the Government have to cut the number of regulations affecting business in the next 12 months? What assurances will the Minister give on behalf of the Government not to introduce new regulations in the next 12 months? I will ask an easier question. How many regulations has the Minister personally scrapped in her time in office?

I conclude by saying a few words about the state of our manufacturing industry. Since the 1970s, there has been a steady decline in the number of jobs in this sector. In 1978 7.13 million were employed in this sector. In 1997, the figure was 4.53 million. In the three months of this year it fell to an all-time low of 2.9 million—a fall of more than 30 per cent in a decade. Despite this decline, many businesses have adapted to changing markets and developed new products. In recent months, exports have risen as a result of the falling pound. However, a combination of tighter credit and rising inflation could certainly be damaging.

What effect do the Government expect tighter credit to have on levels of business investment next year? I remind the Minister again that lower taxes, stable taxes and fewer regulations will be warmly welcomed. At the same time, how do the Government intend to tackle the scandal of underperforming schools that see thousands of young people leaving full-time education lacking basic skills and the aptitude for work? Our country is already losing some of the competitive advantages that we won in the 1980s. If we are to weather the difficult times ahead, encouraging enterprise and new business start-ups is essential. The Government say they want to listen. The language is welcome but I remind the Minister that in business, only deeds matter.

I look forward to hearing the contributions of those noble Lords who follow me in this debate. I beg to move for Papers.

My Lords, I congratulate the noble Lord, Lord MacLaurin, on securing this important and timely debate. He is a successful and distinguished business leader and the whole House respects his credentials on the economy.

I wish to concentrate on the challenges faced by small and medium-sized businesses in the UK manufacturing sector. This is not a new issue for policy makers. One can go back to the Macmillan report of 1931 to learn of the difficulties that such enterprises have. It is worth remembering that while government can help or hinder businesses, the success or failure of any particular company is decided by the skill of the entrepreneur.

The first question we should ask is whether there is a problem in manufacturing. Manufacturing output as a percentage of GDP has indeed fallen dramatically over the past 40 years. Today manufacturing is only 13 per cent of British GDP. That is partly due to restructuring, but we should also remember that many companies have outsourced functions such as IT, legal, design, personnel and so on. These functions are now counted as services, which radically reduces our estimate of the manufacturing share of GDP. That change is mirrored in every G7 country, but is more apparent in the UK as we have been at the cutting edge of outsourcing.

As a professor of manufacturing, I am more optimistic about this sector today than I have been for years. Manufacturing output is 22 per cent higher than it was at the start of 1980, while manufacturing productivity has grown by 50 per cent since 1997. Look at the profits some of our companies are making. Take the aerospace sector. We have virtually 35 per cent of the world’s air engine market. Then there is the car industry; we are producing more cars today than we have done over the past 25 years. Even companies that were supposed to have lost their credentials, such as Jaguar and Land Rover, have produced billion-dollar profits. I would not say that we have never had it so good, but we are having it okay.

Firms with fewer than 250 employees are responsible for about 40 per cent of our manufacturing value-added. These companies are a vital part of our economic landscape, and they have been exposed to increasingly tough global competition. As open markets have extended, they have affected manufacturing sectors in different ways. Some that have a high value-added technological content, like aeronautics and the automotive industry, have outsourced but retain manufacturing in the UK. Electronic components and clothing have faced huge pressures from overseas competitors. That is not a bad thing, as the consumer has benefited from the competition. We hear a great deal about the movement of investment to China and India, but, beyond the sectors I have mentioned, most of the investment in those countries is for their domestic markets, not to reimport to the UK.

Companies have also changed the way they work. Today many companies make more profit from design or servicing than from physical manufacture. In fact, it is not hard to tell which companies are purely service and which are manufacturing. Many of our best new businesses operate in this area.

Many competitors have asked what government should do to help manufacturing. The first response is to say bluntly, “Get out of the way”. Manufacturers are good at being blunt. The burdens of regulation and taxation fall most heavily on the businesses with the tightest margins. We have seen the pressure of regulation increase. We all agree that regulation for its own sake must be eliminated, yet regulation is important. It is the way society reflects needs that are not met by the market. Good regulation improves our quality of life. Imagine what would have happened if tougher regulations in California had not sparked a wave of innovation in the drive to lower emissions. In the UK the minimum wage and health and safety regulation matter to us as a society. So while it is easy to call for deregulation, it is much harder to do. The new Mayor of London is a doughty believer in the perils of overregulation, yet his first act as mayor was to issue a no-drinking regulation on public transport. I happen to agree with the regulation but I cannot help but smile at the irony. Last year the Legislative and Regulatory Reform Act came into force. The Government are currently considering how to use their powers to reform consumer protection regulation to help small businesses. These are welcome steps and we need to give the new powers time to make a difference.

The burden of taxation is one which all businesses complain about, and rightly. The good news is that corporation tax has fallen from 30 per cent to 28 per cent, yet small manufacturers are concerned about the increase in the corporation tax they pay to 22 per cent next year. Yet that change should be considered alongside the new measures that help small businesses—the new £50,000 tax-free capital investment allowance, the increase in the R&D tax credit to 175 per cent, the increase in the small firms loan guarantee from £60 million to £360 million, and the extension of the enterprise investment scheme to offer tax relief up to £500,000. The Government have also made the right decision in providing an entrepreneurs’ relief on capital gains tax. These measures are in addition to services, such as the Small Business Service, which have seen major increases in funding. Economic competitiveness means more than just headline tax rates. We should focus on growth, being an economy with a good infrastructure and research base, high skills levels, a supportive fiscal framework and a focus on investing in the future.

One area where we have had enormous success is inward investment. This is because the perception of the UK abroad is that our fiscal and regulatory framework is second to none. The UK is now the second greatest beneficiary of inward investment in the world, with $1,135 billion of foreign direct investment stock in 2006. That is more than twice the amount invested in Germany and almost a third more than France. Inward investment has brought secure jobs in the long term. These companies need a supply chain, and this will be predominantly made up of small and medium manufacturers. These have improved enormously by learning from inward investors. Indeed, they have improved so much that they are now being targeted by inward investment companies themselves. These companies benefit from the challenge of improving business systems and increasing flexibility. Those skills will lead to rewards with other customers. The task of government is to help small businesses innovate, and here we have done an enormous amount. I welcome initiatives such as technology demonstrators which will help major inward investors and smaller companies innovate together; the work of the Technology Strategy Board in driving forward research funding; and regional development agencies’ support for small business innovation and sector clusters.

For the past 40 years I have heard that the British economy needs more skills. This is a subject with a long and thorny history in British policy-making. I have to say to those on the Benches opposite who call for more direct government intervention in skills that this was not the approach they took in office. I am proud that this Government have invested a huge amount in skills. The budget of the Learning and Skills Council is now over £10 billion—an enormous sum. I did an apprenticeship when I graduated which stood me in good stead for the future, so I applaud the Government’s modern apprenticeship programme.

I also welcome the Government’s commitment to increase the funding of the Train to Gain programme from £200 million to nearly a billion pounds by 2010. Of course, when the economy is doing well and the demand for skills is high, companies will complain that they cannot recruit enough scientists and ask the Government to solve the problem for them. My first response to such calls is to ask, “Well, what are you doing about it?”. The number of STEM graduates has increased from 60,000 to 85,000 in the past decade. Indeed, our universities are in many ways the envy of the world. Some complain that we are not recruiting enough indigenous students into the workforce. Yet, when one goes to the most innovative companies and research institutes in America, one sees that they are incredibly multicultural. They are interested only in recruiting the best, wherever they come from, because they know that their companies will get the benefit of their work.

I hope that the new points-based immigration system will make it easier for the highly skilled to be ambitious in Britain. Today, too many British science graduates end up in sectors other than manufacturing. Why is that? It is because young people today have many choices of career. Raise the pay, develop the career structure and quality of life you offer and more will want to train and work for you. That is why the pharmaceutical sector is so successful. Manpower planning by Governments is always dangerous. In a fast-moving economic field it is the market that has to decide what labour is needed and ensure that it is trained. I fear that companies which demand that the Government do more while they invest little themselves really want to reduce the price tag of their recruits. I do not think that that is the way to invest in future success.

So, what has happened over the past 10 years? This Government have created fiscal and regulatory frameworks and a flexible labour force. We know that business success is not in the hands of the state, but we believe that, by working together, we are on the right path.

My Lords, I, too, am grateful to my noble friend Lord MacLaurin for initiating this debate. All my political life I have been concerned about small businesses, both those continuing businesses, which are always likely to remain small, and new start-up businesses which have the potential to grow much larger. We need them both. I am concerned particularly about the weight of all types of regulation but in this debate I want to discuss the ever-increasing complexity of the tax legislation.

Two of the ministerial posts that I had the honour to hold laid particular emphasis on small businesses so I know from personal experience the reaction when one says to a market trader, “I’m from the Government. I’m here to help you”. It is not always positive. However, as the noble Lord, Lord Bhattacharyya, said, when small businesses are asked what they want from government, they usually answer first, “Just get the Government off our backs”. That is, of course, a plea for deregulation. However, I know the difficulties involved in that.

First, new regulations are usually designed to remedy some perceived ill and are supported by those who have been hurt by it. The ill may be tax avoidance or something else. Secondly, when regulations or tax breaks are designed to help small businesses, they have a cut-off point which is difficult to decide and inevitably creates a boundary wherever it is set, making life difficult for businesses just above it. Thirdly, special provisions designed to help small businesses have to be known to them. Sometimes it is complicated to choose between alternative schemes. I have in mind particularly VAT schemes.

Fourthly, the effects of regulations are not usually all one way. Most benefit some and cause difficulties for others. The useful report of the noble and learned Lord, Lord Davidson, on EU regulations came up with a very interesting example of gold-plating regarding MOT tests for cars. The EU directive says that at the least we should test cars more than four years old every other year. In fact, for many years we have tested cars more than three years old every year. That clearly is a burden and a cost for motorists over and above the EU minimum. However, if we cut this regulation down to the EU minimum, we would immediately cut out 50 per cent of the work of garages doing MOT tests, which would damage all those garages. It is an interesting example of what can happen.

I understand the difficulties. Nevertheless, it is very important to make progress on deregulation. I realise that the Government prefer to speak about better regulation, rather than deregulation, but what we need are fewer regulations.

This House is dealing with 12 statutory instruments today—eight by the affirmative and four by the negative procedure. That is just one working day, and most negative instruments never come to us. The noble Lord, Lord, Filkin, and his colleagues on the Merits Committee have a mountain of statutory instruments to filter for us every week. Every business needs a Lord Filkin to filter which regulations are important and which apply to it.

The Government announced last year the administrative burdens reduction exercise. It is now more accurately called the administrative burdens reduction programme, which is better. It would be interesting to know how that is getting on.

The first problem in setting targets for reducing regulations is how to measure regulations. The National Audit Office has done some good work in this field; I was struck by how familiar one set of comments in a recent report was. It said:

“Businesses rated the following activities as particularly burdensome: keeping up-to-date with changes in existing regulations”—

my noble friend referred to that earlier—

“the time it takes to go through the whole process of complying; the lack of information about which regulations apply; and finding information and guidance”.

Those comments reflect the stability that my noble friend Lord MacLaurin spoke so strongly and wisely about a few moments ago.

Given my views on the sheer weight of regulations, I was struck by a passage in the Government’s draft legislative programme for the next Session of Parliament, which was published last week. The Lord President read out these words from the Prime Minister’s Statement:

“Advancing our enterprise agenda, the Government will consult on the idea of regulatory budgets—for the first time giving departments that seek new regulation a strict annual limit on what they can impose”.—[Official Report, 14/5/08; col. 1005.]

That sounds very interesting and a new idea, but what does it mean in practice? As it appeared in the draft legislative programme, I duly studied the great document that came out at the same time setting out the details of the various Bills that are to be in our programme for next year. It is wonderfully clear on most of the proposals, setting out the main elements of the coming legislation—the perceived benefits, the process of consultation and the timing—but I cannot find anything in the 80 pages about the regulatory budget idea. I assumed, as it was listed in the legislative programme, that there will be a Bill, a statutory limit on new regulations from departments. That is all very interesting, but I am not sure how it would work. What would the sanctions be? Would Ministers go to jail if they had too many regulations, or pay a fine? I do not think it is really going to be like that. In any case, there are difficult questions to be addressed, such as how the limits are to be expressed and the problem that the NAO has referred to of measuring regulations.

In some ways, a crude measure is the number of pages of regulations. It may be crude, but it is not altogether out of this world to think of that as a measure because, after all, the number of pages that a business must read to get on top of the various regulations matters. Also, the impact assessments try to measure the costs of complying once you have read the regulations. I do not expect the Minister to set out definitive answers to all these questions today, but I hope that she can indicate the meaning of that sentence in the legislative programme.

The Minister recognises that enterprise is stifled by overregulation because, in a recent speech to the Trade Association Forum, she set out a reduction in the burden of regulation as the first, essential criterion for enterprise to flourish. She is, anyway, the Minister responsible for the Better Regulation Executive. Government words, consultations and studies in fewer and better regulations are a vital component of fostering enterprise, but their actions and their effect will really matter. I hope that the proposed regulatory budgets will help, but, so far, we cannot be sure.

My Lords, as I mentioned in my maiden speech in your Lordships' House, when I came to this country in the early 1980s as a 19 year-old from India, for my higher education, Britain was the sick man of Europe with no respect in the world economy. The City of London, where I worked and trained to qualify as a chartered accountant, was a closed shop. What has happened to transform the Britain of a quarter of a century ago into the Britain of today? I believe that three fundamental factors have enabled that transformation.

First, we are today one of the most open and free markets in the world. Without the “big bang” and the opening up of the City of London in 1986, there is no way that the City of London would today be the pre-eminent global financial centre of the world. This openness has also made the British economy one of the most attractive destinations for foreign investment. Without this openness, there is no way that I, as a 27 year-old with £20,000 in student debt to pay off, would have been able to start a beer brand from scratch in the most competitive beer market in the world. And the competition means that the biggest beneficiary in any sector is the consumer, who is in the driving seat demanding more variety, more choice and better quality. The bar is continually being raised.

The second factor is that in the Britain I came to just over 25 years ago, the word “entrepreneurship” conjured up images of Del Boy. In the Cambridge University that I attended in the late 1980s, the words “business” and “entrepreneurship” did not exist in its vocabulary. Today, I am proud to say that Cambridge has the Judge Business School, which this year was ranked as one of the top 10 business schools in the world.

Today, we encourage entrepreneurship throughout all universities in this country. I am proud to be the national champion for the National Council for Graduate Entrepreneurship set up by the Prime Minister, when he was Chancellor, spreading the spirit of enterprise and entrepreneurship through every university in this country.

The third factor is taxation. There is no question about it—where business is concerned, high taxes are stifling. I am grateful to the noble Lord, Lord MacLaurin, for calling this debate to address these crucial issues.

So what is the role of government with regard to business? Many would say that the best role for government is to get out of the way and to let business get on with it. But I believe that government, regardless of political party, has played a very important role in the transformation of Britain over this past quarter of a century. Government can be a helper, supporter and a catalyst for business. Most importantly, government can create the environment in which business can flourish.

I will give one example from my experience: that is, the Government’s small firms loan guarantee scheme, of which we have been a beneficiary. They guaranteed 75 to 85 per cent of the loans that we raised.

I remember that, in 1993, one of these loans saved me from having to give away 25 per cent of my company to a venture capitalist. That enabled me to save the equity of the company, so that everyone in my company now has access to a share option scheme. Having started £20,000 in debt, I still own the majority of my company. This is an example of how government can be a supporter of, and enabler to, business. I was delighted to hear the Prime Minister say in a recent speech that this scheme will be expanded. I urge the Minister to expand it in a big way.

Coming back down to earth, we have a situation today where, over the past 12 months, the Government, who had done so much until then to help business, have removed taper relief, which reduced capital gains tax to just 10 per cent, encouraged investment and was aimed primarily at entrepreneurs and entrepreneurship. They have removed the lowest 10p rate of tax, affecting 5.3 million individuals and families. The Chancellor, in the last Budget, reduced corporation tax for large companies, yet increased corporation tax for small companies.

Then we had Northern Rock, which clearly demonstrated a lack of clarity, accountability, responsibility and communication between the triumvirate of the Treasury, the FSA and the Bank of England. The happy merry-go-round in what the Governor of the Bank of England called “the NICE decade” became a miserable blame-go-round. The Government had to inject £25 billion to rescue Northern Rock and then had to nationalise it. I do not think that we in this nation, or the world, have grasped the magnitude of a company being rescued to the tune of £25 billion—more than has ever been spent to save any company on this planet.

We had the charge being imposed on non-domiciled individuals, threatening the openness of our economy and alienating many key individuals who have invested so much and brought so much talent to this country. More recently, we had the furore over the taxation of UK companies’ overseas activities. I am sorry to say that, with all these changes, the Government have, without consultation and often without having thought through these changes, alienated and upset virtually every part of the business community in this country.

There is talk of simplifying taxes, yet the tax burden in this country has continually and steadily increased. Companies are moving, and talking about moving, their headquarters to countries such as Switzerland and Ireland, which has a 12.5 per cent rate of corporation tax. In a snap poll by the Federation of Small Businesses two months ago, 93 per cent of small business owners said that their confidence in the Government had decreased since last year.

Britain’s manufacturing industry is still responsible for one-sixth of the UK’s output. It accounts for more than half of UK exports and undertakes 75 per cent of all business research and development. It employs 3.5 million people, and many more indirectly through the supply chain. I am very proud of British manufacturing—the cutting edge, high-value-added manufacturing of companies such as Rolls-Royce. Sir John Rose, in an FT article earlier this year, said:

“Having a mixed economy in which both manufacturing and services are important gives a stronger base”.

I give a quick example from my own company. Until this month, we produced more than two-thirds of our European production of Cobra in Poland. It was cheaper and more efficient to produce it in Poland, even after paying the distribution costs to bring it into the UK. However, now we have found a ground-breaking and innovative manufacturing model and we are moving our production back to three breweries in the UK; bottling and packaging in an integrated manufacturing, bottling and distribution plant, created and built with Irish inward investment near Manchester. This will save us several million pounds from day one. Who said British manufacturing was dead?

As an enterprise leader for the Prince’s Trust, I was delighted last week to hear the Minister announce that the Government will support the Prince’s Trust business programme, which celebrates its 25th anniversary this year. The Prince’s Trust has done a marvellous job in helping 70,000 businesses, not only through providing loans, but also through its fantastic mentoring scheme. The Minister said that the Government would contribute £1 million to support the Prince’s Trust. The Prince of Wales then took the podium and said that he was delighted that in the audience was the noble Lord, Lord Young of Graffham, who, in 1988, when he was Secretary of State for Trade and Industry, supported the Prince’s Trust and, to celebrate the prince’s 40th birthday, said that, “For every pound you raise, we will match it”. The Prince’s Trust, even in that dreadful economic climate, raised £27 million and, reputedly, the Government matched it with £27 million.

Is it the case that the Government are giving £1 million in support this year, versus £27 million in 1988? They are giving £25 billion to rescue Northern Rock to maintain financial stability. If only we could support small businesses the same way in which the American small business service has done for decades, with tens of billons of pounds of support; imagine what we could do with entrepreneurship, enterprise, manufacturing and innovation in this country. Imagine where we could be.

Something dawned on me when I opened the fourth Joint Economic and Trade Committee meeting in my role as UK chairman of the Indo-British Partnership and the chairman of the UK India Business Council. I welcomed the Indian Minister for Commerce and Industry to his fourth meeting in a row, and I welcomed our Secretary of State for business to his first meeting. He was our fourth Secretary of State in four years. Are the Government taking business seriously? The Secretary of State for business should be one of the great offices of state, but unfortunately it is not. In my role as chairman of the UK India Business Council, I have seen how far £1 million of support can go. The support that we get from UK Trade and Investment genuinely allows us to promote trade, business and investment bilaterally.

Britain is still one of the six largest economies in the world. We have only 60 million people—we are a tiny nation in comparison with the giants of China and India—and yet one in five school-leavers is still unable to read and write properly and, despite our enormous wealth and in spite of us being able to provide free education, free health, roofs over our citizens’ heads and a safety net of welfare, we still have child poverty and huge areas of deprivation. We have much to do. It is fundamental that, particularly in the current economic climate, the Government put business first, because, as my friend, the noble Lord, Lord Jones, constantly reminds us, it is business that creates the profits and the jobs that pay the taxes that provide the public services. Actually, business is at the heart of it all.

Goldman Sachs predicts that in 2050 China and India will be the largest two economies in the world but that Britain will still be one of the 10 largest economies in the world. We have always punched above our weight and we have always been adaptive, flexible, creative and innovative. By putting business first, we will always keep the “great” in Great Britain.

My Lords, I, too, thank my noble friend Lord MacLaurin for introducing this important and timely debate on a crucial subject concerning the role of enterprise in the United Kingdom. I declare my interests as chief executive of the Advertising Association and as a non-executive director of Three Valleys Water plc, which is a water company. I will focus my contribution on three areas: regulation, the creative industries and the disproportionate and disruptive power of some non-governmental organisations.

UK businesses are now facing massive economic uncertainty. A decade of Labour Government has meant a major increase in taxation, as well as a raft of new regulations. Let us be honest; regulation is taxation by another name. It is essential that the UK remains the most attractive and competitive location for larger businesses to base their offices. We must never forget that most businesses can just as easily conduct their operations from New York, Hong Kong, Dubai or Mumbai. It is also essential that we continue to resist unnecessary regulation and over-taxation, which would drive business and investors elsewhere.

Sir Martin Sorrell, chief executive of the advertising firm WPP, has warned against the planned tax changes that would see large chunks of multinational companies’ overseas profits brought within Britain’s tax net. He said:

“If the measures ... are introduced, ratified, confirmed and implemented, we will be taking a very serious look at the advantages and disadvantages [of moving]. I think the proposals will lead to the exodus of a number of multinationals. I have been surprised by the number of our clients and non-clients who are considering this action”.

Earlier this week, at the annual CBI dinner, the president of the CBI said:

“What business needs is clarity, certainty and competitiveness—what we have got is more cost, complexity and capriciousness—and we can’t go on like this”.

Let us take the creative industries as an example. They are collectively a huge and growing contributor to the economy, but I know from my own experience that they are feeling particularly fragile in the current economic climate of uncertainty and high taxation. More needs to be done to give this sector freedom to thrive and there are a number of ready solutions. For example, we should look to exempt the creative industries from changes in legislation such as TUPE and capital gains tax, which damage free and fair competition in the market and undermine entrepreneurialism.

TUPE has been extended to certain professional sectors such as the advertising industry, for which it was never well adapted. It threatens to strip advertising agencies of the flexibility they need for the development of new ideas and concepts for new clients. TUPE particularly hurts the smaller agencies, the small businesses that do not have the legal and personnel resources to manage it. My experience of working in the creative industries is in stark contrast with my experience as a director of a company in a heavily regulated industry. That is simply because there is an enormous difference between working in an inflexible, bureaucratic and heavily regulated environment and working in an industry with clearly defined boundaries of self-regulation.

It is no accident that the creative industries are growing at twice the rate of the rest of the economy when they are not unnecessarily constrained by the heavy hand of regulation and compliance. Advertising regulations deliver fast, free and flexible, albeit strong, consumer protection and, as a bonus, the whole regulatory process is paid for by the industry at no cost to the consumer. We should therefore look to adapting existing self-regulation models to more business sectors, not to additional legislation, to set standards.

I wish to consider another sector constantly undermined by regulation. A survey conducted last year by the University of Reading among industry leaders found that regulation, particularly poorly drafted and non-evidence-based regulation, was perceived to be the biggest single threat to the future competitiveness of the UK food and drink manufacturing sector. Given that food and drink is the largest single manufacturing sector in the UK, with a turnover of £74 billion, and accounts for 14 per cent of the total manufacturing sector, its views must be listened to.

One of the things that has struck me in recent years has been the extent to which industry appears to be fixed in the headlights of non-governmental organisations. There seems to be a conventional wisdom that the more industry concedes, the better for everybody. In my experience that is entirely wrong. NGOs are insatiable and the more conceded, the more damage they do and the ever more they demand. Many NGOs appear simply to want to undermine trust in business and to believe that their rationale is to cause damage. It is disappointing that NGOs lobbying the Government and opposition parties often pursue an agenda of their own, focusing on a single set of issues. They have no duty to refer to the wider picture. In some cases, especially in relation to consumer affairs, consumers can be bombarded with mixed and negative messages without fully comprehending the nature of the source of criticism. The fallout from this in some instances significantly and unjustifiably affects the balance sheet by damaging the reputation of business. Shareholders and consumers lose out.

Given my eight years here in your Lordships’ House as a shadow Minister across seven different briefs, I can attest to persistent, powerful and very professional lobbying by NGOs across different sectors. But should that not be largely the function of the taxpayer-funded National Consumer Council? It would be much healthier if NGOs sought to work with industry and government to tackle complex social problems in the round.

The Government’s priority should be to build a more enterprising society in which all who have the initiative, skills and drive have the opportunity to start and run a successful business. The Government should create the best environment in the world to start and grow a business and to tackle specific barriers that inhibit successful enterprise. Enterprises do not want government to be a burden on their backs; they want government to be an understanding and supportive friend at their side. The Government should seriously question whether they should intervene at all, not, as they currently do, take it for granted that they must.

At this week’s CBI dinner the Chancellor of the Exchequer said of competitiveness:

“We will do nothing to jeopardise that”.

I have to say that all those sitting in Grosvenor House listening—more than 1,000 businesspeople—found that statement completely breathtaking. I say in response to the Chancellor and to the Minister, please prove it.

My Lords, this is a very relevant and timely debate, and I congratulate my noble friend Lord MacLaurin of Knebworth on bringing the issue to the House. The general economic climate should be a cause of great concern to most economic actors in the United Kingdom and, as we face the challenges of a global economic turndown, we need to be clear that our positions on taxation and regulation put us in the optimal place to minimise any damage that may be caused as a result of this situation.

I am concerned that the credit crunch and the scourge of inflation may cause real harm to our manufacturing sector. The impact on household disposable income is weakening consumer markets and the message from the Governor of the Bank of England last week was that we should expect household incomes to become further eroded in the months ahead. In consequence, it is important that we maintain and promote our position in the field of export, particularly in specialised products—machinery and vehicles. Companies in this country are increasing levels of investment in niche markets and it is essential that they continue to do so. In addition, considerable wealth is generated from overseas by insurance, financial services, media and IT companies. It is essential that enterprise is allowed to flourish without hindrance and is given every support.

I am sure that noble Lords will all agree that most of the companies in the United Kingdom are SMEs which provide excellent service and employ a considerable number of people. We need to promote and protect SMEs for their growth and even their survival.

One of the most common complaints, which we have great cause to be concerned about and which my noble friend mentioned, is the impact of taxation. The tax burden on business in this country has increased in absolute terms and relative to our competitors. A few years ago, this country was proud to lead the field on corporation tax rates, but that has been squandered. European Union accession countries enjoy lower tax than us, as do a host of our other competitors. China is set to achieve its fastest growth rate since 1993. India is now the second most attractive venue for foreign direct investment, after China—ahead of the United States and Russia. Indian companies have been proactive in acquiring foreign companies and affording them access to new technologies and strengthening their position in global markets.

However, the rate of corporate taxation is not our only problem. Businesses rightly complain about the increasing complexity of the tax system in this country. Complexity causes costs to companies and the more time that businessmen have to spend trying to understand the regulations and taxes imposed upon them, the less time is available to them to generate the wealth that keeps our economy afloat. Much of this complexity directly derives from the previous Chancellor of the Exchequer’s desire to micromanage business by tinkering with tax rates and special concessions.

At one time, when British firms merged with foreign partners it was attractive to locate the parent of the combined group in the UK. Now instead we see a steady flow of companies choosing to emigrate from the UK. They are leaving because of the burden and complexity of our tax system, a system that threatens to become even more burdensome with the Government’s proposed revision to the taxation of foreign profits.

Unless the Government change their attitude to the taxation of enterprise, that steady flow risks becoming a flood of departures. The Government may have been forced into a turnaround on the 10p tax rate, but that case is depressingly symptomatic of a wider malaise at the Treasury. It is increasingly apparent that the Government are unwilling to or incapable of thinking through their proposals with a view to our competitive position and the difficulties facing businesses in this country.

Businesses have a right to demand predictability from the Government. Whatever the merits or otherwise of particular measures taken by politicians, we have a duty to minimise the disruption caused to those constructing business plans, as unnecessary change not only increases the costs for them, but inspires a growing frustration towards tax authorities. I strongly urge the Minister to reflect on that in her response, as it is a serious cause of concern among the business community and a major hassle for our nation's wealth creators.

Predictably, compliance is a greater problem for new and smaller businesses, which have the most to gain from assistance and simplified requirements. We need to make it a priority to reduce the regulatory burden on small businesses and to simplify the tax system for them, including reforming the incredible complexities of the system of government support for small and medium-sized enterprises.

I place on record my congratulations to those firms that have invested in research and development, and that are continuing to thrive in both domestic and international markets despite the challenging complexities and disadvantages imposed on them. It is imperative, however, that continuous training programmes are led by the industries, training bodies and employers. We need to ensure that people are adequately trained in science, in technology subjects and in every other way.

