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Lords Chamber

Volume 718: debated on Thursday 11 March 2010

House of Lords

Thursday, 11 March 2010.

Prayers—read by the Lord Bishop of Bradford.

Tax Revenue: Cigarettes


Asked By

To ask Her Majesty’s Government how much tax revenue from cigarettes they estimate they have lost due to (a) smuggling, and (b) imports from the European Union for personal use.

My Lords, the revenue lost due to smuggling in 2007-08 was £1.5 billion. This is down from £2.7 billion in 2000-01. The revenue lost due to imports for personal use is £0.9 billion, of which £0.6 billion came from the European Union in 2007-08, due to lower retail prices in the EU. In January 2010 the UK had an average tax rate, including VAT, as a proportion of the retail price in the EU.

My Lords, I am grateful to my noble friend for that Answer. Does he agree that Britain’s policy for some years now of having a high rate of duty on cigarettes—probably higher than most other EU countries—has been based more on health considerations than on fiscal considerations? Does he further agree that the import of large quantities of cigarettes from the EU, without the ability of the Customs people to stop it, is damaging to health and is undermining the Government’s sensible policies on trying to reduce the level of smoking? Ought we not, as a country, approach the EU and say “Health is not a matter for Brussels; fiscal matters may be”, and suggest that it should look again at the movement of cigarettes into this country?

My Lords, the response from Brussels is that border controls on imports are the responsibility of the United Kingdom. As I have indicated, we have had a marked improvement in the reduction of smuggling over the past 10 years. However, as my noble friend will readily appreciate, the higher we price cigarettes for the wholly commendable and proper reasons of improving the nation’s health and seeking to reduce consumption, the greater the incentive for smugglers.

My Lords, what is the presumption of the number of cigarettes an individual might bring in to measure whether or not they are for personal use?

My Lords, the figure is 3,200 cigarettes over 160 days. A rapid calculation will indicate that that is 20 a day. So for personal use you are allowed to bring in 20 cigarettes a day for six months.

My Lords, I am interested in the confidence with which the noble Lord answered the first part of the Question from the noble Lord, Lord Dubs, about how much is lost from smuggling. Presumably those cigarettes which smugglers attempted but failed to smuggle are out of the equation. How do the Government know how many are smuggled without their knowledge?

My Lords, I thought that question might arise. It is a calculation. Of course, it has to be an estimate. As with everything to do with aspects of crime proceeds, there is an element of estimate. It is the difference between the take the Revenue legitimately gets from cigarettes on which the duty has been paid and the figures from household surveys of cigarette consumption. It is the distinction between those two points.

My Lords, have the Government made an estimate of the reduction in excise duty collected, and taxes generally, on cigarettes following the ban on smoking in public places? Do the Government think that one of the reasons the amount of cigarettes smuggled has fallen is that fewer people are smoking, partly because of the effect of the ban?

My Lords, the health strategy and the Government’s tightening up of border controls have their effect in reducing smuggling. I sought to indicate to the House that there is a significant drop in the amount of cigarettes smuggled into the country. Nevertheless, the House will know that cigarettes are one of the easier commodities to smuggle and it is still done on an unacceptable scale. We are pursuing the most strenuous measures to get the figures down further.

My Lords, why have the Government not set a new target for the reduction of smuggling of cigarettes, given that the latest statistics show that the previous target has already been met? Are the Government now being complacent?

On the contrary, my Lords. I accept of course the noble Baroness’s congratulations on the Government having hit the target thus far. I assure her that the success is based on a strategy which is clearly working. We are intensifying that strategy.

Does the Minister have any figures for the amount of revenue lost due to the smuggling of hand-rolling tobacco? The latest estimate that I have is that 47 per cent of hand-rolling tobacco is illegally imported into this country.

My Lords, the Question was about cigarettes. Hand-rolling tobacco is marginal in comparison to the position with cigarettes. I regret to say that I do not have a figure for hand-rolling tobacco, but I think I can assure the noble Lord—I shall write to him with the specifics—that the problem with regard to smuggling relates to cigarettes.

My Lords, given that the problem of the illegal bringing of tobacco into the country is slightly separate from that of cigarettes being brought in duty-free for personal use, can my noble friend say whether there has been a reduction in the import of cigarettes on that basis since the ban? In what way are the Government underpinning at points of entry their own campaign against smoking, so that people who might bring in cigarettes are discouraged from doing so as far as possible?

My Lords, the figure offered for the personal use of cigarettes is the one which I quoted. It seems to be a reasonable figure given the difficulty of reducing cigarette consumption on the part of people who are addicted to tobacco, and some fairness has to be applied there. We are not reducing that figure, but the reduction of legitimate revenue take on cigarettes is a reflection of the general policy of persuading the nation to smoke less.

Young Offender Institutions


Asked By

To ask Her Majesty’s Government why it is necessary to the welfare of children to have social workers in all young offender institutions; and why ten-and-a-half social work posts are vacant in young offender institutions and dedicated units for young women.

My Lords, local authorities have legal responsibilities to safeguard and promote the welfare of children within their area who are in need. The Government recognise the importance of social work for young people in custody. We believe this should be provided by mainstream children’s services and are actively exploring with the Department for Communities and Local Government, the Association of Directors of Children’s Services and the LGA what more we can do to ensure that local authorities fulfil their responsibilities.