My business is insurance and financial services, and we lead the world in this field. That is mainly due to our expertise and quality of people. We create considerable revenue for the country, and the Chartered Insurance Institute, the British Insurance Brokers Association and insurance companies are actively involved in training schemes. Our example can be followed by others. We need to invest in people for our well-being and growth.

We need to be innovative and invest in opportunities abroad. Over the past year, I have visited India and countries in the Middle East several times. There are growing markets in which we can participate and we need to be proactive, otherwise we will be left behind and others will overtake us. In conclusion, I return to my original thesis: despite the challenges confronting those who create wealth for our country in the ever more competitive global market, we have some grounds for optimism. That optimism is established on our export markets as we witness a decline in growth in domestic markets and ever greater pressures placed on consumer spending.

If we are to weather the storm, we need the Government to recognise that they have been part of the problem in recent times and they need urgently to relieve small, medium and large enterprises from the excess burden of regulation and the damages caused by the complexity and level of taxation. I look forward to hearing the Minister's assurances that the Government have learnt that lesson and that we can allow the enterprise sector in our economy to do what it does best: to generate wealth through innovation that retains our country as a major economic player in this increasingly competitive global market.

My Lords, I will concentrate on the British motorsport industry and declare an interest as the unpaid president of the Motorsport Industry Association.

I start by reminding the Minister what she said in her response to my Question during the debate on the motorsport industry on 6 March about the Motorsport Development UK(MDUK) programme. She said,

“we know that in a fiercely competitive global environment, there is absolutely no room for complacency”.—[Official Report, 6/3/08; col. GC 181.]

Five years previously, the then Minister, the right honourable Patricia Hewitt, announced government support of £16 million to sustain and develop the British motorsport industry, saying that it,

“is exactly where the future of British manufacturing lies … In such a fiercely competitive market, we cannot afford to be complacent”.

Anyone reading those positive statements would applaud the Government for their plans to sustain one of the few globally successful British engineering clusters. However, reality has proved to be a long way from the rhetoric. Complacency is exactly what is evident, along with inaction.

First, the highly publicised £16 million budget for MDUK was, as the Minister admitted in March, significantly reduced to £10 million, but the total reduction covered by the Minister's explanation amounted to just £4.5 million, not the complete £6 million. What has happened to the lost £1.5 million—an amount perhaps of little interest to her department but of very great interest to those in the motorsport sector who were expecting that support? Such casual oversights and misinformation smack of complacency.

The MDUK board delivered an annual report in January that was devoid of any financial detail. The Minister agreed in the March debate to provide a clear, detailed financial breakdown of MDUK performance and expenditure, including salaries, overheads and expenses, and an explanation of its value or effectiveness to the industry and the taxpayer, with regional budget and spending.

Eleven weeks have now passed. I have received no information—no letter, no answer from the Minister. Indeed, I had to table a Written Question on 12 March in an attempt to get a response from the department—which, after all, led this funding programme.

The chairman of MDUK, when presenting his report, said that the UK motorsport industry was in,

“a healthy state, particularly at the high end”,

and stable. In the March debate, I pointed out, in contrast, that in fact it faces a dramatic downturn at the high end. The noble Baroness did not share my view but since then, one of the seven UK-based Formula 1 teams has appointed an administrator. Many highly valued engineering jobs have been lost in this country. During the same period, Ferrari launched its new Italian-built and engined A1 GP car. Excellent UK companies, Zytec and Lola, have lost that global race series to Italy.

The noble Baroness tried to placate my fears by explaining that,

“the majority of the A1 GP contract apparently lost to Italy has been subcontracted to UK companies”. —[Official Report, 6/3/08; col. GC 179.]

That response has proved incorrect. Furthermore, that advanced engineering business is not being lost to the emerging nations of China or India, but to our most dangerous competitors in high value-added engineering: those located in the US, Italy and Germany. In the Minister’s response, she referred to MDUK research, saying:

“The sector is supported by 2,500 engineering companies”.—[Official Report, 6/3/08; col. GC 179.]

She added, I believe incorrectly, that “those companies are growing”.

There will soon be significant reductions in the spending budgets of Formula 1 teams in the United Kingdom. These companies are at the top of the R&D and investment pyramid of world motorsport. As the majority are still based in the UK, this reduction will affect our specialised supply base far more than others in Europe. Each Formula 1 team relies on a network of these relatively small specialist suppliers, spread throughout the UK. These cutbacks will affect the employment of technicians and engineers, who are skilled in advanced, innovative, value-added, high-performance engineering. These individuals are a special asset to this country’s engineering and must, at all costs, be retained. What are the Government doing to ensure that we do not lose them?

The recent Prime Minister’s Strategy Unit paper, Future Strategic Challenges for Britain, identified UK motorsport as a prime example of Britain hosting world-class, high-performance innovation and engineering leaders, where SMEs collaborate successfully with global manufacturers and global innovation networks, bringing ideas and technologies together from many places. Such global collaborations are the bedrock of a supply network in the UK motorsport industry, which now needs government help to beat overseas competition. We cannot afford to stand by, responding with rhetoric and false promises, while such coveted UK engineering business is lost.

Six years ago, this industry, through its trade association, the MIA, told the then Minister that it required a series of,

“urgent co-ordinated actions to ensure the leading position of our industry is retained in the face of increasing overseas competition”.

The chairman of MDUK admitted that it had not achieved much in the area of business development in the past four years, yet this is the specific area in which the industry asked the Government to focus their support. The government response has singularly failed and now, sadly, the fears of those original industry advisers have become reality.

We must start with young people to ensure the long-term competitiveness of the engineering industry. The Minister reported the success of MDUK-funded programmes, such as the Motorsport Academy and the learning grid which,

“develop an enthusiasm for engineering amongst younger students, and to develop skills once these young people are in the workforce”.—[Official Report, 6/3/08; col. GC 181.]

I therefore remind the Minister that, following the collapse of the company that her department appointed to manage the Motorsport Academy programme, motorsport industry suppliers, including the trade association, have been left with significant unpaid debts. I am surprised to hear that the Minister plans to relaunch this programme, even though industry-supported debts remain unpaid. Do the Government realistically expect to attract industry support for this, in spite of this unacceptable situation? What are the Government doing to ensure that all industry debts are paid before this project is relaunched?

The Minister recently reassured the House that she was,

“passionate about the UK industry’s competitiveness and what it represents in modern manufacturing, advanced engineering and world-class skills”,

and that she wished to,

“seize the benefits that this can bring to manufacturing and the economy more widely”.—[Official Report, 6/3/08; col. GC 178.]

Why, then, am I given no answers, or misleading answers? What more can I do to get some answers? I am truly incensed by the Government’s complacency. I have always approached my position as president of the MIA in a non-partisan way. Indeed, I have often gone out of my way to support the Government over the past 10 years in decisions that they have taken affecting the motorsport industry. That industry, now still the world’s leader, is entitled to expect some straight answers, less indifference and stronger support from the Government.

My Lords, “enterprise” is a word that is synonymous with much of the history of these islands. Being enterprising comes naturally, as they say. We must encourage enterprise in a specific field—that is, business—but also in a wider way, by encouraging people, through our educational system and community outlook, to be innovative, ambitious and open-minded. The dead hand of officialdom can sometimes kill off enthusiasm; it must not.

While coming up to Parliament this week, I read about small businesses in Wiltshire being threatened with prosecution by the council if they did not remove signs from roadside fields, indicating who, what and where they were. For example, according to the Western Daily Press, Tony Dene, who runs the Farmer Giles Farmstead, received a letter from the council giving warning. It was a bolt from the blue. He said:

“These are modest signs, about 3 feet square, which have alerted motorists to our presence for many years. We strongly rely on this sort of trade. Now, after all these years, we have been ordered to take the signs down”.

Pubs and a hotel were also included in this threat. It seems that the Highways Agency made a complaint and the local council was quoted as saying that it was duty bound to take action. My point is that we all need to encourage enterprise—local government, national government, the community and, indeed, those in business themselves.

Before entering Parliament 10 years ago I spent my working life in small business, latterly as managing director of a plastics manufacturing company. In my early years I came up against a “can’t do” boss. The result was that we “didn’t do”. This could have put me off business for life. It did not, but business in this country needs to be inspirational and welcoming to newcomers.

This leads me to apprenticeships, which are seen as an extension of education, in a way. The Government will, I believe, bring in legislation; we on these Benches look forward to examining it. We welcome the initiative, but it is important that there should be wide consultation. “Consultation” is a much used word, but it is sometimes not carried out terribly well.

To encourage business and enterprise, businesspeople must be fully engaged. I have raised this before, but say again that addressing skills in this way is important. Small businesses in particular need to be involved and helped—including financially—to participate. Only yesterday, for example, Parliament was lobbied by the YWCA, which helps disadvantaged young women. I am not suggesting quotas, but encouragement is needed for young women, as for others, and for those who are disadvantaged. I hope this will be taken on board.

I thank the noble Lord, Lord MacLaurin of Knebworth, for securing this debate, which gives us an opportunity to range over a wide and important area. The noble Lord spoke about inflationary pressures, the credit crunch and, along with other noble Lords, regulation and the importance of small business.

The Government have launched a new enterprise strategy and I headline the points: a culture of enterprise; knowledge and skills; access to finance; regulatory framework; business innovation. There are fine words from the Government about enterprise, but there need to be tangible actions and an economic regulatory and financial background to achieve those aims.

It is welcome that the Government have over the past few years listened to the strong call for stability. Modestly, I would say that their adoption of the independence and detachment of the setting of interest rates from government has helped. I do not know why I should be modest about this, since it was, and still is, a fundamental policy of the Liberal Democrats which we were glad to see adopted.

It is also welcome that since this Government have been in office we have had a good record on employment. We have had consistently low unemployment, which is currently below the average EU, G7 and OECD rates. But it is forecast that our unemployment rate will rise above that of the OECD for this year and next year, which is a concern. Indeed, we see from a newspaper headline today that more firms are to cut staff.

I well remember how when the Conservatives were in power, those years were marked by the phrase, “boom and bust”. We still have the basis for stability of interest rates, but it is disturbing to hear the words boom and bust again when referring to the cycle in bank lending, which has contributed to the instability of the housing market, and in general lending. It therefore has a spill-over effect for business and industry in all sorts of ways. More could have been done to deal with this, but we are where we are.

Note should be taken of concerns expressed recently from the City, which was referred to earlier, about the uncompetitiveness of the UK tax regime against others. But a recent report from the City also raised concerns about the certainty of interpretation, the predictability and the attitude of the tax authorities. Certainty and stability are important to business.

The Government need to listen to business to emphasise that they are business-friendly and, in particular, that they are the friend of small business, to which I shall refer later. A recent press release from the Federation of Small Businesses asked the Government to lay off small firms. It said that the taxation of small businesses is disjointed and inconsistent. The Liberal Democrats would simplify the tax system and reduce corporate tax by 1 per cent, as well as simplify and clarify the system. We would also offer substantial business rate relief for small businesses with less than £25,000 rateable value and provide a continuance of independence when setting interest rates.

The game is for the Government once again to focus on working with business. Small business has recently felt a bit neglected. The Government made a good start 10 years ago and they must renew their efforts. In past few years, there have been a number of initiatives. The late payment of debt was addressed by a Bill, but efforts need to be renewed. I ask the Minister to look particularly at the Government’s record with regard to paying Bills. It is welcome that they have a goal to give at least 30 per cent of procurement to small and medium-sized businesses. That will need to be backed up with action.

As has already been mentioned, renewed efforts are needed on regulatory impact assessment. That has been one of my hobbyhorses since I have been involved in Parliament. We have seen improvements but we must be careful to ensure that these are kept up or improved. I should like to see an organisation which is independent of government to carry out these assessments. We must keep down the regulatory burden.

Ten years ago, the Government laid a lot of emphasis on small business being at the heart of government, perhaps with a tsar. The Small Business Service was good in theory, but in practice it was not independent enough. As the noble Lord, Lord Bilimoria, rightly said, there is a constant need for focusing on small business and for a high-profile Minister for small business who is not for ever chopping and changing. We need constant emphasis on the small business sector. I urge the Government to get back to that. They started well, but they need to renew their efforts. We need a business-friendly climate, stability and a stepping up of our emphasis on skills.

My Lords, my noble friend Lord MacLaurin of Knebworth has given us a wonderful opportunity to discuss the effect of taxation on the competitiveness of small and large business, and the current situation and future direction of manufacturing. On today’s showing, his experience and wisdom should be shared with this House more often. He has reminded us that the success of business and enterprise are fundamental to a free and prosperous society.

For too long, we have stopped encouraging, rewarding and applauding what and who have led to our free and prosperous society. We have watched this Government spend more and more of the nation’s earnings that should have been used for future investment. Past earnings stored in pensions are funding the hugely growing public sector and its pensions. Present earnings are sliced away for doomed projects and future earnings are increasingly mortgaged by reckless government spending.

My noble friend Lord MacLaurin reminded us that our best companies still thrive on excellence, know-how and entrepreneurial drive. We destroy that at our peril, as the noble Lord, Lord Bilimoria, so ably showed from his experience, and as my noble friend Lord Astor demonstrated with his appalling experience of the Government’s treatment of his motor racing industry. All speakers have emphasised the need for a business environment which provides stability, practises simplicity, rewards success and attracts the talented.

How can an enterprise economy break through when the Government preside over systematic, stifling red tape; a discredited planning regime; and a society which becomes more politically correct and risk-averse by the day? Those are not my words, but the words of our BERR Minister of State, the noble Lord, Lord Jones, who, apparently, is unable to be here to respond on the subject about which he constantly tells us he bangs the drum for Britain.

My Lords, the proportion of businesses achieving an annual turnover of £1 million after five years has fallen from 48 per cent in 1997 to 16 per cent in 2006. I wonder to what the Minister attributes this dramatic decline. Perhaps my noble friend Lord Cope identified it in the weight of regulation and tax complexity, which is debilitating, distracting and defeating.

On tax, it is evident that business at every level is being encased in complexity. Constant changes to the tax system undermine certainty and are a disaster for long-term planning. Do the Government agree with the opinion of the CBI task force? It states:

“The competitiveness of British business is increasingly compromised by the UK corporate tax system”.

I hope that the Minister will answer the question of my noble friend Lord MacLaurin on whether a cut in the main rate of corporation tax from 28p to 25p, funded by reductions in capital allowances and the abolition of complex reliefs, would be a real boost to the competitiveness of our businesses.

Turning to the manufacturing industry, if the Government can have only one speaker in this important debate, they could do no better than have the noble Lord, Lord Bhattacharyya—Professor Bhattacharyya. I worked for the noble Lord when I chaired the National Consumer Council and he was there to guide me all the way. He is a wonderful engineer who knows so much about the motor industry. I have no doubt that he has a little sympathy for my noble friend sitting behind me.

As my noble friend Lord MacLaurin has said on the state of our manufacturing industry, there has been a steady decline in the number of jobs in the sector since the 1970s. In 1978, there were 7.5 million jobs and there are less than 3 million this year. What does the Minister think are the implications of falling employment in the manufacturing sector for the wider economy? The recent Bank of England inflation report suggests that the credit crunch would have an impact on that business investment. To what extent does she believe that it will affect the manufacturing industry?

Finally, today’s debate has been especially timely. We are out of the high spending easy times. Business needs to be freed up to fight for its place in the markets of the world and, like all fighting forces, it needs light armour, good boots, the right supplies and a leader with a will to win, a good plan, a clever strategy, confidence and courage. Listening to our speakers, that does not look likely and I do not envy the Minister’s task in responding to the debate.

My Lords, I am grateful to the noble Lord, Lord MacLaurin, for calling this important debate on enterprise, tax and competitiveness, and manufacturing and indeed for his insight and long experience, which we all value. I apologise that it is possible that in the time given I will not be able to answer all the questions but I will follow up.

As the noble Baroness, Lady Wilcox, said, this is a timely debate. The noble Lord also commented on the fact that we are facing a testing period in the economy. We are facing the first real international economic crisis of globalisation. With the small start in Irving, Texas, the global credit crunch is combining with international oil prices closing yesterday at about $130 per barrel, which is about 82 per cent up on this time last year. That is also impacting on food prices. We therefore face an uncomfortable situation of global liquidity squeeze still being worked through in the US and rising world commodity prices, driven largely by Asian demand, but we must not let the immediate economic issues hide from us the long-term seismic shifts that are taking place in terms of patterns of production and consumption.

This is a difficult debate but I strongly believe that the United Kingdom is well placed to face these challenges. We have been the fastest growing G7 economy in the past year and we are going to be the fastest growing G7 economy in the coming year. We have, thanks to the business sector and the corporate sector, high business profits and low business indebtedness. I was astonished to learn last night that we have for the first time since 1860 overtaken the US in terms of GDP per capita in dollar terms.

I should like to echo the words of the CBI president a couple of days ago that we should not fall into the trap of talking ourselves into a recession. I am surprised that the noble Lord and others have commented that we do not believe that wealth creation is centre stage. I cannot think what else is centre stage when it comes to the well-being of the British people. I echo the sentiments of the noble Lord, Lord MacLaurin, if not his analysis or tone, that we need to curb the regulatory culture that can exist in Whitehall, that we need to create tax stability and that an enterprise culture is one of the most important things we do, particularly in a world in which jobs, people, business orders, investment and companies are all amazingly mobile.

My response to the legitimate concerns that noble Lords have raised is, first, to suggest that we look at the facts and debunk some myths so that we can focus on the real challenges that Britain faces and, secondly, to reassure noble Lords that we will do everything we can to maintain the UK’s economic competitiveness, particularly in difficult times. I do not accept the picture painted by the noble Lord, Lord MacLaurin, that small businesses have been made uncompetitive by the weight of tax and regulation because it has not been borne out by the facts. Of course business should always demand more and we should always strive to improve conditions, but let us look at the facts. There are three quarters of a million more small businesses than there were 10 years ago. I will not inundate noble Lords with numbers, but those businesses now survive longer and they are more productive and more innovative. They aspire to grow more, they employ more people and there are more women entrepreneurs, which has been a big source of the gap with the US on entrepreneurship. Most importantly, more people, especially the young, aspire to start a business now than 60 years ago and they believe that they have the skills to do so.

Not all of that would be the result of the poor and unstable business environment as has been implied in a somewhat wholesale fashion. The OECD says that the UK now has the lowest barriers to entrepreneurship of all OECD countries. The World Bank has ranked us second in Europe in terms of the ease of doing business and consistently among the top 10 out of the 178 that it ranks. Of course—I understand that this term might cause irritation—there is no room for complacency, and particularly when it comes to enterprise we need to catch up with the US which has more businesses per head and more growth businesses. I am grateful to the noble Lord, Lord Cotter, for pointing out the enterprise strategy that we put out during the Budget which set out the enablers that we outlined. The first was the issue of regulation, which is a subject close to my heart. It is interesting that someone could become passionate about it but I do. I have no embarrassment about talking about deregulation at the appropriate time as well as better regulation.

The noble Lord, Lord Cope, asked what we were doing particularly on administration burdens and on the target to cut them by 25 per cent, which would produce £3.5 billion of savings by 2010. We have already delivered £800 million of savings and are on track to meet the target. I wholeheartedly agree with the view that small businesses in particular need to feel a decreased level of regulatory burden because they have high comprehension costs and do not always have the legal departments and HR departments that big businesses do. We are therefore in the process of instituting a policy on SME exemptions so that every piece of legislation needs to be looked through to ensure that we have considered the position of small businesses, whether the legislation needs to apply to them and, if it does, whether it could be done in a simplified form. I hope that noble Lords will provide adequate scrutiny on this issue and more power to my elbow.

Noble Lords also referred to the fact that the regulatory budget was mentioned in the legislative programme but no further details were given. That is because it is not intended that this needs to be legislated for. Just like the comprehensive spending review, it is an allocation. We are consulting currently. My department and I are consulting on how we might do this. As your Lordships might imagine, it is a world first and an exciting idea. We are looking at the methodology of how we might do that and what sanctions would be imposed.

In response to the noble Baroness, Lady Wilcox, who is attached to my noble friend Lord Jones of Birmingham, while I cannot aspire to step into his shoes I should point out that every issue that she quoted him on is under my portfolio and therefore I am here and he is fulfilling his job in his portfolio. I believe that we are creating a different regulatory climate. It is not the easiest thing to change culture in Whitehall, but I suggest that we look at the matter in context. I quote the OECD:

“Deservedly the UK has a reputation for having a regulatory environment that is among the most supportive of market openness and global competition in the world”.

As the noble Lord, Lord MacLaurin, says, it is only deeds that matter. I am pleased to say that we are beginning to see a change in the way that small businesses in particular are experiencing regulation on the ground, because for the first time in a survey that I monitor closely, the proportion of SMEs citing regulation as the main barrier to success has fallen.

I should like to answer the point put by the noble Lord, Lord Bilimoria. Exactly as the noble Lord suggested, we did expand the small firms loan guarantee scheme in the Budget, in particular to help with issues around the credit crunch. I simply respond by referring to the announcement we made in support of the Prince’s Trust, and the rather generous £27 million matching announced made by the noble Lord, Lord Young. I was advised when I questioned it that he did not anticipate that it would be £27 million because he had underestimated the ability of the Prince of Wales to raise funds. The matching was therefore scrapped by that Government immediately thereafter. The noble Lord might wish to note that it was not intended.

I understand the issues around taxation that have caused concern. We have taken some difficult decisions recently, particularly for small businesses. But again I should like to put the issue of tax competitiveness into context with facts that do not bear out the blanket assertion that taxation has been radically increasing over the past 10 years. First, the small companies rate of corporation tax, paid by 95 per cent of UK businesses, is lower than it was in 1997 and is the lowest effective marginal rate in the G7. Recent changes that targeted the incorporation by individuals motivated by tax actually contained a package of investment allowances for small businesses that are genuinely investing, so that 95 per cent of them can write off all their capital expenditure in the year of investment.

The issue of capital gains tax was raised. First, the top rate of CGT is 18 per cent, which means that it is less than half of the 40 per cent it was in 1997 and one of the lowest among the significant economies of the world; and secondly, entrepreneurs’ relief on CGT means that 90 per cent of entrepreneurs will pay CGT at 10 per cent. On corporation tax, as a result of the 2 per cent cut announced in the Budget last year, we have maintained our position as having the lowest corporation tax level in the G7. Indeed, as both the Prime Minister and the Chancellor have said, our aim is reduce corporation tax even further when we can afford it. I want to respond to the specific question of whether we would reduce corporation tax to 25 per cent, as suggested by the Opposition, and pay for that through allowances. I should point out that I do not think that making an unfunded tax pledge is the best way to ensure certainty. It would be unfunded because allowances would not compensate for it, and indeed the allowances are considered to be very important by manufacturing, telecoms, retail and other capital-intensive sectors. I am sure that the noble Lord has already seen the analysis and discussion of this point, and the debates between the Government and the Opposition.

I shall say again that there is no room for complacency because although these tax rates are competitive in relation to Europe and the G7, we know that the source of competition is changing. While we are not a society that aspires to be a tax haven or a very low tax economy which has a different economic structure, we are committed to ensuring that we have globally competitive tax rates and that British businesses cannot be, to quote the Chancellor, the fiscal fall guy. We need the right corporate tax structure to compete over the next 10 to 20 years, and the Chancellor has therefore formed a group of business experts to examine how we can ensure that Britain remains a competitive place in which to do business, deliver our aim to reduce taxes, and look at the issue of foreign profits and dividends, which was also raised. I have some personal knowledge of this area. The issue was raised in consultation at the request of business last year. As the Chartered Institute of Taxation said, it is a little unfair to characterise consultation as a climb-down or U-turn when we are genuinely trying to consult business in this area.

I am grateful to my noble friend Lord Bhattacharyya, and it is difficult to say anything authoritative after hearing him speak on the issue of manufacturing, but I will try to do so by saying that the one thing that continues to baffle me is why manufacturing is an unrecognised success in Britain, to the extent that many people think it is a failure. It is one of the most productive sectors in the UK economy. It has increased its productivity by 50 per cent, twice the level of the rest of the economy. We make more cars than we did 25 years ago, and 19 of the 20 top auto producers in the world have a manufacturing presence in the UK. We are leaders in aerospace, electronics and bioscience, and indeed are now moving into low carbon and nano technology. My only explanation for the lack of popular recognition is that manufacturing is so transformed that it is no longer recognisable as manufacturing to most people. As Keynes said, the difficulty lies not so much in developing new ideas as escaping from old ones, and I believe that that is the trap manufacturing is in. Of course transformation has caused heartache in terms of jobs that have been lost over the course of many years, but the sector has become a global success. We all need to take on those who talk down manufacturing and show that Britain is building from the base that we have established of modern manufacturing strength.

I apologise to the noble Lord, Lord Astor, for the delay in responding to him, and I shall clarify the position. Because I am passionate about the motorsport industry, I did not find the answers I received satisfactory and therefore I have asked for them to be considered again and I have asked the Permanent Secretary to look into the matter. The noble Lord may be assured that the delay is not because we do not care, but because we do care and I do not want the noble Lord to have to look into it and ask the questions; I am doing that on his behalf. I was unaware that any of my statements were misleading and I would be deeply shocked if they were. We debated the issue at some length recently, and I shall come back to the noble Lord in due course.

The one thing that we do not recognise in manufacturing is something that the noble Lord, Lord Bilimoria, illustrated graphically in his remarks: there are different global trends at play in this area. The ability to bring back processes to the United Kingdom because of new technology is interesting. Because of global fragmentation of the value chain, we are able to foster specialised, niche industries. They are not necessarily household names, which may add to the problem of perception, but they are global leaders whether they are behind measuring instruments, dentists’ equipment or brewing. Companies have transformed themselves from their old manufacturing identity. I recall how one company that used to be involved in shipbuilding is now a global leader in electronics. We also have things that play to our natural strengths. Intangible assets are becoming much more important for manufacturing, so that intellectual property issues and brand marketing are growing. Indeed, the differentiation between services and manufacturing is blurring, and I believe that that is due to the fact that we have maintained an open and flexible market that allows manufacturing to ride with global trends.

I have disagreed with many of the assertions made by the noble Lord, Lord MacLaurin, but I agree profoundly with him on the fundamental question in terms of the success of the economy. We need to focus on the relentless competitiveness of the global economy. There are some long-term issues and trends, and I believe that those are things we should be considering. It is not quite as straightforward as saying that it is just about tax or regulation. It is about those elements, but not only those. It is also about skills and infrastructure to enhance business competitiveness. Further, every single survey that has been undertaken on behalf of business shows that companies rank skills and infrastructure above tax and regulation. Moreover, I should remind noble Lords that skills and infrastructure need to be funded by taxation.

I should also like to suggest that we look again at the facts. Other than the US, we maintain a globally competitive business environment with the highest levels of stock and flow of foreign direct investment, and we are maintaining our competitiveness for the location of headquarters, although we understand the instability that has been caused and we are in discussions with the companies concerned.

I have flooded noble Lords with facts because, in the words of John Adams, facts are stubborn. It is important to consider these issues in the context of those facts so that we can truly examine—not in a partisan way but because this is so important—a debate that looks at the long-term challenges. China and India no longer aspire to compete solely on the basis of low-cost manufacturing or cheaper call centres. China has spent 20 per cent more on R&D in the past year than it did before. We understand that, although this is a competitive challenge, it is also an opportunity. China will create 1 billion new consumers and will be the source of a doubling of global output, and we need to consider how well placed we are as an economy on tax, regulation and competition, as well as on skills and infrastructure.

I understand the points that have been made about stability and certainty. We are completely committed to stability and certainty by listening and being responsive to what business is saying and by ensuring that it can plan effectively to ensure the success of the British economy.

My Lords, I thank all noble Lords for their contribution to this debate. There is much that the Minister can take away from what we have heard today. I hope that we will see business high on the Government’s agenda. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.

Armed Forces: Reserves

rose to call attention to the contribution made to national defence by Her Majesty’s Reserve Forces since the founding of the Territorial Army in 1908, and the future role of these forces, including their role of encouraging local participation; and to move for Papers.

The noble Lord said: My Lords, I declare an interest as president of the United Kingdom Council of the Reserved Forces and Cadets Association. In that role, I succeeded the late Viscount Younger of Leckie—many of your Lordships will remember his distinguished service, not only in the Korean War but also as Secretary of State for Defence. It was an honour to be asked to succeed him in my present role, which I have had for almost 10 years.

In the interests of brevity, I intend to confine my remarks primarily to the Territorial Army. I pay tribute, as all your Lordships do, to the Reserve Forces of the Royal Navy, the Royal Marines and the Royal Air Force. Other speakers in this debate will, I know, speak up for those approximately 4,300 reserves with greater authority than I can. However, my concentration on the Territorial Army is in no way an indication of my lack of interest in all those who serve in Her Majesty’s Reserve Forces.

The Territorial Army, as it soon became known, was founded by Richard Haldane, then the Secretary of State for War, and became effective on 1 April 1908. We are therefore celebrating the centenary of the Territorial Army. Some of your Lordships and I attended a national service in St Paul’s on 15 May, which proved a fitting reminder of the enormous contribution of the Territorial Army and, indeed, of all our Reserve Forces since the First World War. The London Scottish Regiment was the first TA unit deployed in Flanders at the beginning of the First World War, and was the first into action at the First Battle of Ypres on 31 October 1914. The territorials have served in almost all conflicts since the First World War and have served or are still serving in Aden, Kosovo, Bosnia, Iraq and Afghanistan.

It is important to note at the outset that the conditions in which the Territorial Army served during the Cold War, when in essence the force was going to provide a line of resistance to any advance of Soviet troops in central Europe, have changed dramatically. Today, the soldiers of the Territorial Army stand shoulder to shoulder with the Regular Army and are fully integrated into the order of battle. Since 2003, some 15,000 have deployed on operations in Iraq and Afghanistan alone. That is equivalent to some 20 battalions—a significant contribution. They share the same dangers. Some reservists have made the ultimate sacrifice for their nation, and our thoughts today are surely with the families of all those who have lost their lives.

I shall say a few words about the Territorial Army to set the framework of part of our deliberations today. There are approximately 30,000 volunteer officers and soldiers in the Territorial Army—a significant reduction on the number 15 or 20 years ago, but still a significant proportion of all those in the chain of command, including the Regular Army. Against a perhaps broad definition of training, about three-quarters of that number are trained and ready for combat.

The Territorial Army contributes quite a high proportion of the Army’s specialists, such as engineers, doctors, nurses and logisticians. That specialist contribution, which includes intelligence, makes a proportionately bigger contribution to the Regular Army than do the infantry, the artillery and other units. The total cost to the Budget of Her Majesty’s Government is about £400 million per annum. To put that into context, that is about 1.2 per cent of the total defence budget. The Territorial Army and the reserves in general make a cost-effective, and now highly militarily effective, contribution to national defence. Indeed, if we compare the cost of a regular soldier who is back in this country training prior to deployment with the cost of a reservist performing the same role, the reservist costs about one-fifth of the cost of a regular soldier. On average, in the past five years, the reservists have contributed about one-10th of the total number of deployed Armed Forces.

The territorials’ role today, as I mentioned earlier, has changed dramatically since the Cold War. Their prime purpose today—I think your Lordships will welcome this—is to augment the Regular Army on deployment. In particular, they provide a specialist capacity—I have already given examples of specialist TA units—and, for the past few years, they have provided a civil contingency reaction capability. In the event of a serious terrorist action or some natural disaster of great proportions, the Territorial Army—indeed all the reservists—could be drawn into assisting the civil community. That role has already been performed and could be of growing importance in the years to come. No one can argue that the Territorial Army today is not recognised as an essential and integral part of the Regular Army. Indeed, the Regular Army cannot now deploy on operations without the vital support of the Territorial Army and the reservists. That is a significant change over the past 10 to 20 years.

I shall say a few words about the Reserve Forces and Cadets Association, of which I am president. Other than the 30,000, whom I mentioned, in the Territorial Army, there are some 8,000 volunteer members of the association around the country, who support the work of the territorial soldiers themselves. They are organised into 13 regional associations throughout the United Kingdom. Their forerunners were established by Haldane because he realised the necessity not only of support for the volunteers when they serve but in particular of connections with the local community so that the spirit of volunteering, which was so important in the First and Second World Wars, is kept alive. Indeed, each of the regional associations has as its president one of the local lord-lieutenants, and I am glad that one of them is likely to speak in this debate. Their role and function in connection with the local community is much appreciated and vital.

There are two key functions of the Reserve Forces associations, quite apart from their role with cadets. We should not forget that there are 140,000 cadets in uniform in this country. It is the largest youth organisation, and the Reserve Forces and Cadets Association helps to maintain and support it. The first of two key functions in relation to this debate, however, is local employer support through SaBRE—Supporting Britain’s Reservists and Employers. My noble friend Lord Glenarthur, chairman of the National Employer Advisory Board, will speak to this important aspect of the work of the associations and of the NEAB itself.

The second key function is maintenance of the property of over 411 Territorial Army centres around the country, leaving aside the facilities used by the Royal Navy, Royal Marines, Royal Air Force and, indeed, the cadet organisations. I thank the chairman of the national council, Brigadier Michael Browne, and the chief executive, Air Vice-Marshal Paul Luker, for the hard work that they and all their colleagues do.

A key feature of the role of the United Kingdom Reserve Forces Association is the local connections of the TA and the community. In September 2007, General Sir Richard Dannatt, Chief of the General Staff, spoke of the,

“growing gulf between the Army and the nation”.

He was right then and is right now. The TA, at least, together with the Reserve Forces associations, keeps that valuable link alive through all the TA centres of the Army—whether regular or volunteer—and the local community. Long may that continue. It is important, with Regular Armed Forces very much smaller than even 20 years ago, that the nation maintains, understands, and engenders local loyalty to the work of our forces.

The Secretary of State for Defence, Mr Desmond Browne, announced the launch of a review of the Reserve Forces a few months ago. We are told that the review should help the ministry to ensure that the Reserve Forces will meet the needs of the future by generating relevant military capability. The role of the territorials in augmenting the Regular Army is not at issue or subject to review. It is not about cost-cutting; I believe that, and trust that your Lordships will do so. We are assured by the most senior of both the uniformed and political levels of the Ministry of Defence that that is so.

Clearly, however, the National Audit Office report of 2006 will be relevant. The NAO said that the reserves should be managed better to deliver an effective and efficient service. I welcome the review, which should receive full co-operation from all those affected or interested. We should take a positive and constructive approach. The key issue should be how we get officers and soldiers to volunteer in the first place, and then keep them content and motivated to stay in the reserves to reduce the rate of loss caused by those leaving prematurely.

It is not a career choice for those who volunteer, but an optional use of their spare time with the prospect of mobilisation, voluntary or compulsory, for a specific 12-month period. I briefly mention four issues that I hope that the review takes into account. First, reservists deserve proper resources to be spent on training. You cannot skimp on the number of training days or you will not have an efficient solider; indeed, the civil contingency role might need special training. We must therefore watch the amount of resources available for that.

Secondly, we want the Territorial Army to be deployed, as far as possible, as units. If you train together, you should go to war together as far as is possible. I welcome the Government’s announcement of the deployment to Cyprus of 250 reservists in October as part of the United Nations force, which will be helpful, particularly to younger officers who I hope will be with that contingent. The younger officer is often not sent on deployment, which is demotivating because what the Army often needs in deployment is the infantry soldier—boots on the ground.

Thirdly, we must make more imaginative use of our specialists, with the rebuilding of war-torn communities by those who, in civilian life, might be engineers, lawyers, town planners or linguists. They should be employed in uniform to assist in the aftermath of the ravages of war. Finally, on welfare, we do a much better job of looking after our regular soldiers coming back from war. Frankly, we must do more for our volunteers. They cannot just go straight back to their families and into the community. They need the same care for physical or mental hardship.

I know I speak on behalf of all noble Lords in thanking all our reservists and their families for the sacrifices made and a job well done. I beg to move for Papers.

My Lords, first, I thank the noble Lord, Lord Freeman, for giving us this opportunity to congratulate the Reserve Forces. Like him, I will largely concentrate on the Territorial Army. The debate gives us an opportunity—particularly after 100 years, with TA 100 having been launched in April—to celebrate the great debt that we owe to all those brave people who volunteer in this way.

It was interesting that the noble Lord referred to the TA being formed in 1908. Of course, it was originally a defence force. The First World War changed that, when, after a period, volunteers were posted into regular units and played an important role. Disbanded after the First World War, it was reformed in 1939 when the aim was to get 400,000 volunteers. Interestingly, the history of the Bolton Wanderers, the team which my noble friend who is to reply to this debate and I support, records that all of the first team volunteered as territorials in 1939. All of them were called up and lost to Bolton for six years. The pre-war captain, Harry Goslin, became a lieutenant and lost his life. Others, like Ray Westwood and Ted Geldard, returned to play for the team. That has continued. As chairman of Warrington Wolves, we have one or two young players who volunteer and go on training courses; two of them have recently been with the marines. The sporting links continue.

The noble Lord, Lord Freeman, was quite right to say that we owe these people a great deal. They are civilians who face being mobilised and called up. They have always been prepared. While there is some protection for them when they are mobilised, there is nothing to protect them suffering in terms of their professions because of what they see as their duty to the nation, which is sometimes a problem for them. It is not easy. They are prepared to give up their time; it is a commitment, as has been said. They are asked to give up at least 27 days a year, with a fortnight in training camp; specialists spend about 19 days.

It would be remiss of me not to talk about the medical squadron based at the barracks in Chorley, where I live: the C(64) squadron. It was first deployed in Afghanistan in October 2007 and again in January this year. Although there were only about nine reservists in total, that comprised 14 per cent of the squadron that was deployed. Fortunately all of them returned. Some of them were at the bases but others were at the out-station. One or two were congratulated on the service they gave.

I have outlined this to follow what has been said about the support these specialist units give to our Armed Forces. I am pleased to say that, since it became a squadron, both the numbers and the attendances have increased. I am also pleased that Chorley Borough Council has awarded it the freedom of the town. That is something it fully deserves and, although the regiment it is attached to is based in Preston and is shortly to go to Catterick, nevertheless it will remain in Chorley.

It is therefore very important that we consider, as the noble Lord, Lord Freeman, said, the new review that is taking place—I am sure my noble friend the Minister will be referring to that—which seeks more integration of Reserve and Regular Forces. It is very important that that review takes place and I know that it has been welcomed by the Armed Forces themselves. I think it is due to report by autumn of this year and I hope that it will point the way forward.

The noble Lord, Lord Freeman, also pointed out how important it is that when reservists return we accord them the same kind of treatment as we give to our Regular Forces. They have to go back to their wives and families. They have to be re-engaged in the civilian employment from which they came. It is a big step because at one time when you joined the Territorial Army you never thought that you were going to be mobilised, but, as has been said, the Regular Forces could not manage without them and they could not perform the duties we expect of them.

I am always amazed because, while many of us may have our own views on the war in Iraq or Afghanistan—and we are entitled to them—wherever these people are called to serve they do not question at all. They are quite prepared to go. They are quite prepared to risk life or limb on behalf of all of us and to serve alongside the Regular Forces. I know how they are valued by the Regular Forces themselves for the work they do. I think it is fitting that we do have this kind of debate in the centenary of their existence because, as has been said, they have come such a long way from those early beginnings to be part and parcel of our Armed Forces that we could not manage without them.

I do not intend to take much more time as I know many noble Lords want to speak but it would be wrong of me to sit down without once more paying tribute to the bravery, the courage, the devotion and the dedication of the Reserve Forces and to the fact that they are prepared to surrender their job, to mobilise and to take up their duties on the front line. All of us should say a big thank you.

My Lords, I rise with some hesitation in this debate, having no direct contact with our Reserve Forces. I was just reflecting, as the noble Lord, Lord Freeman, was speaking, that my father served in a Territorial Army battalion some 90 years ago; namely, the 4th Battalion the Gordon Highlanders. He was briefly seconded as a sergeant to the London Scottish at one rather desperate point in the spring of 1918 but that is in the distant past.

What we have seen, particularly since the end of the Cold War, has been a transformation in the role of our reserves and a continuing reduction in both the numbers and the facilities. We have seen sites sold off so that further expansion can take place. If we wished to reverse the decline, it would be difficult. We have seen a parallel run-down since the end of the Cold War in civil defence reserves, resources and facilities.

I want to talk particularly on the role of the Reserve Forces in encouraging local participation and on their civil contingencies capability and in the links they provide between our full-time Armed Forces and the wider national community. We are all conscious—post-9/11 and post-7/7—that homeland security is an issue which has not entirely gone away. After the recent problems with foot and mouth and after a number of extreme weather incidents—the storms that have led to two hurricanes in the past 15 years and also the extensive flooding—we are all conscious that we require an effective civil contingencies capability across the country. It also helps if it is locally and regionally based. What we have found in recent civil emergencies is that we depend more and more on central control and assistance and that there is less and less room for local volunteering.

In other aspects of this government agenda there are a range of parallel issues being debated such as the citizenship agenda. How do you get people to feel that they are part of our national community, particularly people whose parents were born outside Britain? There is the whole question of how we provide broader national support and recognition for our Armed Forces, about which the Prime Minister has been speaking. One of his arguments for expanding the role of Army cadet forces in schools would be to provide a greater recognition of the links between the Armed Forces and the wider local and national community. There is also the new Labour dimension of empowerment and citizen engagement which some of us on these Benches feel has focused too much on providing citizenship choice and not enough on providing citizenship participation.

The local and regional dimension of Reserve Forces used to be extremely important. They were aspects of local pride, they were clearly rooted in local communities and they provided—certainly for the counties outside the home counties—a sense of local engagement, local participation and local autonomy. We have lost a good deal of that as the Reserve Forces have declined. We have also lost the parallel civilian community service with the run-down of civil defence.

If one is going to go down the route of citizenship agenda, there are large questions about what Army cadets and others should feed into when they leave school and how we provide greater opportunities for service in the local and regional communities. I note that the noble Lord, Lord Freeman, said in his opening speech that the civil contingencies role may well require special training. I ask the Government to consider whether we need a rather fuller inquiry into what sorts of civil contingency capabilities we need in our towns and cities outside London to deal with the sort of problems we had, for example, with the floods last summer.

We recognise furthermore that the question of filling the gaps in the services has other dimensions. At a time of falling recruitment and of adverse demographic trends—the number of young men reaching 18 is declining—we have an increasing dependence by our full-time Armed Forces on recruitment from abroad. I think we are now into several thousand Fijians and a large number of people from the Caribbean and elsewhere. I question whether the settled preference of the service chiefs for 12-year or even 22-year terms of engagement is what we still want to stick to. I have spoken to a number of people involved with the Reserve Forces who told me that one of the reasons for the their churn at present was that young men join and like the excitement of serving abroad once—but after that, they have done it. They do not want to carry on in the reserves. If that is the case, and if the people going out and serving are demonstrably proving to be worthwhile soldiers, the Army ought to consider whether two-year or three-year service for a larger number of young people could be part of how one fills the gap, as well as sending a larger number of people through our armed services, thus making them less of a small elite and more something that is rooted in the community.

I note the American experience of professional armed services in which the army is used partly as a means of providing education and skills training for people who have fallen through the school system. I note the very different Nordic experience—I have had a number of students from Finland, Norway and Sweden—in which short-term training in the army then provides a basis on which people can volunteer to take part in UN peacekeeping operations abroad for up to a year. Those are both models that we ought to take into account.

There is the larger issue of what future tasks our Armed Forces are most likely to face as we slowly withdraw from Iraq and cope with what has turned into a much tougher peacemaking operation in Afghanistan than we had expected. Conflict prevention, peacemaking and post-conflict reconstruction are all tasks that we expect our Armed Forces to be engaged in for the foreseeable future. The UNFICYP deployment of reserves to Cyprus is a good example of the sort of operation that our forces are likely to be engaged in. Civilian skills for post-conflict reconstruction are, after all, extremely helpful.

I suggest to the Government that, in looking at the future role of Reserve Forces and the capabilities we need, our current model of long-term service first and a small number of reserves may not be the one that we need, and that if we want to root our armed services much more clearly in our broader national community, as well as providing the local civilian contingencies that we are clearly going to need, we should think again.

My Lords, I congratulate the noble Lord, Lord Freeman, on securing this timely, and well attended, debate.

In a Written Statement on 24 April, the Defence Secretary, Des Browne, informed Parliament about the current roulement of troops to maintain a force level of around 4,000 in Iraq. The MOD, he said, will have issued about 290 call-out notices to fill some 220 reservist posts—that is, around 5 per cent of the numbers deploying during the period. Following preparatory training, most of those reservists will serve on operations in theatre for some six or seven months. Last week we learnt that an additional 250 reservists will deploy as part of UNFICYP to Cyprus in October. These are but two recent examples of the Government’s reliance on significant numbers of reservists to gap-fill and bring front-line units up to full fighting strength, and to man operational supporting activities.

During the 40 years of my service career, and long before that, reserves were looked upon and held as a force of last resort. Much of their ethos and training in those days focused on that doctrine, in keeping, as the noble Lord, Lord Freeman, has mentioned, with the Cold War and our deterrent posture against the Soviet threat. Following the 1998 Strategic Defence Review, reserves were restructured to become more deployable—a striking change for reservists, particularly in the past five years. In that time no fewer than 17,000 reservists have been deployed to fill undermanned regular units in order to undertake force protection, intelligence and logistical tasks that are essential to sustaining ongoing live expeditionary operations and to meet our UN obligations.

It is appropriate that I speak mainly about the Royal Air Force reservists. Noble Lords will recall that on 13 April SAC Thompson, a 51 year-old RAF Regiment auxiliary, was killed in Afghanistan. He was an exceptional man, and sadly is one of the latest of a considerable number of reservists from all three services who have been killed or wounded on operations in Iraq and Afghanistan in the past five years.

The message is all too clear. Our Regular Armed Forces, and the Government, rely more and more on a continuous use of reservists for current operations. The question that arises—and the MoD is now addressing this with a comprehensive study, as the noble Lord, Lord Freeman, mentioned—is how to make the best use of the many young men and women who are attracted to reserve service in the Armed Forces and wish to make their contribution to the defence of this country and its interests around the world. At present, after a serious dip in 2005-06 when the recruiting effort was much reduced, the Royal Auxiliary Air Force strength is slowly increasing. It now stands at about 65 per cent of establishment but full numbers, fully trained, cannot be achieved for six years, until 2014. There could be no clearer indication that it takes a long time, even when we are involved in ongoing operations, to recover from short-term and short-sighted reductions in recruiting or effective retention efforts.

All members of the Royal Auxiliary Air Force are now fully aware of the commitments required of them. They form an integral part of the RAF’s trained manpower requirement, and they join in the expectation of being mobilised at least once during their service. The evident enthusiasm and commitment of serving Royal Auxiliary Air Force personnel and their ethos spring from being part of one single formation. Retention and recruiting rely greatly on this all-of-one-body approach, and benefit from a small amount of adventure training and participation in national and local events so that there is a wider opportunity for the public to see and appreciate the professional spirit that is so essential a part of Royal Auxiliary Air Force life.

What I have found surprising, in the various Statements made in recent months about the future of the reserves and the studies now in hand, is how little is said about the reservists’ relationship with their civil employers, or indeed the effect that being mobilised for operations will have on their own businesses if they are self-employed. While some effort has been made to try to reconcile the demands of active reserve employment and that of individuals’ civilian employment, much more is likely to be required if any future restructuring is to enjoy the wholehearted support of civilian employers and the public. No doubt in her winding-up the Minister will be able to say something specific. What are the Government’s intentions towards recompensing and indeed rewarding defence-supporting employers? I look forward to the contribution of the noble Lord, Lord Glenarthur, on this topic.

If reserve commitments are to be as frequent and as ongoing as at present—and there seems little prospect that the use of reserves will greatly diminish in the foreseeable future—more must be done to reward the employers of these dedicated men and women. Some of these reservists, while courageous and dedicated to serving their country, will nevertheless be killed or wounded. Will employers faced with that risk be so willing to release their employee, not just once but on a regular basis, for operational service? And if, sadly, that employee is killed, not only will the immediate family grieve the loss but the employer will face problems, too. Will Her Majesty’s Government give thought to how employers might be compensated or at least helped to insure, if that is feasible, against the loss of one of their mobilised employees? I believe that an imaginative approach is called for if the studies that are now in hand are to bear fruit.

My Lords, it is a great pleasure to take part in this debate and to follow the noble and gallant Lord, whom I had the pleasure of serving with in the Ministry of Defence when he was Chief of the Defence Staff. He speaks with great authority. I congratulate my noble friend Lord Freeman on initiating this debate and I join him in paying tribute to the contribution made by Her Majesty’s Reserve Forces over so many years. I also add my admiration for him for the time that he has served succeeding my predecessor, Lord Younger of Leckie, and for the valuable role that he plays in that post.

I am particularly interested in my noble friend’s reference to the traditions of the TA and the volunteer reserves. He mentioned the London Scottish as being the first regiment involved. If he goes to the London Scottish drill hall in Horseferry Road, he will see on the walls pictures of the first contingents of the London Scottish, showing their get up and go while commandeering double-decker London buses and driving them to Belgium to stem the German advance at the beginning of the 1914 war—a wonderful illustration of the flexibility and enthusiasm of the Territorial Army at that time. It is interesting how in a debate such as this one picks up facts that perhaps one had not previously known. In the First World War the Territorial Army raised 318 battalions. It was, as the noble and gallant Lord said, the resource of last resort. My goodness, it was needed at a time of real peril in the nation and how the Territorial Army and the other Reserve Forces contributed. In 1938, at a time of increasing threat and concern for the security of the world, the number in the TA stood at 200,000. Today, at a time when nobody would suggest it was an entirely peaceful world, we have a Territorial Army and volunteer reserve of 30,000. That might be adequate if the regular forces were fully equipped, fully manned and able to cope fully with the resources that they have. But as has been made clear by a number of noble Lords, the regular forces now depend on the Reserve Forces to be able to deploy effectively and full time.

I recognise that deployment may be essential. I had the privilege to be the Secretary of State in the first Gulf War and I was faced with a totally unexpected event. When I arrived in the Ministry of Defence in 1989, I was never briefed by anybody. Within a year we were deploying tanks in the desert—something we had not done for 45 years. Indeed, in anticipation of the lack of likelihood of that event, the Ministry of Defence had sold all its desert camouflage uniforms three years previously to the Iraqi army, which showed just how far military intelligence had fallen short. I recognised then the tremendous contribution made by the volunteer reserves. Many of us saw it as a one-off, a task that had to be met, the expulsion of an aggressor from a territory that he should not have been in—that is, Saddam Hussein invading Kuwait. None of us anticipated at that time that this would become a permanent feature of deployment and that the services of the volunteer reserves would be required on such an enduring basis shortly thereafter.

I have serious concern about the situation that we now face with our volunteer reserves. They are certainly being used in a way that was never seriously contemplated and they are no longer just reserves. They are essential to the deployment of our Regular Forces. Our Armed Forces are seriously overstretched, as is recognised in the Ministry of Defence’s spring report which has just come out about the challenges faced at present and the fact that the Ministry of Defence will not meet its targets for sustainability. That is the measure of the challenges that we face. The reality is that nobody knows how long we are going to be in Iraq or in Afghanistan. This report on progress to date—which, as I said to the Minister, should have been in the House if it had arrived in time—says:

“In Basra City, 14th Division proved able to deal effectively and efficiently with isolated incidences of violence”.

I heard on the “Today” programme this morning that our troops are being deployed again in Basra city because of the need for the 14th Division of the Iraqi army to have extra support in the challenges it faces. So the situation is unpredictable in Basra and in Iraq generally. The situation in Afghanistan in Helmand Province when the moonlighting Taliban have come back from picking the poppy harvest is another concern for many of us.

It is against that background that I pick up a point made by the noble and gallant Lord. I used to spend time with my noble friend Lord Freeman going round the country, encouraging employers to release people to join and serve in the TA. I made the case, which I believe very strongly, that they ought to release some of their best executives. This was a wonderful career development for them and would give them leadership skills. We know that many companies now spend a lot of money on company courses and paintball exercises and various other artificial ways of trying to get people out of the office environment to get some real experience. I said there was nothing better for them than to join the TA and the volunteer reserves and to get that experience of leadership in an entirely different environment. But I was suggesting that their commitment would be a couple of weeks’ camp and a few weekends and drill nights and maybe the risk of something a bit more active. I never suggested to anyone, nor did anyone think, that I was encouraging them to send some of their key personnel—possibly the vital cogs in a small business—off for six months, with the risk that they might be asked to go back again thereafter. In the worst and most unfortunate of all circumstances, to which my noble friend Lord Freeman quite rightly paid tribute, there was the risk that they might not even come back. That poses a major problem.

I have been surprised at the way in which the volunteer reserves have held up as well as they have in the changed role that is now being demanded of them. Many people say to me that they love the excitement, the challenge and the completely different life. That up to a point is undoubtedly true and we know this from recruiting. Many people will do perhaps a three-year tour of service. The second time may be possible but the third time becomes much more difficult.

The figures are not entirely clear but they seem to be under considerable pressure at present, with the potential to fall quite significantly, which is a matter of great concern. So I welcome the announcement of the review called for by the all-party group last summer. I was interested to see that the Public Accounts Committee report said:

“Significant parts of the Reserve Forces are being restructured and undergoing other changes but the Department is making decisions on these changes in the absence of reliable management information about the cost and capability of Reserve Forces”.

What a serious allegation that is—that changes have been made without having the information on which to ensure that those decisions are well based.

It is against that background that I look to this review because I believe profoundly in the importance of our Reserve Forces. Bluntly, we do not really have any at present. We are living in the expectation that we shall not face any more serious dangers. As we failed to predict the Falklands War, the first Gulf War or the new developments which now face us in Afghanistan and Iraq, the idea that we can be jolly sure we know exactly what the future will bring is a singularly dangerous philosophy to adopt.

The noble and gallant Lord will remember the publication of Options for Change, when it was announced that with the end of the Cold War and the collapse of the Soviet Union, our Armed Forces would be reduced. However, we still kept a quarter of a million people in uniform. I was challenged by a BBC reporter who asked me, “What on earth are we keeping all these people for? Now that the Cold War is over and the Soviet Union is no longer a threat, why do we need to keep so many people? What threat do you anticipate?” I replied that it was the threat of the unexpected. That was a lucky answer because three days later Saddam Hussein invaded Kuwait and we saw what the unexpected could look like.

Against that background, no Government with proper stewardship of our nation’s defence and security can allow the country to continue without adequate and proper Reserve Forces. They have been an essential part of our framework and security in the past and we need to ensure that they continue on a strong and sustainable basis.

My Lords, I join all other noble Lords who have spoken in thanking the noble Lord, Lord Freeman, for introducing the debate and especially for the comprehensive way in which he covered not just the Reserve Forces but his role in the Army Cadet Force, which I shall mention later.

As a past serving member of the Territorial Army and one who served for many years in the Army Emergency Reserve, I am pleased to contribute to the debate. My long association with the Reserve Forces started when I was demobilised from the Royal Signals in 1952, following two years’ national service. At that time, national servicemen had to serve for three and a half years in a territorial unit following their demobilisation. I was very lucky as I was posted to the Army Phantom Signal Regiment in Hammersmith on demobilisation. I enjoyed my service there and signed on for four years. Any old soldier will tell you that you should never volunteer for anything but I became a volunteer. For many years after that I served in the Army Emergency Reserve. There were many benefits for those, like me, who were returning to their homes and jobs after two years away. The most obvious benefit was the continuation of the comradeship of the previous two years. I believe that friendships formed in the Army are very special indeed.

There were a number of benefits to being a member of the TA such as learning new skills, being trained in the use of modern weapons and keeping up to date with changes in training methods. The years that followed as a reservist in the Army Emergency Reserve had their moments. During the Suez crisis the Z reservists were called up. The net did not include Army Emergency Reserve members but we looked very carefully at the post every morning just in case the authorities decided that they needed heavy truck drivers. By that time I was in the Royal Army Service Corps, which later became the Royal Corps of Transport.

Today’s reservists face tremendous challenges. Their dedication and total commitment serve our nation well. They can be rightly proud of that. We, in turn, can be rightly proud of them. They face danger daily. We sometimes tend to forget that these people are away from their homes and jobs and face danger and conflict daily.

It is my understanding—the Minister might like to confirm this—that some TA units are being reroled: infantry regiments are being changed to Royal Engineers. This is a very important step that should be welcomed. To have reservists properly trained in the tasks that the Royal Engineers traditionally perform can, and probably will, be of benefit in times of national and international disasters.

As has been mentioned, a key factor in the whole question of Reserve Forces is the role of the employer. There have been stories of some employers making life difficult for volunteers when they return from their active service. I know that they are not typical. However, I should like to ask the Minister whether there are any new initiatives in the pipeline to encourage employers to make it easier for their employees to volunteer for TA service if that is the individual’s wish. The latest figures I read indicated that there are approximately 34,000 serving members of the Territorial Army and that the target strength is for an establishment of 42,000. Can the Minister say whether that is the present situation?

As we are recognising the tremendous contribution of reservists over the past 100 years, I hope that I may add a few words about the Council of Reserve Forces and Cadets Association—RFCA—which is also celebrating its centenary this year. I realised only when the debate started that the noble Lord, Lord Freeman, is the president. I wish him well and thank him for the role he is playing in bringing the cadet forces together. The RFCA is responsible for managing the Reserve Forces estate and the Army Cadet Force. The recruitment of youngsters into school cadet units is something we should encourage.

It is reported that the Youth Justice Board currently spends about £260 million a year on custody, with the rehabilitation programme for young offenders costing between £550 and £650 per individual per day. An air cadet costs approximately £700 a year. In other words, the cost of youth custody for just one person for a year could fund an additional 280 cadets.

I cannot speak about the long-term benefits of former Army cadets but as regards air cadets—in which I have an interest as a trustee of the RAF Museum—there is evidence that the cost to the country in dealing with young offenders is even greater after the age of 18 when the young offender has a significantly greater chance of reoffending compared with an ex-cadet with the same background. That gives food for thought. I believe that a similar analysis of those who have been through the cadet force system in the Army would show similar results. I welcome the enthusiasm of my noble friend Lord Adonis—the Minister responsible for skills and education—in seeking to bring state and private school cadet forces together. That is an important move which needs to be encouraged. By encouraging youngsters to enter the world of proper training and to learn responsibility I am sure that many of them will become volunteers in our Reserve Forces in later life.