My Lords, I thank the Minister for her helpful Answer. Will she now top-slice local authority funding to fill these vacancies? Local authorities have now had 11 months to act. Martin Narey, chief executive of Barnardo’s, was told in October 2009 that Ministers were redoubling their efforts, and yet half the posts are vacant. When will these children receive the help that they need and have a right to?

My Lords, the noble Earl raises a very important point. I reassure him that children in institutions where the pilot social workers are no longer in post receive support from staff under arrangements that are in place in the institutions. The DCSF and the YJB supported a pilot to look at the benefits of placing social workers in YOIs. Half of the local authorities working with YOIs have kept on the social workers because they have seen the benefits of the pilots. I am very keen that we should do all we can to ensure that the benefits of the pilot are realised.

My Lords, in those YOIs that do not have a social worker what arrangements are being made for young people who were formerly in care regarding where they should be resettled and the level of support they should receive when they leave custody? These children are one of the main focuses that the social workers are supposed to have, as is working in partnership with other professionals.

I want to be absolutely clear. This is a very important issue and it is absolutely right and proper that young people in YOIs get proper support—particularly children who were in care or who are just leaving care. Their home local authority has a duty to ensure that their needs are met even when they are in detention, and this includes visiting them when they are in detention. The responsibilities are very clear. The Local Government Association is very much opposed to top-slicing for this kind of provision. We are doing what we can to work with the association of children’s directors and others to ensure that this provision is properly met.

Can the Minister define what a half of a social worker is? Is it someone who is half-qualified, or someone who works half-time, or someone who works as well as the ones who should have been looking after the girls who were abused by their father?

My Lords, it is well recognised by those who work in HR that when someone works half-time you would calculate that as half a post.

My Lords, can my noble friend explore a bit further the issue of collaboration at a local level? We know that children’s services are responsible for young people in their area. How does that collaboration work with the youth offending teams, for example, and also with the education services for young people?

My Lords, there are already in local authorities youth offending teams and established safeguarding staff in young offender institutions, as well as established working practices. The pilot was looking at whether, when you place a social worker in an institution, it improves outcomes for young people. The National Children's Bureau evaluated this and showed that it did make a difference. Half of the institutions that participated in the pilot have gone on to keep the social workers in place, so it is possible for local authorities to continue to fund these social workers. We know that it is something that the Association of Directors of Children's Services was keen to take forward with all local authorities across the country, which has not been possible. There is a practical way forward. I am delighted that noble Lords are concerned and want to see something happening.

My Lords, does the Minister agree that, if the local authorities themselves had to pay for the individual costs of the young offender in those institutions, it might concentrate their minds rather more to provide adequate services in each institution?

The noble Baroness makes a very interesting point. The debate about how you should fund specialist provision and the debate between central and local government and where local accountability should lie rages on. What matters is that institutions are providing the best possible safeguarding, as the inspector of the Prison Service made clear in its report, and that we put the interests of children first and move on with this.

My Lords, in response to a Written Question last January, David Hanson said that one step being taken to reduce the number of child deaths in custody was the introduction of social workers. Does the Minister agree that by leaving more than half the social worker posts vacant, the likelihood of avoidable deaths has increased?

My Lords, it is totally unacceptable for any local authority not to honour its duty to safeguard and promote the welfare of children. If that means doing it by placing a post in a YOI, that is a good way in which to do it but, if that does not happen, local authorities cannot avoid their duty.

My Lords, a number of excellent—indeed outstanding—charities work in this area. How closely are the Government working with those charities to ensure the best possible outcome for these young people?

My Lords, we always welcome working with the charities sector, whether it is Barnardo’s, the National Children’s Bureau, or others who have great expertise in this area.

My Lords, is the Minister aware that the suggestion made by the noble Baroness, Lady Howe, was made in the Woolf report 18 years ago and repeated in the report that we debated last week in this House? Can we get a move on in that direction?

My Lords, how funding is divided and whether it goes through the Youth Justice Board is a very contentious issue. We have to be very careful about incentivising local authorities to abdicate responsibility.

NHS: Medical Training Initiative


Asked By

To ask Her Majesty’s Government what assessment they have made of the effects of the scheme allowing medical trainees from sub-Saharan Africa to work in the National Health Service for a maximum of two years; and how many individuals have come to work in the United Kingdom under that scheme.

My Lords, the Department of Health operates the medical training initiative, which is designed to facilitate the entry of a number of non-EEA doctors into the UK, including some from sub-Saharan Africa, to benefit from training in the National Health Service. One hundred and ninety-one doctors have entered the UK since April 2009, including 12 from the sub-Saharan region.

My Lords, I thank the Minister for that Answer. Given that the lack of health workers is probably the greatest single issue affecting health in sub-Saharan Africa, given the tiny number that the Minister has just referred to of 12, and given the fact that the UK is one of the world’s leading educators, should the Government not be doing more on this—specifically, having a scheme designed to support the training of health workers from sub-Saharan Africa in this country, as well as giving extra support to their training in the region itself?

My Lords, the scheme has been developed since last year and is building up. We hope to build up to some 750 doctors. At the moment, it relates to low and middle-income countries. Recruitment for the scheme is quite informed—it is through the royal colleges, through word of mouth. Certainly, I think that the Department of Health will recognise the noble Lord’s contribution in this area and consider his comments. We are a big player in the international development of the health worker community, but we will look at whether sub-Saharan Africa should have some greater emphasis.

My Lords, does the Minister recognise not only that we can make a contribution in the way described by the noble Lord, but that this country has itself been enormously enriched by young doctors and scientists coming and working in our institutions and then continuing their relationship over a long period? Do the Government recognise that their understandable preoccupation with security and illegal immigrants has now tended to create a default attitude that guests are unwelcome until proved otherwise rather than the reverse, which is that the vast majority should be welcome? In practice and procedure, our border agency is creating a chill factor. Are the Government prepared to do something about it?

It was nice to absolutely agree with the first part of that question. We recognise that the exchange over the years has been enormously beneficial. The Government have an international health policy. World health is good for British health; we want to support it. I would not accept the claim that the immigration system makes this difficult. It is a very clear system. These are tier-5 people. The National Health Service has a central capability. It gets the appropriate approval from the royal colleges, et cetera. These people come in very clearly on a tier-5 visa for a finite period and then they are expected to go back to their own country. We are doing everything possible to make sure that their entry into this country is smooth.

My Lords, is there a parallel scheme to cover medical technicians and nurses and, if not, will my noble friend consider expanding the scheme? In the discussions in expanding the scheme, what steps will the Government take to make sure that the medical trainees return to the countries from which they have come, where they will be very welcome and valuable?

As far as I know there is no technician scheme. The Government will read this Question with care and consider whether the scheme should be grown in that area. As I understand it, we do not have any power to make sure that people go back to their own country. We have the power to make sure that everybody is absolutely clear that the visa to undertake this training is a tier-5 visa, which is finite in length, and that at the end of the training they must and will leave the country. I am sure that the good intentions of these individuals mean that they will go back to their own countries, taking their knowledge to help those nations.

My Lords, does the noble Lord agree that one of the best ways to ensure that such trainees stay in their own countries is encouraging British surgeons to train Africans in their own countries to do the various operations which are relevant to their people? For instance, Mercy Ships trains a lot of surgeons on-site in the relevant techniques that are so important for these countries.

My Lords, I entirely agree. What the NGOs do, and what the noble Lord himself does, in this area is extremely commendable and valid. This scheme is about bringing people to experience the British health system, the British health processes, ethics and so on. I have read some of the case studies. They get a valuable insight not exactly into a different method but into some different attitudes, processes and so on, which they take back. We should think of them as going in at the high end of their own health systems, enlivening them and helping them grow.

My Lords, some years ago a number of partnership agreements were entered into by UK medical schools with medical educational establishments in sub-Saharan Africa. Many of these agreements, which resulted in young doctors coming from Africa to train in the UK, fell by the wayside because of the political instability in some of the African countries involved. Is it not appropriate for the Government to now have discussions with the Council of Heads of Medical Schools to see whether some of these partnership agreements for the training of doctors from sub-Saharan Africa might be revived?

My Lords, that seems a perfectly sensible suggestion and I will make sure that the Department of Health considers it. We have got the technical sides of the scheme right, particularly the immigration things. We now want to build the scheme up—as I say, from about 200 to 750 a year—and that may well be an important way forward.

My Lords, in reply to my noble friend Lord Hughes, my noble friend Lord Tunnicliffe said that we did not have the power to make the African students go back to their countries of origin. We may not have the power, but do we know whether they do it? Do they go home?

Debt: Insolvency Laws


Asked By

To ask Her Majesty’s Government what action they will take to prevent foreign companies using “pre-pack” insolvency laws to avoid debts.

My Lords, the Government recognise the concerns surrounding the use of pre-pack administrations and foreign companies relocating to the United Kingdom. It is important that we rigorously monitor the system and root out any abuse.

I thank the noble Lord. On 23 June last year, the noble Baroness, Lady Vadera, answered my Question on this point by saying that the Government would look for any evidence of abuse or misuse. Given that Wind Hellas recently wriggled out of debts of £1.3 billion, can the Government give us any assurance that pre-packs will be allowed to be used only where a company is registered and trading in the UK and will continue to trade and be of benefit to British people in terms of work after the pre-pack has come into force?

My Lords, we are aware of the concerns that were raised by the Wind Hellas case. It is important to note that that case went before the High Court, which determined that what had happened was properly carried out and in the interests of creditors. However, our monitoring of pre-packs is thorough. Since 1 January 2009, we have been monitoring all pre-pack administrations, whether coming from a foreign firm or otherwise. We will be announcing the results of those data shortly. If we find that we are not seeing appropriate compliance with SIP 16, we are minded to take strong action.

Would not the simple way of dealing with this pre-pack tourism be to introduce a requirement under which no company could go for a pre-pack unless it had been registered in the UK for a minimum period, say a year or 18 months?

My Lords, we have to recognise that the legislation relating to this matter is governed by European law. Our policy as a Government is to be as open as possible, to encourage businesses to relocate to the United Kingdom and not to put up any unnecessary barriers to that investment. However, it is also vital that our Insolvency Service is rigorous. Independent studies by the World Bank have shown that the United Kingdom’s insolvency framework is highly regarded—above that of the United States, Germany and France—particularly on the basis of its protection to creditors, the costs of proceedings and the speed with which the process is able to be carried out.