I conclude my remarks with a reference to what I said earlier about my own TA service. Will the Minister undertake inquiries on my behalf? In 1953, along with two others from the Army Phantom Signal Regiment, I was invited to take part in the coronation of Her Majesty the Queen. Suitably dressed in a dress uniform I marched with others to our post at Hyde Park Corner. Noble Lords can only guess how proud I was that day. My question to the Minister is to inquire whether I qualified for the Queen’s Coronation Medal. I know that Captain Lloyd from our unit received one, but, then again, I suppose that corporals were not seen in the same light as captains. However, one can only hope.

I wish the reservists of our forces, from whichever service they come, good fortune and I thank them for what they are doing for us all.

My Lords, it is a great pleasure to follow the noble Lord, Lord Clarke of Hampstead. He recalled his national service days. I was a bit behind him in that but I too certainly remember Suez.

I congratulate my noble friend Lord Freeman on the outstanding way in which he introduced the debate. He did a service to the whole House. I compliment the Minister even before she has said anything. Over the past two months I have taken part in three Thursday debates and this is the first time that a Minister will reply rather than an unfortunate Whip. I congratulate her on that as it is the way in which Parliament should be organised.

I wish to make two comments based on a trip I made to the British forces base in Basra last month. I wish to comment particularly on the position of medical reservists in the conflict in Iraq and Afghanistan. I imagine that the majority view in this country is that the British forces in Iraq have been entirely sidelined, that they have withdrawn to their base at the airport and that they watch what is happening from afar, probably in some safety. That is not remotely the impression that I received when I was there or an accurate portrayal of what has taken place over the past 10 or 11 months.

Since June 2007, more than 800 rockets and mortars have been fired into the base which is, in effect, a small town with a 23 kilometre perimeter that is difficult to defend. People have been killed and injured. The forces are not just carrying out a defensive role, they are training Iraqi troops in urban warfare, they are carrying out anti-smuggling operations from Iran, and they are detecting and disposing of roadside bombs. As my noble friend Lord King pointed out, it appears that they are being deployed once again in Basra city itself.

The Iraqis are now in the lead. That is not a matter of criticism. To take over responsibility there is exactly what we want. The British still have an important role. That has been illustrated in the past month in the push that the Iraqi forces themselves have made to control the militias in the city, the so-called Battle of Basra. It is well known that the push came as a surprise to the Americans and the British. Nevertheless, it has been very successful. One of the reasons is that when the Iraqi supplies ran dangerously low, they were replaced by British army supplies and British soldiers operating from their base. The other feature is that the fighting was fierce and the casualties among Iraqi troops were heavy. For 48 to 72 hours, the field hospital at the Basra base worked around the clock dealing not with British casualties but Iraqi casualties, at times transporting them in under some difficulties. The House needs to remember that this is an area where, once you leave the base, the Red Cross on the side of the armoured ambulance is taken down because it is used as a target, not something to be specifically avoided. By all accounts, the treatment at the field hospital itself was excellent. It is that combined effort which is so important.

Army medical services in Iraq have been crucially dependent on Army medical reservists: consultants, doctors and nurses. It is one of the lesser known facts of the whole conflict just how great their effort has been. Before I went there, I did not fully realise it myself. So far, almost 2,000 Army medical service reservists have been deployed in Iraq, volunteers, drawn predominantly from the health service in this country and also giving a guarantee of 12 months service in a five-year period. Working together with the regular RAMC, they have made a superb effort there. As a former Health Secretary, I observe that the field hospital at the Basra base is impeccable. It is built in a desert and the temperature outside may be more than 40 degrees, but inside there is an atmosphere of cool efficiency. If you are in need of urgent medical attention, that is the place to go. I doubt whether there is any prospect of MRSA there either.

Medical reservists are serving not just in Iraq. Six hundred medical reservists have been deployed in Afghanistan. As we speak, there are more reservists there than in Iraq. The excellent House of Commons Select Committee on Defence, under my old friend James Arbuthnot, points out that reserve personnel play a crucial role in the delivery of military healthcare. The Territorial Army has so far met around half of the Armed Forces medical commitment in Iraq and Afghanistan. My noble friend Lord Freeman said that we cannot operate without those reservists. The noble and gallant Lord, Lord Craig of Radley, made a similar point.

I speak as a total admirer of the RAMC regulars and reservists. Against that background I ask the Minister a number of questions. In the evidence that was given to the House of Commons Select Committee, the British Medical Association argued that, given the choice of two equal candidates for a consultant post, an employer is likely to appoint the candidate with no reserve liability. Similar problems were likely to exist in general practice. Reserve liability will often be considered a handicap and a disincentive to recruit. I do not know how accurate that comment from the BMA is, but that point was touched on by the noble Lord, Lord Hoyle. Can the Minister assure the House that that is not the case? We all understand the problems the National Health Service has in meeting demand. But the reservists are men and women who are committed to the health service, and are also prepared to volunteer and make an additional and dangerous contribution to caring for wounded soldiers. Rather than this being a disadvantage in employment, I would hope that the health authorities would regard it as an extra commendation.

Perhaps the more fundamental question is whether we have become too dependent on reservists. With operations in Iraq, Afghanistan and elsewhere, are we becoming overstretched in this vital area? What is being done about the recruitment and retention of our Regular Forces? This is part of a much wider question. Nevertheless, it is a crucial one. We cannot take on commitment after commitment and hope that the system will take the strain. Our commitments must be in proportion to the sources that we are prepared to devote. Just like elsewhere, there are important issues of policy regarding medical services that we wrongly take for granted.

I agree strongly with the Commons Select Committee that the role of the medical reservists needs to be recognised more. It is largely unknown by the general public. It deserves far more than that and the Ministry of Defence might turn its mind to that. The reservists are doing a vital job in caring for casualties. They are often doing it under very great danger indeed. Those serving today and those who have served in the past deserve the most enormous credit and praise.

My Lords, we are all grateful to the noble Lord, Lord Freeman, for the opportunity for this important debate. The noble Lord, Lord Fowler, and I have some shared concerns. Noble Lords will hear some of the things that he has said repeated by me. They are none the worse for that. General Sir Michael Jackson said in a recent Dimbleby lecture:

“It is our soldiers who pay the cost in blood. The nation must therefore pay the cost in treasure. Soldiers and their families must be properly valued, and when I talk of the soldier and his family I am talking not only about the regular army, I very much include the reserve, the Territorial Army, and the reserves in the other two services. They, too, play their notable part: they take the risks and the contract applies to them equally”.

I am indebted to the Royal British Legion for much of what I am about to say, particularly about the practical issues which need to be addressed if we are to support the reservists as well as celebrating their unique contribution to defence. There are 88,000 reservists in the Armed Forces. More than 12,000 were deployed in Iraq during the war-fighting phase. Even now, 4 per cent of those in Iraq are reservists, while in Afghanistan 9 per cent of the force are reservists. They are particularly vital in meeting pinch-points defined by the National Audit Office and by the admirable Armed Forces Pay Review Body, especially in the field of medicine. They will certainly be vital as regards civil contingency, which has been mentioned as a unique and rather new contribution to defence.

The chairman of the Armed Forces Committee of the British Medical Association recently told the Select Committee on Defence that being repeatedly deployed does a career no good. Reservists lose out over training, and employers, including the NHS, are increasingly less enthusiastic in support after repeated redeployments. We are not looking at a tour every other year, but tours at frequent intervals. Harmony has gone out of the window. Reservists meet the shortfall of 55 per cent in the medical services. Retention of the Defence Medical Services’ doctors is critical and must be addressed as a major priority.

The practical issue that is of special concern to me, however, is aftercare for all reservists returning to the community. Research into health surveillance has been carried out at the King’s Centre and demonstrated that reservists were reporting mental health issues at double the rate of their regular counterparts. As a result, the MoD has introduced the Reservists Mental Health Programme. This has been warmly welcomed by the legion, but there is one major difficulty which must be tackled at once. The programme offers a mental health assessment to reservists who have been in active deployment since 2003, and anyone diagnosed with PTSD, or any other stress-related disorder, is eligible for treatment through the department of mental health.

However, the great difficulty is that 84 per cent of GPs, through whom referral must be made, have, on being questioned, said that they knew nothing at all about the programme. If they do not know, it is very probable that their patients do not. Reservists already tend to be more isolated when they return to civilian life than regular soldiers and are therefore probably more prone to stress. It is vital that they should know that their GP can refer them and that help is available. A clear and simple notice about this should surely go to all GPs.

Reservists injured in operations are entitled also to priority treatment by the NHS. In many cases, the NHS does not appear to know this. Not least, reservists’ families, like service families, will often need welfare support. The Defence Committee remains concerned, in any case, that medical records do not transfer as seamlessly from the Armed Forces to civilian life as they could. Too much is left to the initiative of the patient. Reserve units should have, as the NAO has recommended, adequate, dedicated provision of welfare support. Families can be very isolated and post-traumatic stress and alcoholism, often a factor in that stress, all have serious consequences for the family as much as for the reservists themselves. They take time to surface and a safety net needs to be put in place soon.

The Army Families Federation expressed concern to the Select Committee about the need for much clearer, better information to be available. The MoD’s very good initiative is wasted without a really effective campaign to inform GPs, the NHS, the reservists themselves and their families, and the public of what is available and what rights reservists have to priority treatment. It will save many lives over many years.

I submit that Her Majesty’s Government also need to recognise the vital role played by the charities; the Royal British Legion, SSAFA, Combat Stress and the service charities to name only a few. Recently, I was deeply impressed to find that the legion, Citizens Advice and the RAF Benevolent Fund have combined to set up the unique Benefits and Money Advice unit. It is available to serving and ex-service men and women through 19 citizens advice bureaux. Citizens Advice is already working with the Veterans Policy Unit in the MoD. Could it not produce some simple leaflets telling reservists and all veterans their priority rights in the NHS and the special services available on referral by GPs? These could be distributed through the BMA, the family federations and the charities, as well as by the appropriate service organisations and perhaps the CABs. We need to demonstrate practical support for the people who are serving the country so well.

Unfortunately, the DMS does not track reservists or regular veterans once they have left service. The Defence Select Committee recommended introducing a robust tracking system for veterans, which could include reservists, to ensure that they are receiving the healthcare that they need and are entitled to. The MoD and the NHS would need to work, as the legion says, in partnership to design and implement such a system. The legion would support it and believes that one possible way to help deliver priority treatment more successfully would be through the introduction of an NHS tracking system for veterans. An opt-out tracking system would, in the view of the legion, make it much easier for health professionals to identify veterans and reservists and give them their due. Perhaps the most important recommendation in this area is that of the NAO that information supplied to reservists’ families should be written in plain English, and that all reserve units have adequate, dedicated provision of welfare support. We cannot say that we are supporting, admiring and valuing these people if practical steps to help them in their daily lives, and those of their families, are not taken.

My Lords, I, too, thank the noble Lord, Lord Freeman, for introducing the debate. I join others in expressing admiration and pride for the selfless service of our men and women undertaken in the past few years. It is outstanding, and we must recognise that it is enabled only by the exceptional support of their families. They continue to run the home and family life, often on their own, for six months or more, coping with all those life problems that used to be shared.

In debating the future roles, we are also providing ideas and discussion for the review team. Today, that team has the luxury of hearing all the answers without having to ask the questions. We should bear in mind that the customers of the reserves are the Regular Forces. It is often said that the customer is always right. They are the ones who need the support, and if the reserves are not supplying the relevant numbers and skills, they become unsustainable.

The first step is, therefore, for others—senior officers currently serving—to define this support precisely: that is, what the regulars require and what they expect to receive when it arrives. The second step is for the review team to gather the evidence to form an opinion on how that can best be done. Having accepted the review team’s recommendations, the third step is that the Government must fund the reserves to this level. Should they not do so, all will have been in vain, and the operational commitments as they appear in the medium term will not be sustainable.

I want to comment on the second step—on the TA, because that is where my experience lies. First, I note that the review team consists of officers and MoD civil servants. There is therefore an absence of independent civilians with no direct military involvement or special loyalty to the system. Yet, we recruit reserves from the civilian community. Once recruited, they spend 95 per cent of their lives in this community. It is only when they are mobilised that they enter the military community. Your Lordships can see that the review team very much comes from within the MoD. Will its members not be prejudiced a little, as we all are when we come across the military and we are all very impressed—even those who have been on the Armed Forces Parliamentary Scheme, which I have not? What can be done to address this issue?

I realise that civilian consultants have been taken on. However, it is sometimes said that consultants produce a report that suits the purpose. If we are dealing with the civilian community and we know of the problems of awareness in that area, we must get out there and learn more about the potential and how to harness it. This review is the equivalent of a committee inquiry in the House, perhaps, whether EU-related or otherwise. We are constantly told of the value of these reports for precisely the reason that they are objective and not influenced by prejudices. In addition, does the Minister agree that the review should have verbatim shorthand transcripts of all the evidence? It adds much more value to successive witnesses’ evidence if they have some idea of the direction in which the review is going prior to appearing before it. This written evidence could be kept up to date on a website, as it is with committees.

I have one final point on the review. There should be a comprehensive call for evidence, as we would issue for an inquiry here, to all organisations, employers and reserve bases. This should be placed on the internet and, as is the case in this House, there should be press releases to tell people where to find it on the internet. The comments and returns that we get may be useful, and even refreshing or shocking. We must have the widest participation.

On the subject of recruiting, most units are understrength, so it is important that we improve this. The new organisation, the Recruiting Group and Commander Regional Recruiting, seems to be working well in Northern Ireland, although I have heard contrary reports about it in mainland GB. The recruiting team needs to be aware of this and to look into it. Apart from via current TV and newspaper adverts, schools and word of mouth, how do civilians access the system? What presence do we have in the civilian job market—in jobcentres and so on? I fear that it is too little or almost non-existent, yet we are trying to communicate with that civilian client group. Army recruiting offices are perhaps formidable places. Some people do not like to be seen by their friends to go in there. Also, they appear to be organised for school leavers, who may wish to join the Regular Forces. However, many reserve recruits are mature people with jobs. I am sure that they can wholly reflect the opportunities, commitments and career enhancement of the reserves—but do they? In short, they might not really market the job very well.

Clearly, we fail to achieve our aim of full recruitment. In officer recruiting, we are said to be achieving about half the numbers that we wish for. I am aware of the university OTCs, but I wonder whether there is more that we can do in this area to encourage potential reserve officers. Could we, for instance, tie membership of the OTC, and a commitment to reserve service of two or three years, to a refunding of some or all of an individual’s student loan? This would perhaps be taken quite well. Even at £5,000 or £10,000, it would be good value. Before the MoD jumps up and down and refuses to cost it, what about one of the other departments, such as Work and Pensions? We are told of the excellent benefits to employment and careers that such service involves, so it could be somebody else’s responsibility.

I make a few points about training. One issue is the reduction in, or non-availability of, funds for adequate training in units that are not currently on the operations plot. This has the effect of personnel in those units lacking job satisfaction and motivation, and suffering a reduction in morale. It also affects recruiting. There is strong anecdotal evidence that some potential recruits are avoiding those units, trying to find another and sometimes giving up, on the basis that they wish to go on operations. If we have units that are not relevant to current operations due to size or skills mix, should they be sustained or should they be reroled for the time being and attached to a more relevant unit? We should remember that the TA is by nature flexible.

In Northern Ireland during the Troubles, we had part-time battalions up to 1,500 strong. That was on the basis of trying to get a regular battalion’s patrolling capability. Perhaps we should amalgamate more reserve units to form larger battalions, if necessary retaining their historic names, but under one umbrella. Composite companies would be easier to form for tours, and the remainder left behind would still provide continued structural integrity and formed unit training ability. Currently, with company-sized deployments, this is often not the case. There would also be fewer named units off the ops plot with the previously described problems.

We have two types of reinforcements—individuals and formed bodies. We have heard about the specialists, who are very good as individual reinforcements—ATOs, signallers, medics and so on. However, it is not necessarily so with soldiers. We also have formed bodies. For instance, at the moment Imjin Company of 2 Royal Irish, of which I am honorary colonel, is on operations in Afghanistan, as a complete composite company with 1 Royal Irish. It consists of 100 Territorial Army and about 30 regulars, commanded most ably by a Royal Irish TA major, Mark Hudson. It is a great credit to the TA and an example of best practice in such deployment. This is not the first TA company deployment, but it is the first to go with a sister or parent unit, which has that advantage.

On retention, the National Employer Advisory Board is key. I will not go into this, as the noble Lord, Lord Glenarthur, is speaking immediately after me. My only point is that the other imperative is to maintain the support of the families. Maybe they should also come under the umbrella of such an organisation, since this important triangle consists of the serviceperson, their family and the employer.

I speak on aftercare for a moment. The subject was brought up by the noble Baroness, Lady Park. I spoke about this in the debate on the Queen’s Speech and I will not repeat myself. When the Minister kindly replied to me in writing, she pointed out what progress was being made in coping with mental health in the veteran community. However, I make the point that government plans rely on these cases walking into medical centres. We have had nearly 40 years of experience and the truth is that patients suffering delayed mental illness do not just walk in, and an outreach organisation such as we have in Northern Ireland is required. Many military people agree with this.

When I saw the Secretary of State in his office last Tuesday, I understood him to say that, because of improved practices such as in-theatre psychiatrists and post-op decompression, he did not expect the mental after-effects to be as extreme as after the Falklands War. I am not a psychiatrist, but I wonder how many of them would agree. When I asked him about regimental associations and keeping in contact with veterans, he said that this was their affair and that he did not want to interfere. However, the fact is that there is no regimental association forum or central discussion of best practice, and associations have vastly differing amounts in their benevolent funds with which to work. There is a services welfare conference on 8 July. This morning, the Secretary of State’s office was unable to tell me whether these people had even been asked to it. That is an omission.

I have one more point. When the Commons Defence Committee produced its report on mental health, it was not even made aware of our situation in Northern Ireland, with our 40 years’ experience. When I spoke to the chairman, he had not even heard of the aftercare service. Secondly, after the CGS opened our facility recently, it was suggested that perhaps there should be a presentation at this conference. Within 24 hours, the Under-Secretary of State’s office had turned down the suggestion, saying that the subject could remain on the fringes, but that the Under-Secretary would go and see the unit some time. There is no justification for keeping such innovative ideas out of such an important discussion on our soldiers’ welfare. I look forward to following the progress of the review team, perhaps even on the internet.

My Lords, I, too, thank my noble friend Lord Freeman for securing this important and timely debate. I join him in celebrating 100 years of the Territorial Army. It is not often that we have a full debate on the reserves in your Lordships’ House, although we regularly refer to them in ordinary defence debates. I was astonished that the only debate I could find was introduced by myself on 12 December 1979. I was even more surprised to discover that, apart from myself and Lord Strathcona and Mount Royal, who replied for the Government, I am the only one still alive—apart from my noble friend Lord Hayhoe, who was a Minister at the time and who was referred to in the debate. Perhaps we should return to this subject more regularly.

I must declare a number of interests. I am chairman of the National Employer Advisory Board for the reserves, which takes informed, independent advice to Ministers and chiefs of staff on how to win and maintain the support of the employers of reservists. Through that role, I play a part on a number of MoD committees and studies. I attend the council meetings of the Reserve Forces and Cadets Association with my noble friend Lord Freeman. I am also honorary colonel of 306 Field Hospital (Volunteers) and Honorary Air Commodore of 612 (County of Aberdeen) Squadron Royal Auxiliary Air Force. That is another medical unit and I very much endorse the comments made by my noble friend Lord Fowler on the Defence Medical Services.

Through all these activities, it is obvious that I meet many reservists and I can testify, as others have done, to the enormous professionalism, skill, commitment and bravery of them all. I spent a couple of days in Afghanistan in April, with representatives of employers and from the Ministry of Defence. To see reservists, whether in formed units such as that of the noble Viscount, Lord Brookeborough, Imjin Company, to whom I spoke, or as individual reservist reinforcements playing such a full part, enthusiastically and in a way that made it impossible to tell them apart from their regular counterparts, so complete was the integration, is humbling. I have to say to the noble and gallant Lord, Lord Craig, that I was privileged to be talking only the morning before he died to Senior Aircraftman Thompson. What an impressive person he was. How proud his family must be of him.

I will concentrate my remarks on the importance of employers to the generation of adequate numbers of reservists. My comments are entirely my own personal comments, and they do not necessarily reflect the views of the National Employer Advisory Board. I am extremely grateful to the Minister and her ministerial colleagues, the Chiefs of Staff, the director of Reserve Forces and Cadets staff and the chains of command for the ready access which, over a number of years, they have afforded me and my board, so that we can be enabled to offer the advice that we do.

The attitude of employers to reserve service is one of a number of issues affecting recruitment and retention. The attitude of families is another. Employer support has held up remarkably well to continued mobilisation over the past five or six years. It is worth saying to the noble Lord, Lord Clarke of Hampstead, that research that we have shows that 87 per cent of employers believe that reservists should be supported by employers as a matter of principle. That is a very encouraging fact.

The numbers of appeals against mobilisation, from either the reservist or the employer, is very low. That is largely due to what is known as intelligent mobilisation, where the individual volunteers well ahead to be compulsorily mobilised for operations at the moment at which they should be, to comply with the necessary relevant Acts of Parliament. The Reserve Forces Act 1996 stipulates that for the current operations, in Afghanistan and Iraq, a reservist should not be mobilised for more than 12 months in any three-year period. The published defence intent is for mobilisation for not more than 12 months in any five-year period. The new Armed Forces Act allows a volunteer to agree to be mobilised for more than 12 months in any three-year period. Although the latter is more likely to be applied to the unemployed, the three elements could be confusing to an employer.

Intelligent mobilisation has been a success so far but, like my noble friend Lady Park of Monmouth, I am nervous that it may not remain a successful policy for ever. There are a number of instances where niche capabilities have to be provided more regularly than one year in three. With some 1,700 volunteer reservists deployed currently in any one year, I am bound to wonder for how long the voluntary element alone will be sustainable, without recourse to compulsory mobilisation for those who do not volunteer. If that becomes a necessity—I hope it does not—what will be the effect and the reaction of employers? As the noble and gallant Lord, Lord Craig of Radley, asked, how do we safeguard their willingness to release their employees?

Employers receive a degree of financial compensation for the provision of replacements for their mobilised staff under Statutory Instrument 859, but whether that is sufficient, or will be in the future, is difficult to tell. I welcome research that is going on in the Ministry of Defence on whether further incentives along that line could be introduced. One of the key elements in an effort to maintain understanding of reserve service has been the work of SaBRE—Supporting Britain’s Reservists and Employers—which my noble friend Lord Freeman referred to. It is in effect the organisation set up by the Ministry of Defence to support the relationship between reservists and employers. It also generates data and measures the level of employer support for reservists. Over time, it has become rather more about engagement than simply support; in effect it generates dialogue among all those concerned.

Whereas SaBRE used to be based in the Ministry of Defence, it is now co-located with my noble friend’s Reserve Forces and Cadets Association headquarters in London. It remains an organisation in which my board takes a close interest. Indeed, my board advises the Ministry of Defence and SaBRE on the strategy, content and mix of the SaBRE marketing plan, as well as on the efficiency and effectiveness of the SaBRE campaign. Staffed by experienced and qualified marketing professionals, it has been largely instrumental in securing and promulgating the key messages to employers and reservists over the years and on how best to adapt the messages in the light of changed circumstances.

SaBRE has excellent regional campaign directors, who are co-located with my noble friend’s Reserve Forces and Cadets Association. It often worries me that there appears to be some variety—overall, I have lots of admiration for the work of RFCAs—as to how the RFCAs locally deliver the SaBRE campaign in their regions and consequently how the increasingly slender funds that SaBRE has at its disposal can be used to best effect. The SaBRE budget of effectively under £3 million a year is woefully inadequate for what is required.

There is one other related area of growing importance, which runs under a number of headings—defence and society, Armed Forces and society, the defence contribution to society, or whatever one wants to call it. As my noble friend Lord Freeman said, the reserves have a key role in developing that concept, because they are a natural bridge between the military and civilian elements of society—they are in both. The responsibility also lies in the chains of command, with the RFCAs and others. The maintenance of accurate data about employers is a key element in SaBRE’s activities. It also helps to inform the internal review of employer support that is ongoing in the MoD, which in turn will help to inform the reserves review, which has been spoken about.

However, there is no MoD central policy on Armed Forces and society—or whatever it is to be called—which is awkward. The result could be that the chain of command activities to develop competing databases without any formalised, overarching strategy or management controls and protocols on how they will be used might well have a damaging effect on the ability of SaBRE to conduct its remit. To my mind, its central remit cannot be subordinated to or replaced by a regionally based structure, however well intentioned. If it becomes so, SaBRE centrally will lose its independence, and the MoD’s whole employer support strategy, including the future of SaBRE, will be put at considerable risk. I hope that the noble Baroness can take that away and reflect on it, because I regard it as a serious matter.

The last element that I will mention is the substantial appetite for industry to find innovative means of supporting reservists and getting tangible rewards in the form of the experiences brought back to the workplace by those routinely trained and those who are mobilised. Many of their skills are just the kind that the Armed Forces are so good at generating, such as, as my noble friend Lord King of Bridgwater, said, leadership, communications, decision-making, loyalty and team-working, to name but a few. It is a sad fact that those and other attributes are not as prevalent in every aspect of civilian society as they ought to be. Some encouraging work is already being done, but I want the Ministry of Defence to continue to explore, develop and embrace imaginative proposals that have the capacity to lead to much more flexible careers covering the Regular Forces, the reserves and the civilian workplace.

Recruiting and retention for the Regular Forces, let alone the reserves, is not without its difficulties. We should be much more imaginative and inquiring about how, in a very changed world from that which prevailed 30 years ago, we strive to maintain the viability of the totality of our Armed Forces. Employers, large and small, are mostly willing to bear the burden of their employees being released for military duties. Let us engage with them, so as to complete a virtuous circle of opportunity. Let us not be too reluctant or hesitant to explore ideas and opportunities that may not necessarily fit within contemporary doctrine and procedures. Many parts of industry and commerce can move more rapidly than the Ministry of Defence in grasping new ideas. I—

My Lords, I am just coming to my conclusion. I hope that the Ministry of Defence can more readily accept the concept of partnership with industry, rather than a customer-supplier relationship in this regard. I am sure that the reserves review will take account of those issues. If it does, the Regular Forces, the reserves and employers will benefit, and so will society as a whole.

My Lords, I am delighted to speak in this debate and to pay tribute to my noble friend Lord Freeman for his wonderful work for the RFCAs. I am president of the Reserve Forces and Cadets Association for Yorkshire and the Humber and vice-president of the North of England Reserve Forces and Cadets Association. The reason for my close involvement with those organisations is not because of a distinguished military background, but because traditionally, as my noble friend mentioned, the RFCAs have lord-lieutenants as their presidents and we chair the main meetings. My area is North Yorkshire and I am the only lord-lieutenant with a seat in the House of Lords. This is in marked contrast to days gone by when a high percentage of lord-lieutenants had seats in your Lordships’ House. All were men and all were drawn from a services background. All that has very much changed and the noble Baroness might be pleased to know that about a third of lord-lieutenants are women. Things have changed a great deal.

It is a great honour to be connected with the Reserve Forces and all of us in the Chamber today are very much aware of the contribution that they make to the enactment of our defence policy. I wish to touch on three aspects of the Reserve Forces from a north-east perspective: first, the nature of the commitment of reservists to current operations; secondly, the special pressures that they face; and, thirdly, the impact that integration of the reserves with the Regular Forces has and will have.

In Yorkshire and the Humber, 352 reservists from the three services have been deployed to Iraq and Afghanistan in the past three years. They have made a significant and valued contribution. A similar number have been deployed from the north of England area. In the next 12 months, it is planned that approximately 300 TA personnel will be deployed on operations from the north-east. Most are deployed as individuals or in small groups to augment regular units. In some cases, the reservists provide unique capabilities, such as the 201 Field Hospital and the 212 Field Hospital in Afghanistan last year. Indeed, much emphasis has been put on how important the medical aspect of reservists is.

General Sir Richard Dannatt, in his speech at the Guidhall last Thursday, following the service in St Paul’s to mark the 100th anniversary of the Territorial Army, said that when the bullets are flying, regulars and reservists are one and the same. A number have made the ultimate sacrifice and some have sustained serious injuries. At a recent RFCA meeting at Imphal Barracks in York a private soldier from the Yorkshire Regiment TA Battalion gave a moving account of what happened to him and how he is adjusting to life, after losing a leg as a result of a roadside bomb in Basra while his colleagues lost their lives. We all greatly admired the inspirational way that he was coping. He is making the most of his altered circumstances and has just been accepted to read prosthetics at university. There were about 100 members of the RFCA at that meeting—the sort of number that we normally attract. They are drawn from all walks of life in our locality. We are delighted that the noble Lord, Lord Ahmed, recently agreed to become a member.

Although when the bullets are flying, reservists and regulars are as one, it is important to differentiate between the challenges faced by reservists and those of the Regular Army. Reservists’ training is inevitably spread over long periods, but the aim is to deploy them with and on a par with the Regular Forces. They have to manage relationships with families and employers, whereas regular servicemen can assume some understanding of the circumstances of any deployment that he or she has on operations. The problem of managing these relationships is exacerbated when reservists are deployed for two or more tours. A noble Lord pointed out that the first time is very exciting and the second time is rather less so.