My Lords, does the Minister agree that a pre-pack can be enormously helpful, even where a foreign company owns the British company and the assets, by effectively sanctioning an unbundling of a company that includes many solvent and useful trading entities, which can then continue to the benefit of the UK economy? Will the Government please not do anything to damage the concept of a sensible, workable pre-pack, which benefits the economy, for the sake of correcting this one error?

The noble Lord makes a very good point, with which I agree. The important advantage of a pre-pack, particularly in people-type businesses such as an advertising agency or a football club, is that in a difficult insolvency situation it enables the value of the business and, most particularly, the jobs to be retained. Up to 91 per cent of pre-packs lead to a situation where all the jobs in that business are preserved. We need to make sure that pre-packs are properly enforced through the regulations, but they are not the problem; the problem is the insolvency.

My Lords, bearing in mind that the debts held by football clubs in the English leagues are greater than the debts of all the other European football clubs put together and that an increasing number of English clubs are owned by foreign investors—in some cases, we do not even know whose companies these are—is the Minister confident that the football authorities are aware of the pre-pack difficulties and advantages? Will he initiate discussions with the football authorities to ensure that they are familiar with this way forward?

I thank my noble friend for raising that point. Sound business practices apply to football clubs as they apply to all businesses and I will ensure that they are made fully aware of the potential of the pre-pack approach.

To what extent have foreign-owned companies availed themselves of the Government’s various financial and liquidity assistance schemes? What solvency problems does the Minister anticipate as these schemes unwind?

My Lords, we monitor this very closely. We have noticed the very high profile in a small number of cases, but we are not seeing any significant trend relating to foreign firms. However, we monitor all pre-pack administrations and we are not complacent. One important fact is that, in this recession, we are seeing a marked reduction in the overall level of insolvencies in the corporate world compared to what happened in the last recession; although we are not complacent, at this stage in the economic downturn we are seeing about one-third of the number of businesses going into insolvency compared to the third quarter of 1992. That is a reflection of the measures that we have taken to dampen the significant impact of this recession.

My Lords, the Question is about corporate debt, but will the Minister tell us whether the Government are as careful of private insolvency? I ask that because, in common with, I suspect, a great many other people, I received two recorded telephone messages assuring me that they were not advertisements but that I needed to know that Her Majesty’s Government were prepared to take away all my debt. That astonished me the first time; I thought that it was a joke. I now wonder whether it was a harbinger of the general election.

If the noble Lord would like to write to me to make me fully aware of the proposals that he heard on the telephone, I will look into it.

Business of the House

Timing of Debates

Tabled By

That the debate on the motion in the name of Lord Richard set down for today shall be limited to three hours and that in the name of Lord Morris of Handsworth to two hours.

My Lords, given that the first debate on the Order Paper today is a debate on a Select Committee report, it has been agreed that we will not time-limit the debates today. My noble friend the Leader of the House will not therefore move her own time-limiting Motion. However, we hope that Back-Bench speakers in the debate in the name of my noble friend Lord Richard will be able to keep their remarks to 10 minutes so that the House can get through all the business before it today. If necessary, we will issue an informal advisory time limit for the debate in the name of the noble Lord, Lord Morris of Handsworth. Today’s speakers list has been reissued without any time limits.

Motion not moved.

Al-Qaida and Taliban (Asset-Freezing) Regulations 2010

Criminal Procedure and Investigations Act 1996 (Code of Practice for Interviews of Witnesses Notified by Accused) Order 2010

Damages-Based Agreements Regulations 2010

Conditional Fee Agreements (Amendment) Order 2010

Human Fertilisation and Embryology (Parental Orders) Regulations 2010

Human Fertilisation and Embryology (Parental Orders) (Consequential, Transitional and Saving Provisions) Order 2010

Human Fertilisation and Embryology (Disclosure of Information for Research Purposes) Regulations 2010

Environmental Civil Sanctions (England) Order 2010

Environmental Civil Sanctions (Miscellaneous Amendments) (England) Regulations 2010

Motions to Refer to Grand Committee

Moved By

Motions agreed.

Transport: High-speed Rail


My Lords, with leave, I will make a Statement on high-speed rail between London and the major cities of the Midlands, the north and Scotland.

Travel and trade between Britain’s major population and economic centres are the lifeblood of our economy and our society. They require transport networks which are high-capacity, efficient and sustainable. As we grow wealthier as a nation, so we travel more and move more freight. Nineteenth-century Britain led the world in the development of railways. Serious planning for a national motorway network was begun by the War Cabinet in 1943. The major motorways were all opened over a 32-year period between 1959 and the completion of the M40 in 1991.

Since the 1990s, increases in demand have been largely accommodated by improving existing roads and rail networks, including motorway widening and the £9 billion upgrade of the west coast main line. The £6 billion roads programme includes investment for the five years to 2014 on widening a large part of the M25 and the extension of hard-shoulder running across the most heavily used stretches of motorway. We are also progressing with plans to electrify the Great Western main line from London to Bristol and south Wales, and a £250 million investment in the strategic freight network.

Our preliminary assessment, published last January, was that substantial additional transport capacity would be needed from the 2020s between our major cities, starting with London to the West Midlands, Britain’s two largest conurbations. By then, the west coast main line will be full. By 2033 the average long-distance west coast main line train is projected to be 80 per cent full, with routine very severe overcrowding for much of the time; and there will also be a significant increase in traffic and congestion on the motorways between and around London, Birmingham and Manchester.

The Government’s view is that high-speed rail could be the most efficient and sustainable way to provide more capacity between these conurbations. So, last January, we set up a company, High Speed 2 Ltd, to analyse the business case for a high-speed line, initially between London and the West Midlands; to make detailed route proposals for this first stretch of line, should the Government decide to proceed; and to outline options for extension to cities further north and to Scotland. HS2 Ltd reported to me in December. I am grateful for the immense amount of expert work done by its staff. HS2 Ltd has shared much of its work and analysis with the local authorities potentially affected, and with Transport for London, the Scottish Executive and statutory environmental bodies. I am grateful to them all for their constructive engagement.

I am today publishing HS2 Ltd’s report, together with the Government’s proposed high-speed rail strategy, which is based on HS2 Ltd’s analysis. In summary, this strategy is for the development of an initial core high-speed network which would link London to Birmingham, Manchester, the east Midlands, Sheffield and Leeds, with high-speed trains running from the outset through to Liverpool, Newcastle, Glasgow and Edinburgh. This Y-shaped network of about 335 miles in total, with branches north of Birmingham running either side of the Pennines, would be capable of carrying trains at up to 250 miles per hour and could be extended to other cities and to Scotland.

There are six principal reasons why the Government are proposing this strategy. The first is transport capacity. The extra capacity provided by a high-speed line would more than treble existing rail capacity on the west coast main line corridor. This is not only because of the new track, but also because of the far greater length of train which high-speed lines and stations make possible, and the segregation of high-speed trains from other passenger and freight services.

By contrast, the most ambitious conceivable upgrade of existing rail lines to Birmingham would yield less than half this extra capacity, at greater cost in terms of both money and disruption than a high-speed line, and without most of the journey time savings. This analysis is critical to the argument as to whether investment in high-speed rail unjustifiably diverts investment from the existing railway. The most likely alternative over time is to spend more achieving less. This accords with the experience of the recent £9 billion upgrade of the west coast main line, whose benefits, though considerable, were essentially incremental and came after years of chronic disruption to passengers and businesses. Furthermore, by transferring long-distance services to the high-speed line, large amounts of capacity would also be released on the existing west coast main line for commuter and freight services, including services to key areas of housing growth around Milton Keynes and Northampton.

Secondly, the journey time savings from such a line would be significant. The journey time from London to the West Midlands would be reduced to between 30 and 50 minutes, depending on stations used, with Manchester, Leeds and Sheffield all brought to within 75 minutes of London—down from almost two hours and 10 minutes now—and through services from Glasgow and Edinburgh to London down to just three and a half hours.

Thirdly, however, the connectivity gains of high-speed rail come not only from the faster trains but also from the new route alignments which comprise the proposed “Y” network of lines from London to Birmingham, and then north to Manchester, and north-east to the east Midlands, Sheffield and Leeds. This new network would provide a once in a lifetime opportunity to overcome the acute connectivity limitations of the Victorian rail network, with its three separate and poorly integrated main lines from London to the north, each with its own separate London terminus.

By contrast, the high-speed line, routed via the West Midlands, would not only slash the journey time to London from Manchester, Leeds and Sheffield; it also nearly halves journey times from these cities to Birmingham. So the east Midlands, the north-west and the north-east gain dramatically improved connections within the Midlands and the north, as well as to London. These connections would be further enhanced by the northern hub proposals to upgrade the trans-Pennine route from Manchester to Leeds.

Fourthly, this high-speed network would enable key local, national and international networks to be better integrated. In particular, by including on the approach of the high-speed line to central London an interchange station with the new Crossrail line just west of Paddington, the benefits of both Crossrail and the high-speed line are greatly enhanced. Such a Crossrail interchange station would deliver a fast and frequent service to London’s West End, the City and Docklands, giving a total journey time, for example, from central Birmingham to Canary Wharf of just 70 minutes, and from Leeds to Canary Wharf of just one hour 40 minutes. This Crossrail interchange station would also provide a fast, one-stop Heathrow express service to Heathrow in place of the long and tortuous journey to the airport currently experienced by passengers arriving at Euston, Kings Cross and St Pancras. Similarly, an interchange station close to Birmingham Airport would provide an efficient link to the M6 and the M42, the west coast main line, the wider West Midlands and the airport itself.

Fifthly, high-speed rail would be a sustainable way forward. High-speed trains emit far less carbon than cars or planes per passenger mile, and the local impact of high-speed lines is far less than that of entirely new motorway alignments in terms of land-take and air quality. For these reasons the Government take the view that high-speed rail is preferable both to new intercity motorways and to major expansion of domestic aviation, even if these were able to deliver equivalent intercity capacity and connectivity benefits.

Finally, HS2 Ltd assesses that all these benefits far outweigh the estimated costs. With the project yielding more than £2 of benefit for every £1 of cost, HS2 Ltd estimates the capital cost of the first 120 miles of the line from London to the West Midlands at between £15.8 billion and £17.4 billion. This is broadly similar to the cost of Crossrail, which is being built over the next seven years.