The welfare structures available to the Regular Forces have perhaps not been as immediately available to reservists, although I am told that the situation is improving. But if a reservist returns to the UK with medical or psychological problems, he will receive support from his local NHS wherever he happens to live. However, it is possible that the NHS in that area simply may not have the experience to deal with his or her problems. That, of course, can lead to difficulties.

I wish to touch on the process and impact of integrating the reserves with the Regular Forces, which has been articulated in the one-army concept. There is inevitable tension between the needs of the Ministry of Defence regarding its Reserve Forces and the recognition of what reservists expect regarding their families, communities and their employers. The basic nature of the volunteer reservist remains territorial, by which I mean that in general a reservist is unable to travel any great distance to make his or her contribution to the forces. It is important that this fact is recognised in the terms and conditions of service and in any supporting legislation. Reservists must be able to train within striking distance of their homes.

A further problem attached to the one-army concept is that it perhaps fails to recognise that the Reserve Forces provide a footprint across the United Kingdom that ensures that the services do not become too distant from the population at large—the very communities from which the reserves are drawn. Any plans to remove reservists into fewer locations, perhaps adjacent to existing Regular Forces locations, must take into account the potential loss of the footprint. For instance, in North Yorkshire, the principal base for Regular Forces is Catterick Garrison, which is the largest garrison in Europe. It would not lend itself to providing a base for TA units.

Finally, regarding the future of reserves, I wish to comment on the effectiveness of the 13 regional Reserve Forces and Cadets Associations. They are the only organisations that support reservists from all three services and the cadet forces of those services. They provide the practical bridge between units, members of the reserves and the local communities from which they are drawn. As I said, our membership in Yorkshire and the north-east is drawn from a wide variety of people.

The RFCAs have moved with the times, and a lot of restructuring has gone on in the past two or three years to provide better support to the reserves, employer support, and to develop the MoD's youth agenda through the cadet forces, in support of regional youth initiatives. One-army recruiting, which has centralised regular and TA recruiting, removes a lot of responsibility for recruiting to the TA from RFCAs, which many see as detrimental to TA units. I strongly urge that in the forthcoming review of the reserves, care is taken not further to reduce the effectiveness and contribution of our RFCAs.

I take this opportunity to thank the reserves—as every noble Lord has done—for the admirable and selfless part that they play in operations alongside their regular colleagues. I also emphasise the need to recognise the aspirations and expectations of the reservists. Finally, I caution against overenthusiasm for the full integration of our forces, because it does not take into account the different circumstances of being a reservist compared with being a regular soldier.

My Lords, I, too, thank my noble friend Lord Freeman for providing us with this opportunity to reflect on the rich heritage of our Reserve Forces over the past 100 years and their remarkable and proud achievements in the service of this country. It is a service that continues as we speak, as was emphasised by my noble friend Lord Glenarthur and many others.

I hope that I may be allowed to speak up for the Naval Reserves. I have a particular interest in the Royal Naval Volunteer Reserve, which, as noble Lords may be aware, was established four years before the Act founding the Territorial Army, by the Naval Forces Act 1903. I suggest that the formation of the RNVR helped to spur initial thoughts about having a formally reconstituted reserve land force. During the passage of that Bill, Sir John Colomb, Member of Parliament for Great Yarmouth, suggested that if we had naval volunteers willing to serve anywhere, why not also have military volunteers.

My grandfather regarded the founding of the RNVR as the greatest achievement of his life. He had found himself as a volunteer attached to the Royal Naval Brigade in the Boer War in charge of a 4.7 inch gun. In spite of Admiral Sir George Tryon, as First Sea Lord, having done away with our reserves in 1893, he felt keenly that with proper training they could provide very necessary reinforcements. He organised civic meetings up and down the country, culminating in one convened by the Lord Mayor of London, with large numbers of mayors and parliamentarians attending.

Having presented the departmental committee of the Admiralty with a detailed scheme of training, he was appointed a member of Sir Edward Grey's committee to frame the general guidelines of the proposed RNVR. That was presented to Parliament along with the Naval Estimates in 1903 and was followed by the passing of the Naval Forces Act in June that year. Following the passage of the act, the Admiralty appointed my grandfather as one of the two first commanding officers of the RNVR in August. My grandfather established the Clyde Division, the first RNVR unit to be formed after the passing of the Act that October. The division expanded rapidly and formed the heart of modern HMS “Scotia”.

My grandfather later held positions as Commodore of the East Coast of Scotland RNVR and Commodore RNVR. His efforts and contributions were recognised when a motor mine sweeper, FY233, was renamed HMS “Montrose” in his honour. I am proud that that namesake continues to date with one of the Navy's Duke class type-23 frigates. All that was done by a man who was so deaf that he realised that the Boers were shooting at him only when he noticed the plaster flying off the wall beside him.

In many ways, the rationale of the original Royal Navy Volunteer Reserve and the relationship that evolved between the RNVR and UK land forces in response to wartime demands is still evident in the roles and tasking of today's Reserve Forces. That heritage arguably also provides some valuable context for the strategic view of Reserve Forces that, as my noble friend Lord Freeman mentioned, is currently being conducted by the Ministry of Defence. The RNVR was formed when the pace of naval expansion at the beginning of the 20th century meant that the Royal Navy Reserve, which was composed only of volunteers who already had seagoing backgrounds, could not by itself meet growing manning demands.

In addition, my grandfather was horrified to find out that at that time, the RNR had 48 drill ships with 233 guns, but of those, 104 were muzzle-loaders. If we think that equipment update is a problem nowadays, we can think what it must have been like at that time. The RNVR permitted civilians without seagoing experience to join and train. The benefits were twofold: not only was the Navy able to meet its growing manpower requirements; it was also able to utilise key civilian skills and trades held by the members of the RNVR. Today, these issues are no less pressing, which the Ministry of Defence has to address. I am told that the current review of Reserve Forces is looking at the scope for greater integration into the Regular Forces. Other Peers have mentioned this. As with the original rationale for the RNVR, today’s reservists continue to help address manning shortages. There is significant debate about whether they should be deployed as back-fillers or formed as units.

The MoD’s review is also looking at how to capitalise on the civilian skills that the reservists possess. This was, likewise, a key consideration in the passage of the Naval Forces Act 1903. The First Lord of the Admiralty, the fifth Earl of Selborne, noted the value of,

“special ratings in which a Naval Volunteer may be of particular use if he has taken every opportunity in time of peace to perfect himself according to the opportunities given him”.

These special ratings at that time included electrician ratings, mechanics, artisans and signal ratings. Today’s reserves, as stated by my noble friend Lord Freeman, bring skills in medicine, public affairs, media handling, and civil-military co-operation and reconstruction, among many others. Each of these is vital in meeting the multitude of complex demands in modern conflict zones. I am also aware that a balance must be struck. Not all reserves want to use their civilian specialisations in service; they want to develop entirely new skills.

The Reserve Forces have always been a versatile component of the national defence capability. Today their unique specialisations ensure that they not only work in operating environments of their parent service, but across the entire battle space. This reflects back to the founding of the RNVR, and its role in the First World War. During the passage of the 1903 Bill, the fifth Earl of Selborne made a pledge that no volunteers would be needed on land or—especially—on sea. The secretary to the Admiralty, Hugh Oakeley Arnold-Forster, noted that time would show the best use that could be made of them. As my noble friend Lord King described, the Territorials were very much required on the ground in the First World War. On the proclamation of war, the naval volunteers were summoned to report at their divisional headquarters, relatively few were drafted to ships of the fleet. As a result of the shortfall in infantry divisions, the majority of the RNVR formed two new naval brigades, along with members of the Royal Naval Reserve and the Royal Fleet Reserve. These brigades later became the Royal Naval Division, a naval fighting force on land, which saw distinguished service in the Dardanelles and the Gallipoli campaign on the Western Front in 1916. The Royal Naval Division was retained under Admiralty control and retained naval traditions, even though it fought on land alongside the Army. Finally, the RNVR was amalgamated with the Royal Naval Reserve in 1958.

Our Reserve Forces have been, and will remain, a vital national asset. Today has provided us with an opportunity to reflect on their heritage, and their significant and ongoing contributions to national defence. I hope that this debate provides a context for the Ministry of Defence’s strategic review. Difficult decisions need to be made about models that will allow for the most usable and sustainable Reserve Force structures. This notwithstanding, one clear and unquestionable requirement is for the Government to commit to appropriate service terms and conditions for the reservists.

My Lords, like every other speaker, I address my appreciation to the noble Lord, Lord Freeman, for taking the opportunity provided by the celebration of the centenary. He also gave a masterly review of the history of the Territorial Army and the vicissitudes that have befallen it over the past 100 years. Declarations have been made as to qualifications for speaking in this debate; I do not have many, but I was a proud member of the Home Guard, the local defence volunteers. During the war, LDV quickly came to stand for “look, duck, vanish”, but it provided me, at the age of 16 and 17, with an opportunity to serve the nation. That is how I look upon the Territorial Army. They are volunteers. They do not have to volunteer out of a, perhaps, “cushy” job in civilian life, but they are imbued with a desire for adventure and change. They see the opportunities for that. The phrase “to capitalise on civilian skills” was used by my noble kinsman, the chief of my clan, Clan Graham, who preceded me in this debate. That is what the Territorial Army is all about.

I have a book entitled, From Tyne To Thames Via The Usual Channels, by someone called Lord Graham of Edmonton. Inside is a photograph of the Home Guard unit of which I was a member. The House should be interested to know how units of the Home Guard were formed at that time. I was then, and continue to be, deeply involved with the Co-operative Movement. My unit were all employees of the Newcastle Upon Tyne Co-operative Society. Our top man, our CO, was Bill Richardson, the head of the menswear department. The sergeant was Bob Ridley, the branch manager at Fern Avenue Co-op.

In preparing for the debate, I looked through the book and recognised most of the unit. The phrase “to capitalise on civilian skills” fits very well. We had no skills as military men, but, in the main, we also were old soldiers. I was a young soldier yet to go into the forces. I went into the Royal Marines when I was 18 years old. Therefore, I have a link. One of the great things that Parliament can give us is the opportunity to meet in all-party groups. I am deeply honoured as an ex Royal Marine to be a member of the Royal Naval Association.

I looked through this book to see whether there were any other things to which I should like to draw your Lordships’ attention. One of the great differences between this House and another place is that not many people there have seen active service. In this place, there is an abundance of them. When we debated the War Crimes Bill in 1991, the noble Lord, Lord Campbell of Alloway, told the House with all modesty that he could not contribute much because he had been a prisoner of war at Colditz. On the Liberal Benches, John Mackie would get to his feet and tell us with all modesty that he had been a bomb aimer pilot during the war. The average number of flights over hostile territory was 12, but he did 75. In this place, we live in the midst of modest heroes.

This is what happened to this modest hero—myself. The book says:

“Corporal T. E. Graham”—

I lost my stripes shortly afterwards—

“was then actually on His Majesty’s Service in that he was attending under instruction a field firing exercise and sustained the following injury on May 4th 1944”.

As noble Lords know, that was one month before D Day. The injuries were:

“Gun shot wounds lower abdomen wall with prolapse of small intestine … Gun shot wounds left thigh, entrance and exit wounds with some destruction of the muscle. A severe injury”.

That happened to me, an ordinary lad. I was a loyalist and very much involved in 1940 and 1941 in the knowledge that my nation, my family and my heritage were at risk. I like to think that people who volunteer for the Territorial Army are imbued every bit as much by not only excitement, but also a sense that they are taking part in a great adventure, which can be deadly serious.

What happened to me was not categorised then, but now it is called friendly fire. Friendly fire, when illustrations are given, illustrate that things can go wrong and accidents can happen, but nevertheless the men and women are real and they are our neighbours, loved ones and friends. I hope that the Minister and her colleagues will take back to their Ministry and their vital work the knowledge that this House is unanimous in supporting not only the Armed Forces but the Territorial Army. We are not all given the opportunity to do practical, positive things. The Minister and her colleagues are. We can say to them that we are behind them and what they are doing. When I look at the speakers’ list, the noble Viscount, Lord Trenchard, is to follow me: a great name in the history of this country but known especially to people of my age.

The noble Earl, Lord Attlee, has his name down to speak. I never knew his father well or his grandfather. I met his grandfather, who has deep respect. This side of the House and the Government’s supporters are as one with Members all around the House who have given us the benefit of their experience in saying to the Minister, “You have a big job on. You have a nation which depends on our Armed Forces and on the Territorial Army, and we wish you well”.

My Lords, I congratulate my noble friend Lord Freeman on introducing this timely debate. It is a great honour to follow the noble Lord, Lord Graham of Edmonton, whose speech was extremely impressive and who represented so well the service and duty to our nation and Armed Forces of which he is a great example. I hesitate to speak on defence matters in front of many noble Lords who have made a much greater contribution than I have to the Armed Forces of the Crown, especially the noble and gallant Lord, Lord Craig of Radley.

I should declare my interest as Honorary Air Commodore No. 600 City of London Squadron, Royal Auxiliary Airforce. Like my membership of your Lordships’ House, this appointment owes everything to heredity and nothing to merit. Prior to this my only military service comprised eight years in the 4th Battalion Royal Green Jackets, now 7th Battalion The Rifles. I had been a member of both the combined cadet force and the Cambridge University Officers Training Corps, which used to have a nice mess at Quayside.

I should like to salute the TA on its 100th birthday. We must remember that eight reservists have made the supreme sacrifice in Iraq and Afghanistan since 2003 and many more have been wounded or disabled, changing their lives seriously and dramatically reducing their quality of life.

When I served in the Territorial Army, its strength was around 80,000, but following Options for Change and the Strategic Defence Review its establishment has been reduced to 42,000 and its actual strength is somewhat less. Those reductions in strength were concentrated on the infantry and yeomanry units, which significantly reduced the TA’s geographic footprint. As the TA acts as a shop window for the regular Armed Forces, this reduction has also had a negative effect on the recruitment levels of regular units. However, since then the Government’s cuts in the size of the Regular Forces and reduction in the proportion of GDP spent on defence has changed the TA, the Royal Naval Reserve and Royal Auxiliary Airforce from being reserve force of last resort, which is how I felt we were regarded, to reserve of first choice.

The obligation on individuals and units to expect to be deployed overseas has increased massively and continues to grow. It is excellent that there is more joint training between the various arms of the reserves. Just last weekend I visited my squadron, whose personnel were on exercise together with the Royal Marines Reserve at Longmoor in Hampshire. The Royal Auxiliary Air Force is under pressure to change the expectations of its people from being likely to be deployed overseas from once every five years to once every three years. As other noble Lords have said, some 17,000 reservists have served in Afghanistan and Iraq over the past five years, the equivalent of 21 battalions. It is no exaggeration to say that these operations could not have been undertaken and maintained without our Reserve Forces. However, there has not been a commensurate increase in awareness of these forces and the essential role they play among the public. Many employers are regrettably not yet willing to provide two weeks’ extra paid leave to reservists and, more understandably, are reluctant to see key personnel called up for deployment one year in three or even one year in five. Here I echo the words of the noble and gallant Lord, Lord Craig, and support his question to the Minister: will the Government offer tax incentives or some other form of assistance to companies that employ members of the Reserve Forces? My noble friend Lord Glenarthur covered the point well in his informative speech.

I also think that the Government should end the insult to the Armed Forces of a double-hatted Secretary of State for Defence and for Scotland. Notwithstanding the fact that I consider it unacceptable to have a part-time Secretary of State, I congratulate the present Secretary of State on setting up a review into the role of the Reserve Forces and on his wisdom in appointing General Nick Cottam to lead it. It is essential that the capabilities required of the Reserve Forces must match a corresponding need in the Regular Forces. It would be wasteful if the reserves provided something that is not needed. The demands placed on the reserves must be both worthwhile and realistic, otherwise they will not be able to attract and retain people of the right sort and quality.

Not enough use is made of the special role played by the Reserve Forces in providing a link between the Regular Forces and the community. Now that the ban on wearing uniforms in public has been lifted, people will again become more accustomed to seeing uniformed personnel in their midst. This will enable the Reserve Forces to raise their profile in the community. The other day I was honoured to be invited to Royal Air Force Halton as the reviewing officer for the pass out parade. I went by train, and it was necessary to wear uniform. When I went to purchase my ticket in Marylebone Station, I tried not to wear my hat, but unfortunately the counter in the ticket office was not wide enough for me to put it down. The ticket clerk looked at me and said, “Excuse me, sir, do you mind telling me what your profession is?”. Just to confuse him I said, “Actually, I am a banker”. The wearing of uniform in public should help both the regulars and the reserves to improve their ability to recruit more and better people.

Additionally, I hope that the review will look at restoring the geographic footprint and increasing the ratio of our Reserve Forces, which provide only a quarter of our total Armed Forces. In the United States, reserves account for more than 50 per cent of total forces, while in Canada and Australia they make up more than 40 per cent.

One of the principal reasons why the UK is still seen as a global power, punching above its weight in international forums and retaining many and varied interests all over the world, is that, other than the United States and perhaps France, we are the only country that is recognised as being capable of mounting military initiatives far away from our shores. The Government’s shabby treatment of our Armed Forces has placed at risk this capability, a loss which would have negative effects on the standing of the UK far beyond the sphere of defence and military capability per se.

The restoration of the Reserve Forces to a higher percentage of our total forces would not only aid recruitment but enable some easing of the overstretch from which the Reserve Forces now suffer. This would mitigate the current retention problem. As my noble friend Lord Freeman said, the reserves provide excellent value for money. The country needs their contribution more than ever. The value of their loyalty, commitment, patriotism and sense of duty cannot be underestimated. We owe it to them and to their families to provide much better care and support after deployment.

As chairman of the Royal Air Force Benevolent Fund—yet another obviously hereditary appointment—I was pleased to hear my noble friend Lady Park of Monmouth mention our support for the National Association of Citizens Advice Bureaux and in other ways for personnel returning from deployment. However, the charities can do only so much. Does the Minister agree that the Government should give more support? Like other noble Lords, I much look forward to the report of General Cottam’s review.

Again, I congratulate my noble friend Lord Freeman on introducing the debate today, and I wish the Territorial Army a very happy birthday.

My Lords, I am grateful to my noble friend Lord Freeman for introducing the debate. I remind the House that I am still a serving officer in the Territorial Army, although I do not train very much nowadays.

I read the excellent book of the noble Lord, Lord Graham. In my favourite passage, one very senior lord was extolling the virtues of the Battle of the Somme, whereupon the other lord said, “Ah, yes, but you weren’t at Passchendaele”.

I have heard nothing this afternoon that I would disagree with. Clearly the driver of the debate is the TA’s 100th anniversary; as my noble friend and others have explained, the TA was formed 100 years ago. I am frightened and honoured to say that I have served in the TA for a third of that period; my recordable service date is January 1974. Many noble Lords have talked about the Cottam review and, subject to the funding caveat, I think that all noble Lords broadly welcome it. However, the problems of the Reserve Forces pale into insignificance when compared with those of the Regular Armed Forces. Under UK defence planning assumptions, our Armed Forces are configured and resourced to undertake one enduring medium-scale—in other words, brigade-size—operation, and possibly one small-scale possibly enduring operation. What we are actually doing is double medium-scale plus; two brigades are deployed, but both operations are very difficult.

We cannot go on like this. If we do, we will eventually hit the buffers. We must either increase resources or cut commitments. Is the Cottam review predicated on the extant defence planning assumptions; on the reality since 2003, which is double what the defence planning assumptions provided for; or on some future defence planning assumptions? I am extremely concerned about the number of direct-entry junior officers commissioned into the TA as opposed to the UOTC. For some time last year, the Minister experienced some difficulty separating the group A commissions from the Group B commissions in answer to my Written Questions. The point is that only Group A commissioned officers are liable to be called up. Fortunately, we managed to resolve the issue through an Oral Question on 17 December last year. For each of the years 2003 to 2007, the numbers commissioned into the Group A TA were 95, 87, 39, 49 and 59. Since the strength of the TA is 30,000, that means that we are commissioning two direct-entry junior officers for every 1,000 members of the TA. Clearly, that is not enough; perhaps the Minister has some up-to-date figures. We have a serious problem.

It is not necessarily the MoD’s fault. There are changes in society generally and, in particular, modern work patterns make it difficult for officer-calibre people to join the TA. As a result, the TA is commissioning more senior NCOs and warrant officers. They are good-quality and good attenders, but they are not direct-entry junior officers. In any case, many units are still seriously short of officers.

The noble Lord, Lord Hoyle, told us that volunteers are quite prepared to deploy on operations; of course, he is absolutely right. However, part of the problem is that officers—young men and women—are not volunteering to join, due rightly or wrongly to the current overseas military operations. Apart from the impact on the current TA, does it matter? It does, because the proportion of the UK working-age population that has ever held a commission is probably lower than at any time in the past 100 years. This matters because it adversely affects our ability to defend ourselves should we find that we have our backs to the wall—a situation where the survival of the nation was at stake. The noble Viscount, Lord Brookeborough, suggested some solutions, and we hope that the Cottam review provides the answers to this problem.

Many noble Lords have touched on Reserve Forces training. When I was last mobilised in 2003, I received a negligible amount of pre-deployment training—only a few simple military tests. I never took part in any exercise between being mobilised and demobilised. However, I never expected anything else; I knew that it was going to be a come-as-you-are party. Of course, the subsequent tranches of the TA mobilised for operations all received extensive training. Any plans for the TA must not rely on extensive pre-deployment training. When it really matters, there will not be time, possibly because of the strategic constraints of the operational plan.

My noble friend Lord Freeman and the noble Lord, Lord Wallace of Saltaire, talked briefly about the use of the TA in post-conflict reconstruction. This role and requirement will not go away; there are plenty of candidate operations, but we just do not have the capacity. Currently, as I understand it, reservists are called up for their military qualifications and skills. This is unsurprising, as we do not have a database of volunteers’ civilian skills. I urge the Minister to ensure that General Cottam looks closely at the use of volunteers’ civilian skills as well as their military ones. It may be controversial and require a change of policy, but it must be done.

Many noble Lords have talked about civil contingencies. There are two aspects to this: first, the provision of TA officers who have a long-term liaison role with local civilian agencies; and secondly, the use of the TA for disaster relief within the UK. I am not convinced that the current plans are sensible because they appear to rely upon the use of regular troops to be deployed in the first instance. However, the Regular Army is quite clear that it has very limited capability and resources. It is not resourced to provide this capability. Certainly, by definition, it does not have the local knowledge that the TA would. A local TA unit will immediately have a system of command and control and a range of equipment already issued to them because they have to be able to survive in the field. When I was commanding my company, my estimate would be that I could get 50 people within three or four hours if I had access just to the radio, by going on it and telling them to get to the TA centre immediately. In addition, the TA personnel have knowledge of where specialist equipment—both military and civilian—can be acquired. I hope that the Cottam review will look closely at civil contingencies as well.

My honourable friend Mr Brazier in another place never misses an opportunity to raise the issue of deploying formed units and of course he is right to do so. The point at which this capability is dispensed with is will be shortly before the time when it becomes necessary to use it. As a sub-unit commander, it certainly concentrated my mind that I might have to deploy my unit on operations, and indeed we nearly had to do so for Option B Minus in Kosovo. However, if I were commanding only a training unit, I could easily become rather more relaxed about the operational capability.

I have enjoyed the debate today. We will have to wait, after listening to what the Minister has to say, to see what General Cottam comes up with in his report.

My Lords, in intervening in this debate I have become acutely aware that I am part of that generation which has not experienced any form of military training and has probably been less exposed to any form of military activity in its formative years than any other. People who are in their early 20s, however, now live at a time when our troops are committed in warfare. My generation— which may be mirrored down the Corridor—is one in which the attitudes towards the Territorial Army were such that we could easily take a pop at the part-time soldier. I remember a Billy Connolly sketch about the TA running around chasing another unit up and down the Clyde. It was a total waste of time because the only guy they caught worked in the same shipyard as they did, and Billy Connolly said, “I could have sneaked up on him at lunchtime and saved us all the bother”. That was the attitude.

Historically, if you go through the prints and the books about the militia and yeomanry in years gone by, you find people playing at soldiers—probably in certain periods with justification—with gorgeous uniforms. If you want to look at the use of gold braid as an artistic expression, the late 19th-century militia and yeomanry uniforms are a great place to start. A sportsman from a rifle shooting association once gave a historical document about how wonderful shooting was. You saw people who were competitively shooting, many from volunteer rifle associations, once again with wonderful uniforms. They were easy figures of fun.

The TA and especially the modern TA is where we move away from this because the TA was initially based on the failures of the Boer War military. If you look back you will see that we were not good shots, that we marched in old-fashioned uniforms and got drubbed on several occasions by a bunch of irregular farmers. A unit was then formed which integrated with the most professional army at the start of World War I, to tremendous kudos. We then had a force that went straight into action at the beginning of World War II. Then we went through the doldrums—which was probably my formative years—when once again the reserves started to slip towards being figures of fun. We then come into a period when we have the peace dividend and we start to reduce the numbers. The peace dividend is in about 1990; the break-up of Yugoslavia starts in 1991, as does the Gulf War. Effectively we have gone into a “Hot War” setting on a peace dividend—and we are starting to see the results now.

The noble Lord, Lord King, basically said that we do not have a peace dividend any more, if I have remembered his expression, and many noble Lords have said that we are using the TA to paper over the cracks. We do not have large units that we can pull up for emergencies. If someone storms up Brighton beach, we do not have anyone to call to throw them back. Our Armed Forces are at the limit of their operational capacity. The noble Earl, Lord Attlee, has pointed out exactly where we are. We cannot do anything else.

My much missed friend Lord Garden—Tim—said that some of the wars we are involved in are wars of choice. Before I focus directly on our reserves—predominantly the TA, although I recognise that there are others—I want to say that when it comes to wars of choice we must decide which ones we can take part in, and we are at the limit of that. My party’s position on involvement in Iraq is well documented. When that decision was taken was one of those moments when you are reassured by your choice of colleagues. We cannot take on any more commitments with the current structure. The idea of a reserve is effectively removed from our military thinking at the moment because we are struggling to stand still in terms of commitment—I do not think anyone is seriously going to challenge that at the moment—and it is the Army that is under most stress.

What are we going to do? If we cannot carry on as we are, how are we going to change? The important military traditions of the British Army—professionalism and long-term deployment, as my noble friend pointed out—seem to be inappropriate for what we are doing at the moment. Those in long-term service and the largely part-time volunteer force have reached the end of their deployment without further huge injections of money to have units prepared in large numbers.

We can consider a series of solutions. I have spoken to several soldiers who have said that we should look seriously at the American model. There has been a tradition of saying, “Oh no, the Americans aren’t proper professionals like we are”, with regard to counterinsurgency, when it is quite clear that the American army’s tradition of learning on its feet in certain aspects is coming to the fore. The American idea of short-term service with long terms in reserve and a National Guard, one unit of which has deployment capacity for combat, support or otherwise, is something we should address if we are to have a long-term overseas worldwide commitment. At the moment we are just not doing it.

Carrying on at this rate probably means spending more money. Whether we are prepared to do that or decide that we will not get involved in future is one of the major questions that must be addressed.

If our servicemen volunteer, they are part-timers on an incredible rotation of service. You are not a reservist if you are serving every three or five years; you are effectively a part-time soldier. With the pressure that puts on employers, it is understandable if some of the good will breaks down. Any reasonable employer may start to think, “Do I want them on my books? Do I want them promoted? Do I want them in a position of greater authority?”. Whether or not they should think like that is by the bye; the fact is that it will occur. We all know that.

Unless we are prepared to take on the question of financing and our level of commitment, none of it makes sense. Are we prepared to change the nature of our regular recruitment patterns to allow ourselves a greater number of reserves and have another supporting force, as per the American model, or do we go for something else? Do we prepare to pump more money and energy into a reserve force that has less required of it? One or two tours, yes, but three or four, no, except for people who like the idea of being a part-timer in Her Majesty’s Armed Forces—a new concept for us. Do we take that on board? Are we prepared to engage in that discussion?

As has been pointed out, we also have to address the fact that, if the TA and other Reserve Forces are taking on the role of being effectively full-time soldiers for certain periods, we must look after them in the same way in which we look after our regular servicemen. We have had the Royal British Legion’s covenant debates over the past year or so. I hope that the Minister will give an undertaking now that the Government will work towards supporting the TA to the same level as the Regular Army, and that that is made very clear. To be fair to the Government, making sure that there is greater support for the armed services in public is a step forward, but making sure that there is integration and recognition of those who serve at all levels is something which must come now. We must engage and bring them together. We must try to look at this in the round.

Possibly I have made the most party-political speech in the debate, but we have heard a lot today about the problems occurring in the TA in the light of what is being asked of our Armed Forces at the moment. I hope the Minister will be able to respond in kind by telling us what is going to be practically done because there is a real problem here and the noble Lord, Lord Freeman, deserves credit for bringing it to our attention.

My Lords, I begin by recording two declarations of personal interest. One is historical, the other current. While the political credit for the legislation that brought the Territorial Army into being in 1908 is rightly assigned, as my noble friend said, to the Secretary of State for War at the time, Richard Burdon Haldane, much of the detailed preparatory work was delegated by him to my grandfather, Major General Douglas Haig, initially as Director of Military Training at the War Office and subsequently as Director of Staff Duties there. Haig was brought back from India, where he was Inspector General of Cavalry, in May 1906 especially for that purpose. His diary records the somewhat difficult negotiations he had with the commanding officers of the Yeomanry and Militia Regiments, as they were then, over their conversion into the Territorial Army. It will surprise no one who is familiar with the historic relationship between the Regular and Reserve Forces that the most salient difficulty to be resolved in 1906 and 1907 was whether the Territorial Forces should be deployed as units or whether the regulars might draw on them for drafts of reinforcements. In the event Territorial divisions were deployed to France after August 1914 and served with distinction as such in the great Army that my grandfather led.