The cost per mile beyond Birmingham is then estimated to halve, taking the overall cost of the 335-mile Y-shaped network to about £30 billion. This cost would be phased over more than a decade after the start of construction, which would not begin until after the completion of Crossrail in 2017. Indeed, the high-speed line would be the transport infrastructure successor project to Crossrail, deploying its skills base and project management expertise, and with a similar annual rate of spend.

I turn now to the specifics of the recommended route. As with any major infrastructure project, there will need to be extensive and detailed consultation, particularly with local communities affected. Significant time will be needed to ensure that consultation is properly conducted and considered before the finalisation of government policy and the introduction of a hybrid Bill.

Subject to this consultation, the London terminus for the high-speed line would be Euston; the Birmingham city centre station would be at Curzon Street; and there would be interchange stations with Crossrail west of Paddington and near Birmingham Airport. HS2 Ltd’s recommended line of route between London and Birmingham is also published today. The Government endorse this route, subject to further work which I have commissioned on mitigation and to subsequent public consultation. HS2 Ltd’s recommended route would pass in tunnel from Euston to the Crossrail interchange west of Paddington. It would leave London via the Ruislip area, making use of an existing rail corridor. It would then pass by Amersham in a tunnel towards Aylesbury before following the route of the A413 past Wendover.

North of the Chilterns, the recommended route would follow in part the disused Great Central rail alignment before passing Brackley and entering Warwickshire. It would then skirt to the east of Birmingham, to enter the city via a short link alongside an existing rail line, beginning in the Water Orton area, with the main line extending north to the west coast main line near Lichfield.

In developing its route, High Speed 2 Ltd has been very conscious of the need to minimise the local impacts while achieving the wider objectives of the high-speed line. The company will be publishing a full appraisal of sustainability, including noise and landscape impacts, before formal consultation begins, and I am today publishing details of a proposed exceptional hardship scheme for those whose properties may be directly affected. I should like to assure the House that only once full public consultation on the Government’s proposed strategy and recommended route is complete, and its results fully appraised, will the Government make firm decisions.

I turn now to the issue of Heathrow. It is important that Heathrow is connected to any high-speed line. A prime purpose of the proposed Crossrail interchange is to provide such a connection, via an 11-minute direct service to Heathrow. However, the overwhelming majority of passengers on a high-speed line south of Birmingham would be going to or from London. This is the other reason why the Crossrail interchange station is so important. Crossrail, a very high-capacity line, will provide fast services direct to the West End, the City and Docklands, catering for an estimated one-third of all the passengers travelling on the high-speed line. Without this interchange to Crossrail, congestion on the Tube from Euston would be exacerbated, and passengers would be severely disadvantaged in getting in and through central London.

The question is whether there is a case for an additional station at the site of Heathrow itself. High Speed 2 Ltd, after thorough analysis, advises that the business case for such an additional station appears weak, given the estimated cost of at least £2 billion for the additional tunnelling required to serve the site. Furthermore, Heathrow is not a single place; it is an airport with three widely dispersed terminal centres.

However, I am conscious that, as foreshadowed in the Government’s January 2009 decision on adding capacity at Heathrow, there may be a strategic case for a high-speed station at Heathrow, particularly in the light of that planned expansion. I have therefore appointed the noble Lord, Lord Mawhinney, a former Transport Secretary, to advise on the best way forward, having fully engaged with all interested parties. A complex decision of this nature should not be taken in a knee-jerk fashion but after a full analysis of the facts and options.

There are many other benefits of a high-speed project. An estimated 10,000 jobs would be created, with benefits, too, for UK companies competing abroad. Regional economic growth and regeneration would also be boosted, with released capacity on the west coast main line supporting housing growth. All this is set out in the Command Paper that I am publishing today and laying in the Libraries of both Houses.

High-speed rail is a long-term strategic project to equip Britain with the transport infrastructure that it needs to flourish in the 21st century. Now, as we emerge from recession, is the right time to be planning. The Government’s view is that high-speed rail could play a crucial role not only in meeting reasonable future transport capacity requirements but also in transforming the connectivity between our major cities, regions and economic centres. It could help to boost the economies of the Midlands and the north, in particular; help to overcome the historic north-south divide; strengthen the ties that bind Scotland and England; and, connecting to the Channel Tunnel and High Speed 1, reinforce our links with the European mainland where high-speed rail networks already extend from the north of France to the south of Spain and Italy and to the east of Germany.

High-speed rail is a policy of huge strategic significance for the country. The time has come to create a credible plan and for this to be a national cause. This is the spirit in which I set out today’s proposals, and I commend them to the House.

My Lords, I thank the Secretary of State for making this Statement today, and I am grateful that I was allowed 20 minutes to see it before having to respond. I half congratulate him on at last embracing the long-held and long-articulated Conservative view that the development of high-speed rail is essential to the future of transport in this country. We welcome the emerging political consensus on the principle of this policy. The Statement concentrated on the benefits of high-speed rail in general. We were convinced of these years ago. However, we welcome the report from HS2 Ltd, and we will be studying it in detail as soon as we get it.

I only half congratulate the Secretary of State because his predecessors, and indeed the Government’s 30-year strategy for the railways, dismissed the idea that high-speed rail would bring great benefits. Two years ago, the then Secretary of State, Ruth Kelly, said in a Labour Party release that high-speed rail was,

“opportunistic, economically illiterate and hugely damaging to Britain’s national interests”.

Perhaps that is why the noble Lord, who is much admired for his enthusiasm for rail, is now the Secretary of State. However, the Command Paper looks at the detail of the plans of the HS2 route, so the argument in general about HS2 has clearly been won.

The Statement is full of general principles but lacks detail on cost analysis, funding sources and the expertise necessary to deliver any part of the project in the reasonably near future. When one looks at the proposed spurs to Manchester and Leeds, all we have are lines drawn on a map. There are no viable route options, no projected timetable and no indication of when detailed planning will begin. All of this may be in the HS2 document, which we have not seen yet—so perhaps the Minister would like to respond on those details when he replies. Also, can he give us any more information on when Parliament will be able to see proposals for the spurs beyond Birmingham? The Government’s own analysis shows that the full benefit of high-speed rail will not be felt until those aspects are up and running.

It has always been the Conservative Party’s intention that high-speed rail should penetrate into Scotland, but the Government’s Command Paper shows that this is, at best, only an aspiration in Labour’s plans. If this is to happen, planning works need to begin very soon. Can the Secretary of State say whether there are any plans for this, and when they are likely to be implemented?

The Command Paper notes the importance of public engagement and formal consultation on all parts of the network, and the Secretary of State has spelt that out in his Statement. This is in marked contrast to Labour briefing against the Conservative Party over the last month for our refusal to be bullied into stitching up those who live near the proposed routes before they had been formally consulted. We look forward to seeing how the consultation will go forward, and what options are being offered to those who live near the initial London to Birmingham leg. Can the Secretary of State tell us whether there will be full consultation, that best practice will be followed for the further legs beyond Birmingham, and when that is likely to happen?

One of the most salient problems which will affect this policy is the current lack of skills available to the rail industry to implement the works required. There is huge demand now both for the high-speed rail and for Crossrail. The Government’s Command Paper suggests that a new national skills academy for rail engineering will be the answer to this problem. However, given that the matter is only under consideration by the Learning and Skills Council and the Government accepted that there was a problem in higher-level skills only in 2009, does the Secretary of State believe that sufficient numbers of people can be educated to a sufficient level to fill the enormous skills gap in time for this project to begin, and for those skills to be relevant and helpful to our own young people?

We are disappointed but not entirely surprised to see that the Command Paper rejected the opportunity for a direct air-rail interchange at Heathrow. If we are serious about reducing pollution, which is rife in and around the airport, and encouraging passengers to limit the amount of flying they do, then an easy interchange between rail and air is essential. The Government's present proposals for using Crossrail will only mean that passengers are discouraged from using rail by having to traipse round stations lugging their baggage. Having read the Command Paper this morning, I was somewhat taken aback to hear the noble Lord say in his Statement that further consideration is now being given to a Heathrow spur. I congratulate him on that decision. We look forward to hearing how the noble Lord, Lord Mawhinney, gets on with it. I am sure that we will be pleasantly surprised at the outcome.

Although we remain totally committed to high-speed rail, it is clear that the Government, in the dying stages of their life, are stumbling to put out a policy for consultation which they are not likely to implement.

My Lords, I do not wish to follow the speech we have just heard, which was almost insulting to the Secretary of State. I should like to thank him not only for the announcement in the Statement, but for the drive which he has personally put into this project. I am quite convinced that Britain needs a high-speed line because in many ways it would embrace what I will call the forgotten north, the big cities of the north which do not have good railway services. Many noble Lords and many civil servants use the railway services around London, but the services around Manchester, Leeds, and Sheffield are disgraceful, with old, overcrowded trains. What has been said today will give some hope to the north that it is not forgotten and that it will be included in the future which has been outlined.

I want to express my confidence in the fact that engineers can design a railway which is far less intrusive than any motorway network. They can work on aerodynamics, regenerative braking, noise suppression and I am quite certain that the railway we will receive will be far better than anything we have now. If you live anywhere near a motorway, you will know the awful noise which you have to put up with continuously.

I should like a number of assurances, the first of which the Secretary of State has given. I should like an assurance that the money for high-speed rail will not be extracted from the rest of the network; otherwise we will have the French situation: a superb TGV network and an awful secondary network.

I suggest to the Secretary of State, as part of the programme, that there is space for the continuous upgrading of the east coast main line north of Leeds. If that is intended to be used for the high-speed train, any engineering work done on that line now should take account of the fact that that line may be used for high-speed trains in the future.

I make a plea to the Secretary of State that the whole project does not become a meal ticket for consultants and the various hangers-on who seem to pervade many projects in this country. I also ask him to consider not applying NATA—the new approach to transport appraisal methodology—to this project. We need real goals; not goals which economists look at round their feet so forgetting the big picture. We need to have some real objectives in view and to measure our way going towards them.

The western end of Crossrail still worries me greatly. A lot of thought needs to be given to where those trains are going to go once they leave Paddington. It is quite inconceivable that metro trains stopping at every station west of Paddington will be in any way suitable for the distribution of people who will arrive at the new station near Wormwood Scrubs. Will the Secretary of State also consider the relationship with Network Rail and the rail regulator? The costs that Network Rail incurs are far too high in anybody’s judgment and I want to see a better arrangement than there is for HS1, where Network Rail has apparently taken over the maintenance without any real check on its efficiency. Whoever is maintaining something needs those checks on efficiency.