My current interest is that I have the honour to be the Colonel of a Royal Engineer TA Regiment and I am proud that elements of that regiment have served in Iraq and Afghanistan and on peacekeeping duties elsewhere. This was recognised a couple of weeks ago by the Mayor and Council of Reigate and Banstead, who invited the regiment and the borough's Territorial unit, along with the REME unit that my noble friend Lord Attlee served in, to march through the town centre, with a reception for them and their families in the town hall afterwards. The huge crowds and their enthusiasm made it a very special occasion for the soldiers.

This year is the 100th anniversary of the Reserve Forces and Cadets Association. These regional associations play a very important role in supporting and promoting the volunteer reserves of the three services and the cadet organisations with their respective communities. I pay tribute to them for the enormous contribution they make to our defence capability and our thoughts are with the families of those who have lost their lives from all the services, as the noble and gallant Lord, Lord Craig, said. My noble friend Lord Freeman is the hard-working president of the RFCA and I thank him for bringing forward this interesting and important debate.

As my noble friend said, we should also warmly recognise those who serve in the Royal Naval Reserve, the Royal Naval Volunteer Reserve, the Royal Marine Reserve and the Royal Auxiliary Air Force, and the significant contribution that they make. I much enjoyed the description by my noble friend the Duke of Montrose of the founding of the RNVRs and his grandfather’s part in it. Through their training centres across the country and their members who straddle civilian and military society, they provide vital links between military and civilian communities. The noble Lord, Lord Wallace of Saltaire, made important points about the reserves encouraging local participation and how we have lost much of that as the numbers have declined.

Just as regular forces are now being encouraged to wear uniforms whenever appropriate, should not the TA and other reservists be encouraged likewise, as my noble friend Lord Trenchard suggested? I also recognise the indispensable part played by the sponsored reserves in providing the whole of the manpower on which our armoured forces rely in providing, right up the front line, lifting and transport under a most successful PFI contract.

I was very impressed by the number of speakers who had important interests to declare and many points and questions were raised today. My noble friend Lord Fowler pointed out the vital role that the medical reserves are playing in Iraq and Afghanistan. My noble friend Lady Park mentioned the important work done by service charities. I have seen a lot of this work and I pay tribute to them for that. The noble Baroness and the noble Viscount, Lord Brookeborough, mentioned aftercare—a subject that merits a debate on its own. My noble friend Lord Crathorne eloquently described how, with excellent aftercare, a soldier from the Yorkshire regiment TA battalion was coming to terms with losing a leg in Basra.

I much enjoyed the eloquent recollections of the Home Guard and the Royal Marines recounted by the noble Lord, Lord Graham of Edmonton. I look forward to seeing his book.

I shall meet the noble Lord afterwards.

My noble friends Lord Freeman, Lord King, Lord Trenchard and Lord Attlee, mentioned the reserve review team. Along with other noble Lords I was fortunate to meet Major General Nick Cottam the other day who will chair the review team. I was much impressed by his energy and ideas. The team has quite a responsibility to examine, and make suggestions on, the modern role of the Reserve Forces. Like other noble Lords, I hope that pressure will not be put on it to come up with solutions that make savings.

The noble and gallant Lord, Lord Craig, mentioned RAF auxiliary recruitment and its importance to the Royal Air Force. Recruitment was also mentioned by the noble Viscount, Lord Brookeborough, and my noble friend Lord Trenchard. The impact of ongoing operations in Afghanistan and Iraq has placed enormous strain on the reserves’ ability to recruit and retain their service personnel. I think that my noble friend Lord King said that there are 30,000 reserves. It would be helpful if the Minister could confirm this number, and say what percentage of the planned manpower strength that is, if not today perhaps in writing to noble Lords who took part in the debate. Can she inform the House what the Government are doing to address the alarming speed with which personnel are leaving the TA? How many members left in 2006 and 2007? My noble friend Lord Attlee pointed out the shortage of direct entry officers into the TA.

Given the Government’s own admission in last year’s MoD annual report that the TA constitutes an,

“integral part of defence capability”,

is the noble Baroness concerned that the retention crisis being experienced throughout the reserves will have an alarmingly detrimental impact on such a capability? Several noble Lords, including the noble and gallant Lord, Lord Craig, the noble Lord, Lord Clarke, and my noble friend Lord Glenarthur, mentioned the importance of employers. I pay tribute to them. I also pay tribute to my noble friend Lord Glenarthur for the vital role that he plays as chairman of the National Employer Advisory Board.

My noble friends Lord Freeman and Lord Attlee mentioned training, as did the recent House of Commons Public Accounts Committee report and the NAO report, both of which were very concerned about training. Bearing in mind the complications of the JPA as regards claims and allowances and other complicated paperwork, is the Minister concerned that too much time that should be allocated to training is taken up by administrative matters?

As a number of speakers have said, it is vital that TA soldiers should be trained and equipped for operations in the same way as their regular counterparts. My noble friend Lord Trenchard and the noble Viscount, Lord Brookeborough, mentioned university OTCs. Does the noble Baroness think it right that those serving in OTCs are included in statistics outlining the relative strength of the TA, given that they are unavailable for deployment?

My noble friends Lord King, Lady Park and Lord Glenarthur, and the noble Lord, Lord Addington, mentioned a period between active deployments. It is government policy to ensure that reserve personnel are deployed once every five years at most. However, it is well known that many TA units have been deployed many more times than this. Can the noble Baroness inform the House whether this is the exception, or has it now become the rule? The TA, as others have said, is arguably under greater pressure from operational deployments than at any other time since its creation, certainly outside the two world wars. At the same time, it is smaller than at any time in its history.

Finally, can I touch on the airbridge? I had assumed the situation was getting better from Written Answers to Questions that I and other noble Lords had tabled. When I met a number of TA soldiers the other day, they told me that the situation is still pretty dire. There are a number of delays. In particular, soldiers have been delayed for a long time coming home on leave. Could the noble Baroness touch on the airbridge?

My Lords, before I respond to the very wide-ranging and genuinely interesting debate, I am sure your Lordships will wish to join me in offering sincere condolences to the family and friends of the British soldier who was killed on operations in Afghanistan on Monday. Tragic events like that bring into sharp focus the bravery about which so many colleagues in the House have spoken today. It is something we should always be conscious of.

I welcome this opportunity to debate the Reserve Forces and to celebrate TA 100. I must congratulate the noble Lord, Lord Freeman, on securing the debate. It is clear to me from all the contributions that I have heard that this debate has been not only timely, but very worthwhile. Everyone without exception has emphasised the high regard in which the Reserve Forces are held. That is a sentiment that I wholeheartedly support and associate the Government with. It is also been clear that many of the contributions are made with a great deal of authority that comes from direct experience. That has been valuable and I pay tribute to the many noble Lords on all sides of the House who have rendered that service to the Crown as members of the Reserve Forces.

I hesitate to take issue early on with the noble Lord, Lord Glenarthur, but it has been only two years since we held a full debate on the reserves. At that time it was initiated by the noble Earl, Lord Attlee, who had not long returned from a tour in Iraq as a mobilised reservist. Quite a lot has changed, even in that time, as the noble Lord, Lord Freeman, has said. The ever-increasing integration of the reserves into the regular force has gone on at quite a pace.

Whenever we debate military affairs, we always pay tribute to personnel from all three Services for the work they are doing, often in very difficult conditions, especially in Iraq and Afghanistan at the moment. We are all immensely proud of them and of all that they have achieved. We cannot overlook the fact that, in our current and recent successes and our plans for the future, we are often heavily reliant on the volunteers in the Reserve Forces, without whom things might have been very different indeed. That point has been made by many of your Lordships this afternoon and it is one with which I must concur.

The use of reservists to support UK operations is fully in line with the Government’s policy and approach. The reserves are appropriately trained, and are an integrated part of our Armed Forces. They are expected to deploy to augment their regular colleagues. At the moment, nearly 6.5 per cent of the Army’s total deployed personnel on current major operations—that is, in the Balkans, Iraq and Afghanistan—are from the Army’s reserves. We should also remember that, like all regular members of the Armed Forces, behind every reservist on operation is a family and people who are worried and for whom we have a responsibility, as mentioned by my noble friend Lord Hoyle and emphasised by the noble Baroness, Lady Park. We ought to acknowledge that those families bear such a burden and that their support is utterly essential to everyone in the Reserve Forces.

Time prevents me talking too much about the history of our reservists, although in reading for the debate I learnt a lot. Others have given us a great deal of history. The noble Duke, the Duke of Montrose, reminded us of the history of the naval reserves. The noble and gallant Lord, Lord Craig, reminded us of the contribution of air reservists. The noble Lord, Lord Freeman, gave a good, brief history of the TA. We also heard some interesting personal histories. The noble Lord, Lord Astor, contributed his, as did my noble friend Lord Clarke and others. Of course, my noble friend Lord Graham gave a highly personalised account of his life in the Armed Forces. I served with my noble friend in the Government Whips’ Office in the other place some time ago where there may have been some similarities—but we will put that record aside for the moment.

My noble friend Lord Hoyle reminded me of something that is pertinent to my background and childhood. He reminded the House that the Bolton Wanderers football team volunteered en masse. I grew up in Bolton some time later, and I was aware that the town was very proud of the fact that its football team had led in such a way. It meant a great deal to Bolton. If my noble friend Lord Graham can plug a book, perhaps I may mention Wartime Wanderers, which gives an account of that experience.

The noble Lord, Lord Addington, said that he had no military training, being from a generation that did not have national service. Like him, my peer group did not have to serve in the Armed Forces. That is an important factor in the public’s understanding of our Armed Forces. The parliamentary group looking at reservists can perhaps do more to inform people, but it should be a two-way relationship because local TAs should help by informing and involving their Members of Parliament.

As regards current deployments, things have changed a great deal. It is two years since the previous debate, and regular forces are now thoroughly used to working alongside reservists at almost every level, with a wide variety of trades and cap badges. From the time of previous campaigns—be it the first Gulf War, the Balkans or current developments in Iraq and Afghanistan—reservists of all three services are much more used to a culture where mobilised service is, if not the norm, at least quite commonplace and expected. I am sure noble Lords agree that when visiting units on operations it is impossible to tell who is a reservist and who is a regular. That is a great tribute not only to the quality of the volunteers and their training and enthusiasm, but to the fact that they are working together and are received by the regulars and treated as part of the team.

I was asked about numbers: 17,000 reservists have been mobilised in the past 10 years. Some of that operational deployment has been very costly and there have been deaths. Sadly, some brave men and women of the Reserve Forces have made the ultimate sacrifice and we should all pay tribute to the 12 reservists who have been killed on operations in Iraq and Afghanistan. We owe them an enormous debt of gratitude and we must not forget the sacrifices that their families, too, have made.

Deployment has been a feature of this debate and mention was made, not least by the noble Lord, Lord Freeman, of the recent announcement about the deployment in Cyprus. The Government remain committed to supporting peacekeeping duties in Cyprus and we announced recently that a new call-out order had been made under Section 56 of the Reserve Forces Act 1996 to enable members of the Reserve Forces to continue to be called out into permanent service and deployed to Cyprus. Currently there are 35 reservists deployed there. We are planning a deployment of more than 250 reservists in October. The noble Lord, Lord Freeman, welcomed that. The TA soldiers will fulfil all the normal military duties required of UN troops in Cyprus. Some units that are being deployed are very pleased to have the opportunity to go on operations. On some occasions not all units are able to volunteer, because it is not appropriate. The call-out has been broadly welcomed and, by utilising our reserves in this way, we are freeing up regulars to be deployed in other operations.

The review has rightly been the focus of many contributions this afternoon. It was announced in March this year. It has the full support of service chiefs and of reservists. I am pleased by the welcome for the reserves review team leader, Major General Nick Cottam. The noble Viscount, Lord Trenchard, said that it was a wise choice and the noble Lord, Lord Astor, said that he was impressed by the early contributions that had been made to the discussion. I have discussed this review and I, too, am very impressed. I want to allay the fear that the review team will not be wide enough. There was one mention of the fact that perhaps there should be more civilians. There are civilians who are working with, and as part of, this team. The openness and transparency that the team wish to deploy will mean that everyone who wants to will be able to contribute. There is a website and people will be able to follow what is going on.

The review is examining how our Reserve Forces should most effectively be configured, structured, equipped, located and trained, not just for current operations, but for future defence needs. We think that our present approach is sound, but, given the changes that have taken place, it is a good idea to take stock, step back and look at the potential use of reservists in future. The planning assumptions that will be taken are the existing ones; there is no change there. We need to consider issues such as the scope for greater integration into Regular Forces and how we can better capitalise on the vast range of civilian skills—a topic raised by both the noble Lord, Lord Freeman, and the noble Earl, Lord Attlee. We have found widespread support for this review among the services as a whole. It is important that this review is being conducted with the reserves; it is not something that is being done to the reserves.

Perhaps I may say a word about funding. This is not a cost-driven exercise, and I was pleased that the noble Lord, Lord Freeman, accepted and acknowledged that at the beginning of his speech. I can understand people asking that question, but I assure the noble Lord, Lord Astor, and others, that the review is policy-led, not resource-driven. We want to make sure that we get the best out of our reserves, and that is very important.

The review will consider a range of matters. I remind the House that we will soon have a Command Paper, which will deal with some of the important issues that were raised by the noble Baroness, Lady Park, such as mental health, where awareness has increased dramatically. Because we are now more aware, we are obliged to take more action. There have been some interesting pilot studies, and there are attempts to get people in the National Health Service to be more aware of the rights that we are giving to members of our Armed Forces, but there is clearly some way to go. We will definitely look at any ideas that come back. The review is off to a good start. It has a great deal of support, and it will be open and willing to listen to the ideas that have been put forward today.

The Reserve Forces and Cadets Association was mentioned by the noble Lord, Lord Freeman, because of his role. I pay credit to him for the work that he has done. It has an important role, and it provides support for volunteers. As has been mentioned today, it is able to make that important connection with local communities. We value that, and everyone should appreciate that.

We have already seen Major General Cottam talking to the Council of Reserve Forces and Cadets Association. It has been involved in the review already because of its close supporting role to the reservists. I hope it is correct that the national council is looking at the review as an opportunity to explain and to educate people about the role that it carries out. It may be of interest to the House to know that the review is using the network that exists for workshops and for making sure that people who are most directly involved know what is going on with the review and can find out. That is not an exclusive route into the review, but it is an important one, which should be recognised and utilised. I hope that all those involved will have the confidence to think that it is going in the right direction.

The noble Earl, Lord Attlee, mentioned a point that he has talked to me about and brought up on the Floor of the House: the problem of recruiting direct entry junior officers. The figures are very much the same as they were when we last talked about this, and the noble Earl quoted them today. We acknowledge that there is a problem, but it is not simply, as I am sure he agrees, about numbers and getting people interested. It is about whether we can offer proper leadership and management opportunities so that people will want to go down that route. I have discussed that concern with Major General Cottam, and I spoke to him about the interest of the noble Earl in that. He told me that he understood and that he was “on the case”. It is an area of the review that will get particular attention, but it is a problem, given the changes in society and work patterns.

Mention has also been made of employers. We all recognise that employers have done a great deal to contribute to our efforts by releasing people at critical times. The board chaired by the noble Lord, Lord Glenarthur, has been very helpful in that. I am pleased that he said that he has ready access to those who he needs to talk to about this. I was pleased that the report last week from Quentin Davies acknowledges the role of that body, which is important.

On the question of whether we should do more to reward employers, we compensate them by up to £12 million. One or two Members mentioned the problems of members of the Reserve Forces getting back into work. Particular mention was made of the BMA’s view regarding medical personnel getting back into the National Health Service after being deployed. When I was in Afghanistan recently—and I am sure that I am not the only person who has been told this—the medical staff there said that a three-month deployment there had given them the experience of many months, if not years, in a busy accident and emergency unit. It actually enhanced their experience. I think and I hope that employers will bear that in mind, because people can become more mature and they can obtain more leadership qualities and practical experience from a deployment. That can be of benefit.

A number of noble Lords asked whether we unduly rely on reserves to support operations. Our policy is clear. A primary role of the Reserve Forces is to augment the Regular Forces on enduring operations. There was a peak of reserve force usage during the early stages of our operations in Iraq, as would be expected. Since then the level of mobilisation has reduced and stabilised. The Reserve Forces have actually enhanced their reputation through the quality of their contributions and I do not think that we are placing excessive demands on them. More importantly, they do not think that we are placing excessive demands on them.

I would like to have spoken about cadets and taken up the points made by my noble friend Lord Clarke and the noble Lord, Lord Wallace, about citizenship and other contributions, but there is no time to go fully down that route today.

In conclusion, we have had an extremely good, useful and thought-provoking debate. If there are any significant issues that I have not mentioned, I will of course write to noble Lords, but it is important that we place on record our appreciation of the work of the reserves and all of those who support them. My noble friend Lord Hoyle said that C(64) squadron had been given the freedom of the town when they returned from operations. Actions of that kind are proper recognition of the work that our reservists undertake. All the points raised in this debate will be taken on board in this review and, again, I thank the noble Lord, Lord Freeman, for securing this very timely debate.

My Lords, I thank all noble Lords who have taken the trouble to participate in this debate. In particular, I thank the Minister for her thoughtful and comprehensive response. That was much appreciated by your Lordships. This has been a fascinating debate with its wealth of experience. Personal, family, community, ministerial and health service issues have been brought to bear. The debate has demonstrated that your Lordships will, I am sure, join me in saying to members and families of Her Majesty’s Reserve Forces, “We salute you”.

I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.

Employment and Support Allowance Regulations 2008

rose to move, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 27 March, be annulled (SI 2008/794).

The noble Lord said: My Lords, this is an important area of public policy, which has developed apace in the past few years. I am grateful to colleagues for postponing their retirement to the well earned respite of the Whitsun Recess to consider some of the background to this policy, particularly that contained in the regulations.

I am particularly grateful, as I am sure that we all are, to the Merits of Statutory Instruments Committee, which did the House a service in drawing special attention to the regulations and made some quite perceptive comments. The committee thought that the Government needed to address some concerns that it identified when it solicited evidence. I am grateful to colleagues who served on that committee, such as my noble friend Lady Thomas of Winchester, for drawing some of the issues to my attention and to the attention of the House.

Perhaps I may say a word about process. The regulations are serious statutory instruments. They comprise 169 paragraphs and nine schedules. They are subject to the negative resolution procedure, so Members of your Lordships' House have to take special care to ensure that they are debated. They contain far-reaching provision for conditions and procedures that govern what will be a very important replacement benefit for incapacity benefit, disability allowance and income-related income support disability benefits.

There should be better provision for detailed consideration of legislation of this importance and scale than the mere negative procedure that we have. Your Lordships could spend many happy hours—not wasting time or indulging in hesitation, deviation or repetition—considering all of it thoroughly. Suffice it to say that the regulations are of crucial importance to a particularly disadvantaged cohort of our communities. Literally thousands, if not millions, of households are dependent on the regulations.

It is not merely a question of rates and procedures. There is an underlying element of insecurity and uncertainty that is corrosive of stability to family life if you are subject to the mental or physical illness or disability that the regulations seek to ameliorate. If you are subject to the conditions and domestic circumstances that they seek to address, there is always the fear that benefit will be withdrawn or changed. That is a real worry and it makes people's lives that much harder if that uncertainty is increased. I fear—I shall seek to make the case in the next few moments—that that may be the effect of the regulations.

I do not want to found my case this afternoon on the merits or otherwise of age additions being withdrawn. I absolutely acknowledge that the department and the Bill team did everything that they could to consult during the passage of the Welfare Reform Act. That was an extremely positive experience for me. I have been doing this man and boy for more than 20 years and have been especially concerned about this aspect of policy. Until the Welfare Reform Act 2007 and the process that preceded it, it was always about cuts and getting people off benefits because they were costing the taxpayer too much money. That is a corrosive background against which to formulate policy.

We need to get people to contemplate a huge change in their lives from the security of a regular income from whatever benefit they receive to the world of work or to take them nearer to the labour market, which is a very demanding place if you have the disabilities that these benefits seek to redress. To do that, we need to win the confidence not just of the disability organisations which are spokespeople for their client groups but the people with disabilities themselves. The profile of the kind of disabilities faced by households in the United Kingdom has dramatically changed during the past 10 years.

The worry now is not that the rates are not right, or that the detail is wrong, though there are arguments about that. My real worry is that these regulations do not deliver on the promises that people perceive were made to them by Ministers as the Welfare Reform Act 2007 went through all its legislative stages. The disability organisations have helpfully provided all of us with reminders of the kind of thing that Mr Murphy, in another place—although he has now moved on to another ministerial responsibility—and the Minister said in the course of the Commons and Lords stages.

If we get into a debate about good faith, and the Government lose the trust of those organisations that were happy to work with them in the context of the 2007 legislation, it will destroy the possibility of deploying this policy sensibly and getting to where the Government want to be. They must win and develop the idea that they are acting in good faith; otherwise there is a risk of failure. I do not for a moment mean that Ministers, particularly the noble Lord, Lord McKenzie, were deliberately lying. I understand the argument perfectly well. The department does its best in framing primary legislation, and then engages in a tough contest for the resources to promote and develop it, and to roll it out. Sadly, I think the department did not get the settlement that it needs—and deserved—from the Treasury to roll out this policy properly. There is some substance in the argument that the regulations do not deliver what was promised.

The tone of the debate is in danger of changing. We have new political direction and leadership in the department from Mr James Purnell, the new Secretary of State. I have a high regard for Mr Purnell, but he is starting to use language that is quite tough, and the tone of which is substantially different from that of two Secretaries of State ago, when this legislation was at its primary stage. We are now talking about taking 1 million people off incapacity benefit by 2015. That is a long-term forecast; 2015 is difficult to anticipate because it is some way off. To take 1 million people off incapacity benefit by 2015 sensitively and properly is a tall order.

I am grateful to the department for producing the Explanatory Memorandum, which is very informative. I entirely applaud the fact that Parliament now has access to that level of information. Page 9 refers to savings of £1.1 billion over the next 10 years. Ten years is a long time and £1.1 billion sounds like a lot of money; maybe in public expenditure terms it is not. It begins to sound a little frightening if you read this as somebody dependent on the benefits that we are talking about. It is a reduction of the IB case load by 10 per cent. Ten per cent of the current case load is 250,000 households, which is a large number of vulnerable households.

The other change that I detect is that we are now talking, in a way that we were not during the 2007 discussions, about a tighter gateway being the way to reduce the case load. Intellectually, that was always going to be the case, but the way that this is now being argued is beginning to suggest something else. That is not only because the rates have changed in the regulations that were produced in March, and which we are discussing this afternoon. The provenance of the policy is beginning to sound a lot tougher, to the extent that—and I am not quite saying that we are there yet—we are almost back in the bad old days, with people starting to ask whether the Government, at the back of their minds, are thinking more about saving money than anything else. If we get into that situation, with people back in those bunkers of previous years, it will be a very bad thing.

In its consideration of these regulations, the Merits Committee captured very well and crystallised on six areas of concern, which the disability organisations submitted as evidence of things it thinks constitute cuts. There is no other way of describing it. That is its language, what it believes and its perception. I am pleased to see that the Merits Committee confirmed, as I said at the beginning, that these six areas still need to be addressed.

That is bad enough, but two issues have made things even worse. The economy—the context in which this policy is being rolled out—will get tougher, which is self-evident. You do not need to be an economist to work that out. The rates at which the benefits are set, being lower than those that were expected, are causing concern. On top of that, we suddenly, as if by magic and out of the blue, get £2.7 billion of tax cuts. You can have an argument about whether that is right or not, but the disability organisations imply that if money of that order were to be applied to this area of policy they would have fewer underlying concerns.

In his work on the net present value of what you would save by taking someone off benefit for eight years, David Freud came to a saving, I think, of £62,000. If the Treasury has any sense, long and middle-term investment of the kind that everyone thought would be poured into this policy area would have significant long-term effects by providing absolutely cast-iron security for those who could not work. It would take away all the uncertainty and difficulties, and would make sure that they could be accommodated comfortably because they would not be expected to approach the labour market in the future. Alternatively, the Treasury could put not just £2,500 per head into the New Deal programme, welcome as it is, to encourage people back into the labour market; it could put £6,000 annually into serious training for people with multiple hurdles and who are a long way from getting close to the labour market. The David Freud agenda looked at that and it was the background against which primary legislation was introduced.

We have received encouragement. I have here an uncorrected proof of evidence. Recently, Adam Sharples, director of the work, welfare and equality group at the DWP, gave evidence to the Commons Select Committee. He said:

“We have been having some very productive discussions and we do have agreement with the Treasury that the savings from the Pathways to Work programme, that is, the benefit savings, should be ploughed back into further employment programmes. We will be finalising the details of that arrangement shortly but it is a good example of the Department and the Treasury working pretty closely together to make sure that we see the costs and the benefits of welfare to work activity in the round”.

That is where the disability organisations and the rest of us thought we were when the 2007 primary legislation was put through both Houses. There is evidence in the submissions of the disability organisations to the Merits Committee that we are heading off that back into the bad old days that we remember with regret as a lost opportunity.

This policy, if it is to succeed, will involve a huge cultural change, not just in the department and in its procedures, but for claimants—existing and new—and for employers in order that they may play their part and make available positions for people so that they can find work after they have been through their training, if that is what the work capacity assessment finds that they have to do.

If the Government do not win back the trust of the disability organisations, the whole thing will become harder. For example, the number of appeals is estimated to increase by something like one-third as this benefit is introduced, which of course will apply to everyone after 2010, including existing clients on invalidity benefit. That is a massive underestimate. If we get this wrong and disability organisations take against how the Government are doing this and start to believe—the perception may be real for them; whether it is true, we have to deal with their perception—that the Government are not acting in good faith, then any welfare rights adviser in his or her right mind would obviously suggest an appeal if claimants were knocked back for ESA when they had just been on invalidity benefit. It is a no-brainer. The Government’s estimate of appeals increasing by a third could be massively underestimated.

On the other hand, if we get welfare rights advisers who say, “We think that the Government are trying their best in a difficult situation to obtain the culture change and improvements in lifestyles that we are all aspiring towards”, then we have a different situation altogether. We may be able to get away with an increase in appeals and it may be one-third, but if we get the background and the context wrong then that will be to no one’s benefit.

I want to make three quick suggestions before I sit down. First, the rates need to be addressed in the future. If the Minister said that he would be prepared to deal with some of this in an uprating, we go through an uprating process every year. Every year, people on benefits slip one or two percentage points behind average earnings, because benefits are only price protected and every year, year on year, 2 per cent fall behind in terms of the benefit compared to the average earnings. They are already falling behind before any of this starts to impact on them. Benefit uprating in future has to take account of the fact that these rates need to be addressed.

Secondly, some of these other contentious issues need to be referred back to the Social Security Advisory Committee. It was denied the ability to carry out a full formal report on the regulations, simply because they were under the rules that exist. The statutory instruments came out within a six-month period of the primary legislation. There is some tricky stuff here: it is very technically complicated. The SSAC knows what it is doing. If it wrote a report and came to some conclusions and made some recommendations it would give the disability organisations some comfort. I strongly recommend that the Government think about doing that.

Finally, Mr Sharples mentioned AME-DEL—annual managed expenditure: departmental expenditure limits— the acronym for a deal that has been struck with the Treasury. It makes perfect sense, as David Freud set out earlier, that one spends to save; we can invest some of the savings from the benefit spend and put it back into the training and the ESA support rates and allowances. That makes perfect sense to me but there is a lot of opacity about what is being discussed and when we might see its fruits.

The Minister should contemplate whenever the moment is right trying to explain to the outside world what is going on and what is available to the department through its new arrangements for the Treasury. I conclude by saying that if we forfeit the goodwill of the claimants and the disability organisations, this policy area, which is so important to so many people, will be much harder to roll out in the longer term. I beg to move.

Moved, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 27 March, be annulled (SI 2008/794).—(Lord Kirkwood of Kirkhope.)

My Lords, I am sorry to find myself debating the regulations today because, at the end of our lengthy debates on what is now the Welfare Reform Act, I thought that we had reached a balance between the Government’s policy aims of moving more people off benefit and into work and the concerns of disabled people and their organisations about the changes that would be made to their entitlement to benefit. I have to say that significant concerns have been raised about numerous aspects of the regulations. The Disability Benefits Consortium, the Child Poverty Action Group, the Disability Alliance and Leonard Cheshire Disability have all written to the Select Committee on the Merits of Statutory Instruments about them. In case noble Lords think that these are just the usual suspects where disability benefits are concerned, the list also includes Citizens Advice and the Chartered Institute of Taxation, both eminently reputable and objective organisations—not to say that the others are not, but noble Lords know what I mean.

I cannot help but feel that this situation could have been avoided. During the passage of the Welfare Reform Bill, to their credit, Ministers were responsive to the criticisms made and gave reassurances both in your Lordships’ House and the other place that met the concerns of disabled people and their organisations. It is greatly to be regretted, therefore, that disabled people now feel that in these regulations the Government have gone back on those assurances. In particular, I say that with regard to the rates of the two components of the new benefit. Ministers in both Houses gave clear assurances that the rates of benefit for both components would be above the current long-term rate for incapacity benefit. When questioned about the rates at which ESA would be paid, the noble Lord, Lord McKenzie, who is with us today, said that,

“the basic allowance for someone on the contributory benefit or for a single person on the income-related benefit plus the work-related activity component will be higher than the current long-term rate of incapacity benefit, and those in the support group will receive a higher amount”.—[Official Report, 20/2/07; col. GC5.]

Yet from the regulations it is clear that the basic main phase rate of ESA for single claimants in the work-related activity group, at £84.50 per week, is exactly the same as the current long-term rate of incapacity benefit, not higher. If that is compared to the equivalent rates of benefit currently payable with income support with a disability premium, the rate is in fact £1.85 per week less for a single person on income-related ESA.

The DWP told the Merits Committee that the Government did not accept that the rates that had been announced were incompatible with statements made to Parliament. It said:

“The rate of £84.50 for those in the work-related activity component is above the rate of long-term incapacity benefit, £81.35 per week, at the time the statements were made”.

That is casuistry of the worst order. The operative words in that sentence are “at the time the statements were made”. The important point to note is that the long-term incapacity benefit rate will have risen to £84.50 at the time the new allowance is introduced, and then there is the possibility of £1.85 on top. It is conservatively estimated that this will adversely affect 1 million people out of the 1.65 million currently receiving incapacity benefit. Those on contributory ESA will lose entitlement to age additions and additions for spouses. For example, under the current system, someone who became sick under the age of 35 on the long-term rate of incapacity benefit would receive £102.25. Under the new system, they will receive £89.50, a drop of £12.75.

The losses for couples are even greater. A couple where the claimant became sick under the age of 45 on long-term incapacity benefit would receive £143.95. Contributory ESA will pay the same couple a maximum of £123.95, if the claimant is in the support group. But the vast majority will be in the work-related activity group and receive only £118.95. For the most severely disabled claimants, therefore, who have worked and paid NI contributions, the maximum payable under ESA is a good £20 or £25 a week less than under incapacity benefit.

As the noble Lord, Lord Kirkwood, has told us, the Explanatory Notes to the regulations clearly state on page 9 that the new work capability assessment will be a tighter gateway than the present personal capability assessment, so that fewer people will become eligible for ESA, and the Government estimate that more than 90 per cent of ESA claimants will be in the work-related activity group. That will represent a significant saving to the benefits bill. Yet Ministers gave repeated assurances that the introduction of the ESA was not about saving money from the benefits budget.

There are other serious concerns about related benefit entitlements for claimants on the contributory benefit. Citizens Advice has set out in great detail how claimants on a contribution-based ESA with no other income will lose out in terms of being passported to housing benefit, council tax benefit, free prescriptions and other health benefits, free school meals and much more. That is of great concern.

Many organisations, including the RNIB—I declare an interest in that I am its chairman—welcomed the changes to incapacity benefit. Indeed, the RNIB welcomed the ending of registered blind people’s automatic entitlement to incapacity benefit. We welcomed it because we believe that, with the right help and support, blind people are eminently capable of working. However, we adopted that position on the basis that the Government would ensure that new claimants and current claimants in future moving from incapacity benefit to employment and support allowance would not be financially disadvantaged.

I am now greatly concerned that blind and other disabled people will face a reduction in their income, even though they will be expected to take part in work-related activity. Again on this issue, I quote Jim Murphy MP, the then Minister of State for Employment and Welfare Reform in the other place, who responded to a Written Question from the honourable Member for Inverness, Nairn, Badenoch and Strathspey. That sounds like a row of old malt whiskies. He said:

“In the main phase of the benefit, the rate will be higher than the current rate of long-term incapacity benefit and the most severely disabled people will receive a higher rate still”.—[Official Report, Commons, 30/11/06; col. 863W.]

The Government speak of rights and responsibilities and of striking the right balance between duties on claimants and their right to a secure income that means they are free from poverty and able to meet their needs, but in these regulations the Government have failed to meet their responsibilities to provide claimants with a realistic income in return for new obligations to engage in work-related activity. They have a good record in extending the civil rights of disabled people, so it is a great shame that this record could now be damaged by regulations that will lower the income of disabled people who face significant extra costs because of their impairment, as well as some of the greatest challenges to gaining and retaining work.

The income drop for some may appear small at around £1.85 per week, but for disabled people on fixed incomes, who face rapidly increasing food and energy costs, even a small drop in income can have a profound and serious impact and lead to poverty. I do not see how such a move can be compatible with the Government’s public service agreement targets, particularly Agreement 15, which covers disadvantage experienced by disabled people. I am also concerned that there will be a significant impact in relation to Agreement 9 on halving child poverty. It is known that, before housing costs are taken into account, 25 per cent of all children living in poverty are living with disabled parents. Removing income, however small, from disabled parents cannot make sense if the Government wish to meet their poverty targets.

Lastly, I am concerned about the treatment of disabled students. The regulations stipulate that only students claiming the income-related ESA who also receive disability living allowance will be able to study full time. Again, this goes counter to assurances given during the passage of the Bill that current income support rules would continue to apply, with no additional requirement to be in receipt of the DLA.

I hope that the Government will listen to concerns about these important issues and take the opportunity to reconsider the serious and justified concerns that have been expressed in many quarters. As the Select Committee on the Merits of Statutory Instruments says:

“The Regulations are complex and claimants may find it difficult to understand the operation of this allowance. The Government need to do more to explain how this system will work and to address the concerns of interest groups that are in a position to offer significant assistance in helping claimants understand the new system”.

My Lords, I, too, am grateful to my noble friend Lord Kirkwood for tabling this Prayer this evening. No one would think from the sparse attendance in this Chamber that these regulations will play an important part in the lives of thousands of people throughout the country, as has been said. However, the groups which lobby for those on benefits know just that, and many of them have expressed grave misgivings about how the regulations will impact on their client group, some stating categorically—as the noble Lord, Lord Low, has said—that Parliament was misled by Ministers into believing that more money would be available than now, not just by uprating but in real terms, for the support group; that is, those furthest from the labour market. They, and we on these Benches, are very disappointed that this does not appear to be the case.

The laudable aim of the parent Act—the Welfare Reform Act 2007—is, of course, to try to stop new claimants from leaving the paid workforce and subsisting on health-related benefits when, with the right help and support, they could perfectly well do some job. Thereafter, from April 2010, the case list of those already on these benefits will be tackled.

The main concerns of the voluntary organisations in this field include, first, that a reduction in the number of people moving on to the new benefit, ESA, was to be achieved, according to the Green Paper A New Deal for Welfare, by “prevention and proactive intervention”, and not simply through a “narrowing of the gateway” by means of the new, tougher, work capability assessment. This will result in many more people being thrown back, largely unsupported, on to jobseeker’s allowance, with as many as 40,000 more children affected by a family’s fall in income—which, as the noble Lord, Lord Low, has pointed out, will do nothing for one of the Government’s main aims of eradicating child poverty.

It should be said here and now that no one can or should tolerate those who try to cheat the benefits system by feigning or exaggerating illness or disability in order to receive benefits. Whenever such a case is reported in the newspapers, it must make the many thousands of people legitimately on these benefits particularly angry. It must be stressed that those who are the keenest to keep working or get back into some sort of work are often the most afflicted—particularly people with some form of mental illness, whether it be a short episode of clinical depression or a longer term illness.

The charity Mind does not mince its words. It says:

“We believe the Government is attempting to design people with so-called mild to moderate mental health issues out of the ESA system. In doing so, the Government is dumping them on to the much more stringent and far less supportive Jobseekers Allowance regime".

It is entirely reasonable to ask the Government to look again at the mental health element of the WCA, perhaps doing what Mind has called for by commissioning independent specialists to assess each criterion of this element of the WCA and the weighting attached to it to determine if it is as fair as the Government say it is. Will the Minister give an undertaking to monitor this aspect of the work capability assessment as soon as it is operating nationwide?

The second main concern of the voluntary bodies is the injustice of how the two different groups of claimants are being treated, namely those on income-based ESA and those on contributory-based ESA. When I moved an amendment on Report during the passage of the Welfare Reform Bill in March 2007 about service users in receipt of benefits being able to receive the modest remuneration offered for meetings without compromising those benefits, the Minister announced that, in future, those on income-based ESA would be allowed to earn £88.50 per week under the permitted work rules for 52 weeks without losing benefits, to align them with those on contributory-based ESA. This was very welcome. That, however, meant that the income-based claimants had two distinct advantages over contribution-based claimants with no other source of income, namely the disregarding of the permitted work rules for full housing benefit and council tax benefit and the automatic passporting to other benefits such as free school meals. Contribution-based claimants will have a large part of their permitted earnings taken through the housing benefit and council tax benefit tapers which are set at 65 per cent and 20 per cent respectively. Those contribution-based claimants with no other income who are therefore receiving the same rate of benefit as the income-related claimants will have to apply separately for other benefits. This is manifestly unfair. Why should those who have a contributions record but no other income be much worse off than those who do not?

Citizens Advice characteristically offers several practical solutions to this problem. It suggests that contribution-based claimants could still be offered a means test and, if they fulfilled the requirements, would have a marker on their benefit showing they were entitled to passporting, or, alternatively, be offered ESA income-based with the option of switching to ESA contribution-based if their circumstances changed. In any case, it calls for the housing and council tax benefit regulations to be changed to disregard earnings from permitted work.

There is another important question about permitted work. Currently there are two categories of permitted work, which allow earnings of up to £88.50 a week without the 52-week time limit. These categories are supported permitted work—where people have a support worker whose job it is to help people with disabilities find work—and permitted work PCA—personal capability assessment—exempt. Perhaps the Minister could say whether supported permitted work under ESA will be non-time-limited as at present.

Turning back briefly to the issue I mentioned earlier of barriers to service-users on benefit being allowed to keep any small remuneration they are offered for helping to design and plan health and social care services, there may be a glimmer of light at the end of this particular tunnel—although I am not holding my breath, to mix a metaphor. Regulation 91 in the ESA Regulations No. 794 sets out the treatment of earnings in such a way that earnings are averaged over a pay period, whether this is monthly, quarterly or longer. I understand that this regulation came about as a result of the commissioner’s decision in a very complex case about supply teaching in 2004. This judgment should mean that service users on benefits can have any money they earn for infrequent meetings “averaged” so that they do not lose benefit by earning too much in a short period of time. Is this the case, I wonder? Does the decision also apply to incapacity benefit, jobseeker’s allowance, housing benefit, council tax benefit or local housing allowance? If so, have Jobcentre Plus staff been advised to treat earnings in this way?

These regulations are being rolled out, as my noble friend Lord Kirkwood said, at a time of extreme uncertainty in the economy. Those at the margins of the tougher medical tests are going to have to compete for jobs with many in the existing workforce who have lost their jobs in the credit crunch. The knock-on effects could be severe. The last thing that people with any kind of disability need is to find themselves even more poverty-stricken than they were before. Are there really enough jobs in the workplace for a lot of extra and quite vulnerable workers? How many more job vacancies are there now compared to the number of people looking for work?

Finally, I must say a word about the complexity of these benefits. The Merits of Statutory Instruments Committee, of which I am a member, says in its summary:

“The Regulations are complex and claimants may find it difficult to understand the operation of this allowance. The Government need to do more to explain how this system will work and to address the concerns of interest groups that are in a position to offer significant assistance in helping claimants understand the new system”.

It repeats that advice later on, saying that it is difficult to work out the interactions between the different components of the regulations. Hear, hear, is all I say. Are the Government confident that Jobcentre Plus staff will be sufficiently familiar with the new rules by the autumn to operate the system?

My Lords, I thank the noble Lord, Lord Kirkwood, for laying these Prayers and initiating a necessary revisit to this important government programme. As has been said, the written evidence to the Merits Committee on these regulations covers some 22 pages of report. Notwithstanding the memorandums from the Department for Work and Pensions, as the noble Lord, Lord Low, has said, evidence has come from the Disability Benefits Consortium, Citizens Advice, the Chartered Institute of Taxation, the Child Poverty Action Group, the Disability Alliance and Leonard Cheshire Disability. They draw attention to the gap between the Government’s originally declared intentions and the consequences of the regulations. There is a powerful sense of bad faith.

The new employment and support allowance will be paid to those whose health or disability affects their ability to work and is designed to replace incapacity benefit, the severe disablement allowance and sickness-related income support. We have supported the Government’s strategy to reduce the number claiming benefit and at the same time to help people back to work. So far, so good. However, it is clear from the submissions that while there has been an extensive consultation with stakeholders, the regulations do not match with the Government’s undertakings. Above all, their very complexity means that claimants will find it difficult to understand how they operate, as the noble Baroness, Lady Thomas, has pointed out. Whatever happens, the Government will need to do more to explain how it will all work and address the concerns of interest groups if they are to enlist their active partnership in helping claimants to understand the new system.

In particular, there is a widespread view that the rate of allowance for single people—£89.50—does not exceed the current rate of incapacity benefit. That is contrary to undertakings given during the course of the Bill. The noble Lord, Lord Low, made that point powerfully. Does the Minister accept that criticism? There are also considerable consequences following on from the interaction of the allowances with the income tax system. These may well work, in a way, to reduce the incentive to return to work. What is the impact on claimants of the abolition of the 10p tax rate? Has the department modelled the likely changes in the annual cost of the scheme as a result of the latest announcements on tax allowances? As the Minister will know, those are but for one year. What will be the consequences for many claimants if the tax allowance changes are not continued?

There are further anomalies between those who come to the ESA based on national insurance contributions and those who do not, as the noble Baroness, Lady Thomas, has pointed out. How does the Minister justify the different income that claimants will receive? In the same way, there are different treatments of access to passported benefits such as prescription charges, free school meals, legal aid and so on. If the ESA is income-related then the right to those benefits will be automatic, but for those on a contribution-based ESA, each of those benefits will be subject to a separate means test. I note that housing benefit and council tax benefit are an automatic entitlement either way, but how does the Minister justify the discrepancy in entitlement elsewhere? Does he feel at ease that this accords with the spirit in which he introduced the Bill? Furthermore, does the Minister feel that the way these regulations are drawn will attain the Government’s objectives in providing support for those with disability on a fair basis and help such people back to work?

Finally, can the Minister put various figures on the record? What is the annual cost of the programme? What assumptions are made about the number of people who will be successfully back in work? Are savings to the Treasury envisaged and, if so, what are they? The Minister will deny that cuts are the objective. Can he tell us, therefore, what percentage of savings will emerge as reinvestment in that programme? I suspect that for the Minister the lesson is: get your deal with the Treasury before introducing legislation.

My Lords, I start by thanking the noble Lord, Lord Kirkwood, for initiating this debate. I hope that at the end of it he will feel able not to press his Prayer against these regulations because they are very important. A lot of individual points have been raised and I will try to deal with as many as I can in the time allotted, but I reject absolutely suggestions that the Government have not acted in good faith on these matters. I will explain why over the next 10 or 15 minutes.

The three sets of regulations before us are an integral and essential part of a comprehensive package of wide-ranging welfare reforms. The Government have undertaken a series of reforms to address the issue of unemployment. While these have had considerable success, those on incapacity benefits have not shared in that success to the extent that we would wish. This House will be aware of the scale of the problem we need to address. In 2003, after an inexorable rise over the previous three decades, the number of working-age people on incapacity benefits reached a peak of more than 2.7 million. This neglected group of people represented an unacceptable waste—lost opportunities for the individuals concerned, damage to families and local communities and a loss to the wider economy.

Also in 2003 the Government introduced their first Pathways to Work pilots, demonstrating our commitment to help those on benefits because of a health condition or disability. We wanted to give those who could work a chance to regain employment and become independent. Pathways to Work provides a holistic package of support, combined with a reasonable measure of conditionality to ensure engagement with that support to make a return to work. The pathways measures have been successful with more than 64,000 people helped into work to date. That is why pathways has now been made available to people on incapacity benefits throughout the country, representing an investment of £1.1 billion over the next three years. To listen to most noble Lords tonight, you would think the Government were cutting back on their programme rather than investing £1.1 billion as part of the current Comprehensive Spending Review for Pathways to Work.

Implementation of the employment and support allowance later this year will provide the legislative framework to allow us to build further on the success of pathways, and together with the cross-government health, work and well-being strategy engaging with employers and healthcare professionals, ESA will be a key part of the next steps towards our aim to reduce the number on incapacity benefits by 1 million. There is nothing sinister about trying to reduce the number of people on incapacity benefits. It is a question of making sure that people have the opportunity to realise their potential. That may be characterised as trying to get cuts in benefit expenditure but it has the positive attribute of helping people to have a more fulfilled life, and we are proud of that.

I acknowledge the concerns expressed during debates last year, particularly on ensuring fair treatment for the most severely disabled and the most vulnerable people on the benefit. I believe that these regulations provide a reasonable balance. They place proportionate requirements on those best able to meet them with appropriate help, while giving greater financial security to those who need it most and providing the support to participate voluntarily to ensure that we do not exclude the most vulnerable. Some of the key regulations will be familiar to the House from the draft regulations we made available last year. Noble Lords will know that we are able to look in some detail at the regulations dealing with the work capability assessment, the work-focused interviews and the related conditionality requirements.

We have also taken forward into the ESA Regulations many aspects of the regulations that apply to incapacity benefit and income support, but only where they clearly fit with our aims for the new benefit; for example, those dealing with income and capital linking rules, help with housing costs and urgent cases. We have also taken the opportunity to introduce flexibility where it will help people return to work; for example, in relation to permitted work, advance awards and payments for less than a week.

At the heart of these reforms is a determination to change the attitude that people on incapacity benefits are effectively written off. Instead of the concept of incapacity for work, ESA entitlement will be based on limited capability for work. Most claimants of ESA will be expected to engage with a personal adviser to discuss possible steps towards their eventual return to work.

These regulations give effect to the new work capability assessment for ESA claimants resulting from the review of the personal capability assessment that applied to claimants of incapacity benefits. Noble Lords, including the noble Baroness, Lady Thomas of Winchester, and the noble Lords, Lord Kirkwood and Lord Low, said that this was a tightening of the gateway. The new work capability assessment is a fairer and more accurate test of capability. Therefore, it is right and proper that we apply it across the board. We must have an assessment that is transparent and used universally. I remind noble Lords that in 2005 there was absolute consensus that the old PCA needed updating and as a Government we launched a review of the assessment using experts and stakeholders from the disability community. We accepted the findings of that review and we have committed to Parliament that we will report on the new assessment in the first five years of its operation.

The noble Baroness, Lady Thomas, asked about those with mental health conditions. The new medical assessment will deal more effectively with the types of conditions that are prevalent today and lead to assessments that are more equitable for groups with different impairments. The changes to the mental function assessment will address a current gap in the assessment of cognitive and intellectual function in conditions such as learning disability, autistic spectrum disorder and acquired brain injury.

The noble Lord, Lord Kirkwood, talked about fear and uncertainty around all these regulations, and the noble Lord, Lord Taylor, addressed the same point. We have already begun communicating with staff, customer representative organisations and other stakeholders to raise awareness about the ESA regime and create understanding about what it will achieve and how it will work. Our communication with customer representative groups and other key external stakeholders is based on the long-running and fruitful engagement led by Ministers and officials during consultation. This has been supplemented by ESA regional briefings and slots within national forums for key stakeholder groups.

There is recognition that it would not be reasonable to expect those with the most severe conditions to be required to attend meetings with advisers as a condition of receiving benefit. Part of the new assessment will determine whether a claimant also has limited capability for work-related activity and will therefore be in the support group. ESA simplifies benefits for people with health conditions and disabilities by combining contributory and income-related strands within one overall benefit. As indicated in the drafts provided for debate last year, the ESA regulations make provision for us to require customers to engage with us. In the case of the work-focused, health-related assessment, the aim is to ensure that customers have the opportunity to discuss with a health professional the sort of health-related interventions that could help support a return to work.

The work-focused interview arrangements will be broadly similar to those applying in the Pathways to Work provision. A failure to attend either a work-focused health-related assessment or a work-focused interview without good cause will lead to a sanction. Again, this will work in a broadly similar way to the sanction regime in pathways, although the maximum sanction will not exceed the amount of the work-related activity component, which is £24. Again, as with pathways, there will be safeguards to ensure that vulnerable customers are treated fairly. Where a customer has a mental health problem, or there is a likelihood of a problem with communication, contact will be made with them or their carer or healthcare professional. The purpose of sanctions is not to be punitive but to encourage engagement. The experience of sanctions in pathways shows that they are applied to very few people.

The regulations set out the structure and components of both the income-related and contributory strands of ESA. The rates of benefit need to be seen in the context of a new benefit that has a different focus from the benefit that it replaces, so the read-across cannot be absolute. ESA will cost £400 million more than keeping people on IB over the next five years. This will mean that more people will be getting money sooner than is currently the case and more money will be directed to those who are most likely to need it most. That seems to me entirely inconsistent with challenges that this is going to damage our focus on child poverty. More money is going into benefits over the next five years; £1.1 billion is going into Pathways to Work.

My Lords, that £400 million net cost to ESA is a new figure to me, though perhaps the noble Lord cannot discuss it this afternoon in detail. Is he saying that steady-state ESA will cost £400 million each year, every year, once it is up and running? I would like to see chapter and verse on that, if it is available.

My Lords, I am more than happy to write to the noble Lord to expand on that figure. This is £400 million over the next five years, in comparison to what the position would have been had we continued with the IB situation.

I shall now deal with the point made by the noble Lords, Lord Low and Lord Taylor. We have not broken our commitment about the main phase rate for the work-related activity group. It is £84.50 and this is higher than the long-term rate of incapacity benefit at the time the statements were made. I reject the assertion that we have not fulfilled that commitment. I also say to the noble Lord, Lord Low, that no existing customer will get less than their current rate of benefit. They will continue to get the same rate. There is no question of a million customers losing benefit. The rates are, in context, £400 million in total to be spent on ESA over the next five years—in comparison to what we would have done on incapacity benefit added to the £1.1 billion invested in Pathways to Work. Typically, in the first year a claimant will be £936 better off in the ESA work-related activity, the non-incapacity benefit. More than two-thirds of people are expected to flow off that within a year of starting their claim. In the support group, claimants gain at least £29 a week and £1,131 in their first year. The ESA does focus additional resources on the most severely disabled with a higher rate of benefit for those in the support group. Among the most severely disabled, the poorest will be nearly £16 a week better off under ESA than on incapacity benefits. Although the starting rates of benefit are very similar for ESA and IB, people get more money much sooner under ESA, with most people gaining £24 a week from the fourteenth week of their claim. We believe that around £200,000 will be better off under ESA because they get more money sooner.

I acknowledge that there are issues around the structure of the benefit, certainly in relation to the age addition. We believe that this is an outmoded concept and should have no place in the ESA. The age addition accepts that people go on incapacity benefit and are not going to return to employment. Therefore, we would need to pay them more, the longer they are on it. This is quite the wrong approach, which is why it does not feature in the ESA. There are issues around the lack of couples components in the work-related and support group components, but that is because we are focusing these components on individuals’ functionality. We cannot do that by having a couple’s rate to it. Overall, you will see that there is the prospect of many people gaining from this, particularly over that first year, given that we want to encourage people and help people back into the labour market as quickly as possible. There is less relevance for most in what might happen in year two or three.

The noble Lord, Lord Kirkwood, made reference to the increased number of appeals. There are more decisions in ESA than on IB which are subject to appeal; for example, whether someone should be in the support group. That is, in part, why we expect an increase in the number of appeals. The noble Baroness, Lady Thomas, raised issues around permitted work rules. We have ensured that supported permitted work rules are aligned across both strands of the benefit. A person who satisfies the conditions can undertake supported permitted work for an indefinite period. The noble Baroness was kind enough to give me a preview of what she was going to say. I have already indicated to her that, with regard to the permitted work rules, we acknowledge the issues with housing benefit and council tax benefit for those on a contributory strand. That is one of the matters that will be looked at in the review of housing benefit, announced in the Budget.

The noble Baroness, Lady Thomas, also mentioned service users. The treatment of their earnings is a complicated and sensitive area which we are currently considering. I am not in a position to give a definitive answer today, but I will write to the noble Baroness with our conclusion. We are reviewing the rules around the treatment of reimbursed expenses being treated as earnings, and expect to be able to make an announcement later this year.

The noble Lord, Lord Kirkwood, asked about uprating. We review all social security rates every year as part of the annual uprating exercise. Furthermore, we consulted the SSAC informally about the ESA regulations, even though we were not required to do so. The noble Lord also asked about the Budget settlement. We are investing hugely in Pathways to Work—I have mentioned the £1 billion over the next three years—and we are moving towards an agreement with the Treasury to reinvest savings, as Adam Sharples, who was quoted, has indicated.

The noble Lord, Lord Low, asked about disabled students losing out under ESA. The changes under ESA will simplify the existing complex rules for qualification for customers and staff and will ensure that disabled students can continue to claim income-related incapacity benefits where they receive any component of disability living allowance. We believe that receipt of disability living allowance is the correct way of qualifying for education, with income-related employment and support allowances. As DLA is based on how a disability impacts on an individual’s life, it will ensure that the most vulnerable customers will be able to study and receive income-related ESA.

The noble Lord, Lord Taylor, asked about income tax, particularly for people on the contributory strand. Contributory ESA is taxable in broadly the same way as incapacity benefit, and income-related ESA is not taxable. That therefore mirrors the current system. Customers on contributory benefits do not, as a general rule, have their income or capital taken into account in assessing benefit entitlement, and so may have additional income as well as their benefits. But a person whose only taxable income is contributory benefit is unlikely to have an income which results in a tax liability, made more certain by the increases in personal allowances which have just been announced. If you are on only the contributory strand with no other income, you are unlikely to be in the income tax system. Of course, income-related benefit is not taxable because it is withdrawn at one-for-one if the claimant has other income.

I have tried to deal with as many of the questions as I can in the time available. I hope that my answers have dealt adequately with the concerns expressed today. I will review the record and follow up with further correspondence in so far as I have not had time to deal with the multiplicity of points that have been raised.

The regulations are a vital part of our ambition to create a fairer and more inclusive society where people with health problems and disabilities are better able to fulfil their aspirations. I therefore hope that the noble Lord will not press his Prayer.

My Lords, I am grateful to the Minister for that characteristically thorough reply. I am also grateful to all noble Lords who have contributed to this important debate, which will continue.

I am sorry that the Minister, in his response, sounded slightly hurt. We are not against him, but are encouraging him because we are all trying to get to the same place. It is just a shame that some important areas of contention have occurred. Like him, I am sure that the record will repay careful study. I wish the Minister well in getting to where he wants to be, but I hope that he will not mind us pressing the issue from time to time to ensure that he keeps up to the mark. I hope that we have not delayed him too much from his welcome respite over the Whitsun Recess.

On that basis, I am happy to withdraw the Motion.

Motion, by leave, withdrawn.

Employment and Support Allowance (Transitional Provisions) Regulations 2008

Not moved.

Employment and Support Allowance (Consequential Provisions) Regulations 2008

Not moved.

Local Government Pension Scheme (Amendment) Regulations 2008

rose to move, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 16 April, be annulled (SI 2008/1083).

The noble Lord said: My Lords, this is an important debate. It is of the utmost importance that this House fully considers the impact of any changes that we make to the pension entitlements of local government workers. As my noble friend is aware, these workers are the bedrock of services in our local communities. They will have dedicated many years to public service and it is only right, should they fall into ill health, that responsible employers have proper regard and responsibility for them.

I am thankful to the trade union UNISON for alerting me to serious concerns, which I share, regarding the impact of these regulations on its members. These concerns are particularly important to me as I, too, suffer from ill health and understand the sense of insecurity of those who suffer similarly. The proposed changes alter fundamentally the basis on which a member of the local government pension scheme can claim ill-health benefit.

The regulations make a number of critical changes. First, they make it more difficult for a member to qualify for ill-health benefits. They state that a member must be permanently incapable, for health reasons, of doing their job—as was the case previously—but have a reduced likelihood of obtaining any gainful employment before their normal retirement age. I am concerned that this additional requirement could be open to different interpretations. For example, if it is interpreted as the ability to do a totally different job, regardless of the level of pay, suitability or availability, it is possible that a seriously ill member of staff could lose their job through ill health and then receive no pension or other benefit from their former employment, despite having contributed to the scheme. I would welcome the Government’s assurances that this is not their intention.

Perhaps my noble friend could also explain why the Government have taken this stance for local government workers when it is out of step with other public service schemes, such as the NHS pension scheme and the teachers’ pension scheme. These ensure that a member who retires on permanent ill health will receive at least a pension based on what they earned to the date of their leaving. This would be without an assessment as to whether a member could obtain any other type of gainful employment. I would be grateful if my noble friend would consider whether it would be possible to align the local government pension scheme with other public service pension schemes on this point.

Secondly, there are particular concerns over members who qualify for level 3 ill-health retirement. The level 3 pension is intended for those who are judged permanently incapable of doing their job, but capable of gainful employment within a reasonable time after leaving. The regulations define a reasonable period as three years. They state that, in all cases, benefit will cease after three years without a requirement for the employer to review at this point whether the member is still unfit to obtain regular gainful employment. I am concerned that there has been flawed consultation on this three-year definition. There seems to have been no consultation on the provision to stop the pension after three years. I ask my noble friend if he will set out in his response how this definition was agreed and what consultation there was on this issue. Is he entirely satisfied that the consultation process undertaken by the department was comprehensive and rigorous, allowing for a full examination of the impact of the regulations? Does he believe that it would have been better to issue draft regulations first for discussion by stakeholders?

On consultation, will my noble friend respond to the Merits Committee report, which specifically criticised the department on its consultation process? It stated:

“We feel obliged to record our disappointment at the inadequacy of the information about the consultation process which the Department included in the Explanatory Memorandum; we are concerned that this is not the first time that the Department for Communities and Local Government have fallen short in the content of such Memoranda”.

The third issue that I will draw attention to, again in relation to the level 3 pension, is what happens to a member after three years. I welcome my noble friend’s assurance that it is the Government’s intention that a member who is still unable to be involved in regular, gainful employment after three years should be automatically put into a higher level of ill-health retirement provision and not left with a prospect of either no benefit at all, or having to go through a potentially lengthy appeal process.

Perhaps I can give an example. A member is suffering from a severe depressive illness that makes them permanently incapable of doing their job or any work, to the point that they have to leave, but the medical adviser believes that they will recover sufficiently, say within two years, to do some regular, gainful employment. Under the regulations, the employer would review whether they are still incapable of obtaining gainful employment after 18 months but, at three years, when the benefit stops, there is no requirement to review the case. Can that be right?

Fourthly, under the regulations, gainful employment is defined as paid employment for not less than 30 hours in each week for a period of not less than 12 months a year. However, to date there is no clear or agreed definition of what constitutes paid employment. If we are left with its common usage, a member who is a paraplegic and is deemed capable of working in a call centre would not receive any benefit if they were capable of that employment at the date of leaving. I hope that my noble friend will agree that, for the regulations to be implemented successfully, “paid employment” must be defined and cannot just mean any employment.

Fifthly, we understand that the intention was to ensure that no one covered by transitional protection who retires before 1 October is worse off than they would have been under the old scheme. But the regulations seem to require that all those who retire after 1 April will fall under the new definition with its inherent problems, as set out in my earlier point. Can my noble friend give an assurance that those in the process of being retired on ill health will not have to suffer a further period of uncertainty and will be treated in no worse a manner?

Lastly, I will express some concerns about the very premise on which the regulations are based. My noble friend will know that the ill-health retirement package of the local government pension scheme is aimed at saving the scheme considerable money, equivalent to 1 per cent of the pension payroll. That is what we are told. However, the numbers of ill-health retirements in the local government pension scheme have dramatically declined over the past years, and indications are that the trend will continue. I am not altogether sure that it is necessary to treat those capable of some kind of employment in such a penal way. In addition, there are no data to indicate how many future ill-health retirements will fall into which of the three levels. Government costings appear to be based purely on estimates.

The Department for Communities and Local Government has made much of the top-level entitlement, which provides for those who are mostly seriously disabled to receive a lifetime pension based on a 100 per cent service enhancement to normal retirement date. However, CLG’s estimates suggest that only 15 per cent of future ill health retirements will be likely to qualify for this level. It is of concern that there are no scheme data on the level of disability for those who have retired to test this estimate. I would be interested to hear the Government’s assessment and estimates of ill health retirements.

My noble friend knows that this whole issue is of major concern to UNISON and other unions in local government. He will also know that I provided him with some background information on the questions that would be likely to be asked during this debate. I hope that my noble friend can respond positively to my questions. I beg to move.

Moved, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 16 April, be annulled (SI 2008/1083).—(Lord Campbell-Savours.)

My Lords, it occurred to me on my way down to the Chamber that I should declare an interest, although I do not think that I fall into the description given by the noble Lord, Lord Campbell-Savours, of most of the members of this scheme; but I will have a pension, as I have been employed—because that is what membership of the London Assembly was classed as.

I understand, I think, the concern to ensure that an employee who has retired on the grounds of ill health, but who subsequently works again—and I have come across a handful of people in that category over the years—should not be claiming in a way that is seen to be either to the detriment of the scheme, because it takes money out of the fund, or unfair. I came into the Chamber during the previous debate and heard my noble friend Lady Thomas of Winchester refer to honest benefit claimants who are the most angry about those who claim dishonestly. I do not suggest that there is considerable dishonesty, but not everything is perfect.

The noble Lord raised some extremely important points. One of the most important is that regulations that come into effect from 1 April are before us only now, courtesy of the diligence of noble Lord and UNISON. The regulations were first laid on 7 May. The Explanatory Memorandum refers to other parts of the regulations as providing clarity and clarifying certain definitions in other regulations. I take that as code for, “We are now correcting something that we did not get right in the first place”.

I hope that the Minister can tell the House what the policy review group has had to say about these regulations. I looked at the website, because I discovered that such a group existed and that its remit is to comment on this sort of thing. I could not find any comment. That is an extension of the points made by the noble Lord about consultation. The Explanatory Memorandum states that an analysis of responses will shortly become available. I could not find that either; it is not satisfactory that Parliament should be asked to approve, or by default approve, regulations without proper publication of the responses. My lack of technical skill may have meant that I could not find the responses on the website, but if they are so obscure that they are difficult to find, a similar point applies.

On the principal change that the scheme introduces, I find it difficult to understand whether what is proposed is no benefit at all or a reduced benefit; if it is no benefit at all, that does not make sense to me. I am also curious about the assumption that it is possible to determine on day one what will be the position three years hence. I know that there is provision for a review, but it is expecting a great deal of the medical practitioners involved to be as certain as the regulations seem to require. The authority will discontinue benefit under Regulation 20(8) if it “considers” various things. I take it, although I should be grateful for the noble Lord’s confirmation, that “consider” involves a proper degree of reasonableness.

Finally, how was the definition of gainful employment as being not less than 30 hours each week for a period of not less than 12 months arrived at? Is it comparable to provisions elsewhere in the forest? I assume that it did not come out of a clear blue sky.

I am grateful to the noble Lord, Lord Campbell-Savours, for bringing the regulations to the attention of the House.

My Lords, the noble Lord, Lord Campbell-Savours, has done us all a favour by bringing before us the matter of the treatment of employees who become disabled. To a certain extent, the discussion flows naturally from our earlier debate—quite coincidentally; one cannot arrange these things, but it is fortunate when such a coincidence occurs. I am even less expert than the noble Baroness, Lady Hamwee, but the question seems to me to be how you define disability. The noble Lord, Lord Campbell-Savours, has a real concern there, especially because, if I correctly understand his interpretation of the regulations, that assessment has to be made on day one. An assessment of disability must be questionable at some point in the future. At that point, there must be a thorough and proper review. That is the first thing.

The second thing that causes concern is the definition of “proper employment” for a person who has suffered disability. It is all very well to say that a man is capable of working in a call centre, but that presumes that there is somewhere such as a call centre for him to work in. He may be technically defined as capable of employment in certain circumstances when in fact there is no suitable employment. I would like some explanation from the Minister of how that problem may be dealt with.

In my experience, most people would prefer to be employed than not, but if you are in this semi-disabled category—if I may put it in that way—where you can do some forms of work but not others, access to suitable forms of work is critical. I would like some assurance from the Minister that that will be properly dealt with.

Having said all that, I think that the circumstances give an opportunity to review the general position of the local government pension scheme, because local government employees, on the whole, do remarkably well out of it. The scheme is still running according to historic definitions of when one is eligible to draw a pension, when we are looking at an extended working life for the vast bulk of employees who will be eligible for the state pension scheme. There is no doubt that, at some point, the local government pension scheme will have to be looked at in the context of people’s greater expectation of life and—dare I say it?—greater capacity to continue working beyond pension age. I am not sure how many of us here today are in that category, but I suspect that quite a number of us are. I merely make that point.

The pension scheme costs £177 per household, annually, across the country. People living ordinary lives, particularly if their income has become squeezed by developments beyond their control—and, at present, beyond the control of the Government—will wonder about that if we do not have a scheme that is moving in the same direction as pensions generally. That is not specifically what these regulations are about, but since the opportunity is here, I mention that background reality. I have no doubt that there will come a time when the department, the Local Government Association and employees will be obliged to look at that much wider and more significant issue.

My Lords, I am grateful to my noble friend Lord Campbell-Savours for raising the issue, for the way he has raised it, and for giving me advance sight of the important questions put to him by UNISON in particular and, in general, by other trade unions involved in discussions on the important business of the local government pension scheme. I am also grateful to the noble Baroness, Lady Hamwee, for her constructive comments, observations and questions, and to the noble Lord, Lord Dixon-Smith, for raising issues in his usual way. I suppose I ought to declare a past interest in that I, too, was a contributor to the local government pension scheme—in Wirral, I think. I subsequently commuted my payments into the parliamentary scheme. I am sure that that was a sensible move.

Thank you very much.

We know the value of the schemes and that they are, as the noble Lord, Lord Dixon-Smith, said, good, robust schemes. They need to be carefully reviewed from time to time. I am grateful for the opportunity to explain the Government’s position on the recently concluded reform of the scheme, as it applies in England and Wales. Many points have been raised during this debate, and I will deal, in particular, with those raised by the noble Lord, Lord Campbell-Savours, after I have explained the background to how we arrived where we have. It will take some time because this is very complex. I apologise in advance for that. I would not normally detain the House at great length on this issue, but I respect those who have raised questions, and they deserve as many answers as I can give.

We need to put the regulations in context. If we do not, noble Lords will fail to grasp their individual importance and their broader significance for the scheme as a whole. The scheme, which I will refer to as the LGPS for convenience, is a public service pension scheme. Its benefits and administrative arrangements are set out in secondary legislation, made under powers in the Superannuation Act 1972. The LGPS is available for local authority employees in England and Wales, for civilian employees of police and fire authorities, charities, schools and educational establishments, including universities, as well as for employees of private sector contractors who are admitted under special arrangements to scheme membership.

Noble Lords will note that the LGPS is a funded, final salary pension scheme. Employee contributions yield from April 2008 is expected to be on average some 6.3 per cent of pay, while employers currently have been contributing on average some 15.5 per cent of payroll. The most recent data show that employees paid £1.6 billion and employers paid £4.6 billion. Benefits paid amounted to £4.7 billion. The 89 separate LGPS funds, managed and invested by local authorities in England and Wales, had a market value of £130 billion as at 31 March 2007. Income from investments totalled £3 billion in the financial year, 2006-07

Employee contributions to the LGPS range from 5.5 per cent of pay for those earning up to £12,000 a year to 7.5 per cent of pensionable pay for members earning more than £75,000. In between, there is a graduation of contributions linked to pay. Employers’ contributions are variable and depend on the assets and liabilities of each employer in each pension fund, as calculated every three years by independent actuaries appointed by each pension fund authority. For local authorities, whose contributions will be paid from their own budgets, there are issues of affordability, sustainability and inescapable costs, which may affect council tax bills.

This issue is central to the reforms recently concluded for the LGPS. I shall briefly explain that process as a backdrop to my comments on these regulations. The Government’s policy towards the LGPS is well established, having begun in 2004 and culminating in the introduction of a new scheme, which came into full effect on 1 April this year. Throughout the reform exercise it has been made clear that the Government are committed to providing decent final salary pensions, matched by the need to ensure that the pensions being provided remain secure, affordable, viable and, more importantly, fair to taxpayers. A key principle throughout the reform process has been not to impose additional costs from the scheme reforms on taxpayers.

To help to achieve those objectives the necessity has been to achieve an effective and affordable balance between the cost of providing those pensions by employers and taxpayers, as against the level and quality of pension benefits received by scheme members. All the principal stakeholders—the Government, the employers, the LGA and trade unions—believe that the new scheme is an essential component of a modern reward strategy. It is flexible, attractive and accessible, and provides an equality-proofed range of defined benefits which come at a cost-envelope that is acceptable to employees and employers.

As required by Section 7 of the Superannuation Act 1972, the Government have conducted all the necessary statutory consultations to introduce the new scheme and the provisions which are the subject of this debate. Following a national costed options exercise in mid-2006, a statutory consultation exercise on the new benefit structure for the scheme began in December 2006 and the new arrangements were set out in regulations introduced, as noble Lords observed, in April 2007.

The new scheme’s benefit provisions, which were in place some 12 months before the new scheme as a whole came into effect, were the product of detailed discussions with key stakeholders, including local authority employers and trade unions. Having the regulations setting out the benefits available in the new-look scheme in place a year before the operative date of change was done specifically to allow for the updating of administration systems, to provide sufficient time to notify the active members of the changes and, importantly, to make any necessary technical amendment to those regulations.

A key part of the new LGPS benefit structure involved the provision of new, tiered employee contribution rates, better death-in-service rights, extended pensions for partners, an ability to commute part of a pension to a tax-free lump sum and better targeted ill health benefits. These involve the provision of two tiers of ill health benefit awards for eligible members in the scheme. The top tier provides 100 per cent enhancement to members’ accrued retirement benefits where the employee leaves employment because they are permanently incapable of their local authority employment and are independently medically assessed as not likely to work in any other employment before 65, their normal retirement age.

A second tier provides a 25 per cent enhancement for those assessed as permanently incapable of their current jobs but who are likely to become capable of gainful employment at some stage before 65. In response to representations received to a previous consultation, Ministers decided in April last year that a further level of benefits would be considered outside the scheme, as had been suggested by stakeholders in discussions held up to that point.

To provide provision within the benchmark costs for the new scheme, 0.1 per cent of payroll was allowed on the advice from the Government Actuary’s Department—GAD. The Communities and Local Government letter of 4 April 2007 to stakeholders in England and Wales explained the steps in full. However, it has not proved possible to take that approach forward, so we brought forward draft proposals for a third tier of ill health benefits. I will return to this third-tier pension benefit later.

Noble Lords will be interested to learn that there was overwhelming support for the new scheme from trade union members. For example, UNISON members in July last year voted 97.1 per cent in its favour. That ringing endorsement was matched by the GMB and other unions. The LGA and local government generally also endorsed the package. An important element in reforming any occupational pension scheme and particularly one administrated and funded at local authority level is cost. Accordingly, with the support of stakeholders, the communities and local government department was advised throughout the formative and consultative phases of the exercise by the Government Actuary’s Department. Following the costed options exercise of 2006, to which I referred earlier, the GAD costed the elements of the new benefits package as affordable and sustainable and which met the wishes of stakeholders.

The new scheme benefit package, on the basis of future accruals, finally totalled 19.5 per cent of payroll. This was apportioned between employers at 13.2 per cent of payroll and employees at 6.3 per cent of pensionable pay. Noble Lords should note that the total cost envelope of 19.5 per cent was accepted by all. It delivered the affordable and viable reform package required and produced an acceptable range of improved benefits. Its acceptability to the LGA indicated that its cost to scheme employers was also acceptable and that it was seen as being fair to taxpayers.

Looking ahead, an LGPS policy review group was established to play a key role in decisions about the future of the scheme and, in particular, to prepare arrangements—required to be in place for March 2009—to deal with sharing future cost in areas in the scheme between beneficiaries and providers. That tries to answer some of the points which the noble Lord, Lord Dixon-Smith, is concerned about. That work is continuing.

Subsequently three further sets of regulations have been introduced, as promised by the Government, to complete the regulatory framework for the scheme. The LGPS (Administration) Regulations 2008 brought forward the administrative processes from the earlier 1997 LGPS Regulations, and the LGPS (Transitional Provisions) Regulations 2008 made the important arrangements for members to include benefit rights built up prior to 1 April 2008 in with their calculation of pension building up to 1 April 2008.

Finally, I turn to the provisions set out in SI 2008/1083, the LGPS (Amendment) Regulations 2008, and hope I may delve into a little detail on just a few of its important elements.

Strategically, this statutory instrument is the final component of the newly reformed scheme I have described. Its main elements include several essential technical amendments, an example of which is the substitution of three separate regulations with restructured formats to make our policy intention clearer. These apply to a definition which allows members to use an alternative pay period other than their last year’s pay when calculating a member’s pension to protect those where earnings actually reduce in the last few years of their employment; a refined definition of benefit calculation where members leave early without immediate entitlement to benefit and become what are described as “deferred members”; and a definition of “eligible children” for entitlement to survivor benefits in the case of the death of a parent who was a member of the scheme.

A clarification of contribution bands for the tiered contribution bands is now provided in response to helpful comments from stakeholders, along with how these will be indexed in line with inflation on a yearly basis. Some terminology changes are provided for improved consistency, such as changing the word “salary” to “pay”, and defining active members by reference to the new administrative regulations which were made and laid in February 2008. Lastly, a completely new provision has been made to provide scheme members with an essential third tier to the previous two tiers introduced in April last year.

Turning in detail to the ill health provisions I referred to earlier, it may be helpful if I set out the Government’s regulatory intentions for the new tier of ill health benefits in the LGPS. This final element of ill health provision meets the Government’s commitment made when the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 were laid before Parliament in April 2007. I explained earlier the elements of the first and second tiers in the benefit regulations. The new third tier of ill health benefit, now provided in the regulations we are discussing today, applies to a local government employee who leaves his current job because he is permanently incapable of doing that job but who is judged medically capable of obtaining other employment within three years. It provides a mandatory pension until the pensioner member obtains gainful employment and it is not intended that the payments should continue for ever. Third tier payments, therefore, will be reviewed after 18 months to assess the member’s employment status. Payments cease where gainful employment has been found. But if it is shown that work has not been obtained following the review, the employer must seek a further medical opinion.

The regulations provide for two outcomes when a second medical opinion is received. First, there is the opportunity to uplift the member to the enhanced second tier. Alternatively, payments will stop if the member remains medically assessed as being capable of employment within the three years of leaving their job. When payments cease, the member becomes a pensioner member with deferred benefits. The member’s final scheme retirement pension will not be reduced because of third tier payments.

An essential feature of the new three tier ill health retirement provision is the publication of statutory guidance to assist practitioners, both administrative and medical, in the operation and application of the new provisions. In November 2007, draft guidance covering the two tiers in force at that time was circulated to all interested parties to enable them to make preparations for the provisions that came into effect on 1 April 2008. A later version to reflect the addition of the new third tier is presently out for informal consultation with stakeholders. Subject to their comments, a statutory consultation exercise will commence at the end of this month on a revised version, and it is hoped that the formal statutory guidance will be in place soon afterwards.

UNISON presented a paper to the House of Lords Merits Committee commenting that the regulations as they stand are unworkable, that a key element was not consulted prior to the regulations being laid, and that the regulations are wrong in principle. It will come as no surprise to the House that the Government do not agree. UNISON has been involved in the extensive discussions and consultations that have continued since before 2006 and which led to the new three tier ill health provisions in the new-look scheme. Its comments do not reflect that a mandatory pension that UNISON sought for its members has been provided, as well as a specific statutory provision for older scheme members. At the request of trades unions, there are transitional protections to deal with cases currently being considered. These are also protections for those members who have to reduce their hours because of their medical condition, and this reduction in hours is not taken into account when calculating ill health retirement benefits, so a protection is in place.

UNISON is also of the view that elements have been added to the regulations after the consultation period. It is entirely sensible and correct that final regulations will alter somewhat from proposals circulated at the consultation stage for comment and discussion. Indeed, it is a mark of good governance that consultation responses are considered carefully and adjustments made to proposals in the light of those responses and other considerations that arise in the preparation of the final regulatory formulation.

We do not agree that the regulations are unworkable. It is essential to see all three tiers of ill health provision as a new pension-benefit package. The complete set of ill health provisions will provide improved and better targeted benefits for those most in need of financial support at a time when they are most in need of support, are incapable of performing their current job, and have no prospect, or a reduced prospect, of future employment before their normal retirement age. The new regime also recognises that those leaving employment, because they cannot undertake their current local authority job but can do other work within a period of three years, need financial support while seeking alternative employment.

Department for Communities and Local Government officials have already met representatives from UNISON and the GMB to discuss the regulations in some detail, and careful account has been taken of the representations made. I understand that the Communities and Local Government Minister is arranging to meet a delegation from the unions to discuss these and other matters concerning the scheme, and I assure the House that full and careful consideration will be given to their views and that action can be taken by way of subsequent amendment to the extant provisions where these are necessary and affordable and legally comply with the scheme.

I accept that there are elements that some will not like. In any new pension regime, this is almost inevitable as the provisions, when set in statute, must balance fairness and affordability. It was, however, essential that the third-tier ill health payments, as agreed with the stakeholders, remained within the agreed cost envelope of 0.1 per cent of payroll, as I mentioned earlier.

The level of the third-tier benefit, with its attendant checks and balances through employers’ review steps, must therefore accord with the level of resources allowed in the planning and design of the scheme reform. Crucially, all the tiers are affordable and fair to scheme members, employers and consequently taxpayers.

Finally, a high-level ill health monitoring group is already in place, with the agreement of Ministers, to establish national ill health monitoring arrangements. Key stakeholders from employers and trade unions are represented, including the LGA, the LGE, UNISON, the GMB, Unite, and human resources and occupational health professionals. I assure the House that the Department for Communities and Local Government will carefully monitor the experience of the new ill health regime and, where necessary, adjust it.

I stressed at the outset that our policy was to provide a good quality final salary scheme, that ill health pension awards were an essential component of that approach, and that provisions that govern these awards must be affordable, viable and fair. My noble friend Lord Campbell-Savours asked about the provisions that are now available in the scheme and how they relate to other public service schemes. Noble Lords suggested that it was out of step with the National Health Service and teachers’ pension scheme.

We should remember that each public service scheme deals with very different occupational groups. Indeed, the LGPS scheme has to deal with a very wide range of occupational groups. This means that it is entirely reasonable that the benefit terms of each scheme will address the requirements of each occupation differentially. The benefit make-up, funding and costs of each scheme are different, and so are their administration and management. It would not be appreciated too much if the top-rate employee contribution in the NHS, where it is 8.5 per cent of pay, was applied to the local government pension scheme, where it is 7.5 per cent of pay. The provision of the top tier in the scheme, which provides 100 per cent enhancement of a person’s future service pension rights and is payable for life at any age, is not replicated in any other public service scheme. In some respects, the LGPS members have a lead.

I endorse the principle that LGPS members genuinely suffering from poor health who qualify under the scheme’s rules should be awarded an ill health pension. I am sure that there would be unanimity about that. However, ill health retirement can only be awarded in appropriate cases. It is expensive to provide and should not be used to provide a means of departure for employees leaving for other reasons. Where the scheme member recovers or finds other employment, the award should cease.

As always, benefits must be balanced against costs and resources. All the public service schemes, in their approach to ill health awards, operate within the broad policy adopted by a report they endorsed when the Treasury published its review of the incidence of ill health retirement in the public sector in June 2000. A cardinal principle in that document, carried through in these regulations and other schemes, is that members who left their employment on the grounds of permanent ill health and who, despite that incapacity, were likely to be able to undertake gainful or regular employment should receive a lower level of benefit than those judged unlikely to ever work again before normal retirement age.

The noble Lord, Lord Campbell-Savours, asked a number of more specific questions, and I shall go through them as quickly as I can. He asked whether a member could leave their job because they are permanently incapable but have no ill health benefit when they do. Under the new ill health arrangements, the only circumstances under which a member who leaves their local government employment on the grounds of permanent ill health and does not become entitled to the award of an ill health pension scheme are where that member is judged by an independent registered medical practitioner to be immediately capable of undertaking gainful employment. The numbers falling into this category are likely to be very small. In every other case where there is a reduced likelihood of undertaking gainful employment, a first, second or third-tier pension would be awarded.

The test of having a reduced likelihood of obtaining gainful employment has been introduced as part of the Government’s commitment to retain people in the workforce. If the employee is capable of gainful employment immediately upon leaving their job, an ill health retirement pension would not be considered appropriate and would run against government policy.

The noble Lord asked whether the additional requirement of reduced likelihood of gainful employment could be misconstrued. We are clear that, when deciding if a scheme member is entitled to ill health retirement benefits, the medical question is being addressed. If the medical condition rendering the member permanently incapable of their current employment also means that they cannot obtain gainful employment within three years, not within three years, or at any time before normal retirement age, ill health benefits are payable. This test does not require consideration of the range of alternative employment, and is not open to misinterpretation.

The noble Lord asked why third-tier payments can be stopped regardless of whether a review has been undertaken. They simply cannot be stopped. It is a requirement in the regulations that the employer reviews the employment status of a third-tier member if payments are still being made after 18 months. Payments cannot be stopped unless the member has notified that they have found work or that, following the review, medical opinion supports the earlier opinion that the member is capable of gainful employment within three years of leaving their employment.

The review payments can cease after three years, where the medical assessment confirms that. The three-year period is consistent with, and follows the principle of, the definitions in regulations of the second and third-tier definitions of not within three years or within three years. A member who is medically assessed as meeting the requirement for benefits beyond three years should not be a third-tier member. The period of three years was considered and accepted following the statutory consultation. Employer organisations considered that three years provided the right amount of time to fully explore all treatment options. The Government agree.

The noble Lord asked whether the Minister was satisfied that the consultation process was comprehensive and rigorous. Yes, I am. The department has had a full and fair consultation with its stakeholders and wider local government representatives from as far back as June 2006, when we published Where Next? Options for a New-look Local Government Pension Scheme in England and Wales. It set out options for tiered levels of ill health provision and the importance of keeping cases under review. The department has had continuing discussion with all involved throughout the development of the framework of the third-tier provision, before the consultation letter was issued in November 2007. There was never a clear consensus among stakeholders about how the precise terms of the third tier should be framed. The department has evaluated and blended comments with great care and tried to genuinely address matters that both employers and unions have sought clarification on.

Generally employers would have preferred to have retained a two-tier system. For administrative convenience, they do not like the concept of a review but they are insistent that the costs remain within the 0.1 per cent available for this tier out of the 19.5 per cent overall cost for the scheme. They accepted that, if a third tier was to be provided in the scheme, they should wish payments to cease if gainful employment were found. They wanted an opportunity for a further medical opinion at the review and the medical test to have been one of being capable of gainful employment. The unions strongly favoured a lifelong mandatory pension scheme. While we have fully met their wish for a mandatory pension, this cannot be for life as it would not be affordable within the cost envelope. Unions believe any review mechanism should permit the member to be transferred to the enhanced two-tier in justified cases and we have made that provision.

The noble Lord, Lord Campbell-Savours, also asked whether I would respond to the Merits Committee report, which recorded its disappointment at the inadequacy of the information about the consultation process in the department’s Explanatory Memorandum. The department responded comprehensively to the Merits Committee’s request for additional information following the laying of the statutory instrument and has noted its disappointment. The department will of course ensure that the preparation of future Explanatory Memoranda will provide more details about consultation responses and we are grateful to the committee for bringing this to our attention.

The noble Lord also asked whether it was our intention that third-tier pensions should be automatically uplifted to a second-tier pension at the end of the three-year period. The answer is no. The provisions allow third-tier pensions to be uplifted to the second tier as part of the review mechanism but only where the medical assessment justifies this. Based on the further opinion given by the independent medical practitioner, the scheme employer can either determine that the member remains incapable of undertaking gainful employment—in which case the pension is discontinued and the member becomes a pensioner with deferred benefit—or that the condition has worsened to the extent that recovery is unlikely within the three-year period and the employer can uplift the award to a second-tier pension.

The noble Lord also asked if payments stop at three years and whether it can be right that there is no further review. It is the intention that a third-tier member will be capable of gainful employment before the end of the three-year period. If this is not the case the member is prevented from seeking continued payments and the employer can make a further determination to award a second-tier pension at any time, and not just within the review period. A further medical assessment will still be required before any further determinations are made.

The noble Lord and the noble Lord, Lord Dixon-Smith, and I think the noble Baroness, Lady Hamwee, asked what constitutes paid employment. Unless defined in the scheme’s regulations, words, terms and phrases are to be given their normal and everyday meaning. In the context of the definition of gainful employment, given in Regulation 20(14), it is clear that paid employment means any remunerative employment. In the case cited by the noble Lord, Lord Campbell-Savours, if a paraplegic, despite his or her condition, were judged to be capable of undertaking paid employment of 30 hours or more in each week over a 12-month period at the date of leaving they would not satisfy entitlement under the regulations. These judgments will have to be very carefully considered.

I answered the point about transitional provisions and the noble Lord said that the level of ill health retirement had fallen. That is a reasonable point but I do not think it affects the operation of the scheme.

The noble Baroness, Lady Hamwee, raised the issue of consultation and the fact that the response has not been published with regard to the policy review group. These have now been published and I will send the noble Baroness a copy. The policy review group has considered the formulation of the regulations on many occasions and minutes are on the website. I can supply those as well.

Finally, the noble Baroness asked whether “does consider” means a reasonable consideration of all of the facts of each case. The answer is yes. Each case must be considered on its merits against the requirements of the regulations.

I think that is the longest I have spoken in your Lordships’ House. I suspect it was very informative and I trust that the House’s attention alighted on every single word I said. I hope it helps all those who consider these matters—as I do—to be very important.

My Lords, I am indebted to my noble friend for his comprehensive response and for the work that has been done in his department to ensure that the information has been made available to us, and I thank noble Lords who intervened. I know my noble friend wants to go off to Brighton to hear Mr Gore Vidal, who we all admire so much. I wish him the best, and I beg leave to withdraw the Motion.

Motion, by leave, withdrawn.

House adjourned at 6.39 pm.