I had written on my notes that at this point I would make some comments on the Conservative view, but quite honestly, there is just nothing to talk about.

The Secretary of State and I disagree about many things, but I am happy, in this case, to promise the full support of those on these Benches. In the pantheon of railway greats, which might include Brunel, Stephenson, Brassey and Sam Fay, I believe that the Secretary of State has at least got his foot on the lowest step.

My Lords, I am so bowled over by that compliment, I hardly know how to begin. The idea that I might be on a par with those great railway luminaries is such a breathtaking thought that I need to let it sink in. Perhaps I should respond before it goes to my head, because it might have a dangerous effect on my equilibrium.

I should like to express my gratitude to the noble Lord, Lord Bradshaw, for his warm words and say that I am half grateful to the noble Baroness for the half congratulations she offered me. She asked a number of questions which are covered in the report itself. She asked about cost analysis, funding sources, time-lines, work on the proposed spurs to Manchester and Leeds and planning for Scotland—all of that is covered in the Command Paper. There has been a thorough cost analysis, which is set out in great detail in the report.

We also give a clear view on funding sources. There would be a requirement that this would be a state-led project: there is no way it would be possible to fund the project in any other way. However, we will look for significant third party contributions, particularly in respect of the stations, because each part of this route requires a new high-speed station and there is a good deal of experience in generating very significant third party contributions and development gain in respect of stations. We also see public/private partnerships having a role to play, including in the potential for securitising some of the fares income that will be generated by this project. This is all set out in the report.

On time-lines, I was very surprised to hear the noble Baroness say that she thought it would be possible to start construction in 2015. That point has been made by her party over the past day. Many noble Lords have experience of taking hybrid Bills through this House. It is, quite rightly, an extremely thorough process because of the nature of the private and public interests which are at stake. The last private hybrid Bill to take the Crossrail project through took about three years to be enacted, and that was after the elaborate process of consultation, which needs to take place, led by the Government, before a hybrid Bill can even be prepared, let alone introduced. It is not, in our judgment, conceivable that you could start construction before 2017 if proper parliamentary and consultation procedures are to be followed. If they are not to be followed and we are to axe consultation, then it might be possible to move sooner, but I assume that that is not the position of the party opposite.

Normally, we conduct things in an extremely genteel fashion in the House. But I do, if the noble Baroness will forgive me, want to pick up on one or two points that she raised. She said that she did not have sufficient time to engage with the Statement. Let me make it clear that we offered the Conservative Party the chance to read the whole report weeks ago and it declined the opportunity. The Liberal Democrats accepted the opportunity to read the report and we had very productive exchanges.

The noble Baroness also said—I was puzzled by this remark—that we had sought to bully—I think that “bully” was the word she used—the party opposite into “stitching up” a proposed route behind closed doors. I resent that allegation. There was no attempt whatever to stitch up any agreement on a proposed route behind closed doors. There will be full public consultation on any routes. It is right and proper that that should take place, and it is required. All I was doing was offering the Conservative Party the chance to read the report. It rejected that chance, which is a great pity because the response would have been a great deal better informed if it had read that report some time ago.

The noble Baroness also asked me about the development work on the branches to Manchester and Leeds. The detailed route planning to Manchester and Leeds will start immediately. It will take between one year and 18 months to be completed, and the Government’s intention is then, subject to them being satisfied that the route is robust and value for money, to consult on that route thereafter in the same way as we are proposing from this autumn to start consulting on the detailed route from London to Birmingham.

We would not be setting in train that process of detailed route planning and consultation unless we were absolutely confident that it was possible to take forward this project. As that work takes place, we will also be inviting responses from those who wish to offer comments on how one could develop the network beyond Manchester and Leeds. I have given a commitment in the Command Paper that we would intend to offer through-high-speed services to Scotland from the outset of the high-speed line by following the French practice of enabling high-speed trains to run on both the high-speed track and the conventional track. A majority of the route mileage of TGVs in France is on conventional tracks taking trains through to their final destination, which makes the cost-benefit much better than having to build tracks to all destinations.

By adopting this policy, it would be possible to get a three and a half hour journey time from Edinburgh and Glasgow to London once the Y network of 335 miles was completed, were that to be built. That three and a half hours is extremely important because international evidence is that you get significant traffic movement from the plane to the train once journey times between cities can be got down to under three and a half hours by high-speed train. Not only is that then a competitive time, but time spent on trains is so much more productive than that spent having to pass through airports, with all the inconvenience that that implies.

The noble Baroness asked me about the new national skills academy for rail engineering. I am glad to be able to tell her that we have agreed to set up that academy. That will now take place. But it is vital to see the high-speed line as the successor project to Crossrail. All the depth of engineering and project management expertise that we have in Crossrail will transfer across to the high-speed line, provided we plan these projects in an integrated way.

As to Heathrow, to be frank, a lot of bold statements are being made, which need to be tested rather more than they have been so far. The noble Baroness said that we were not committed to an at-site station at Heathrow. In fact, we are not close minded on an at-site station at Heathrow. The Command Paper, which she said rejects it, does not reject it. It says, because it reflects the work that has been done by High Speed 2 (HS2) Ltd, that the business case does not appear strong. That is precisely why we have asked the noble Lord, Lord Mawhinney, to review the business case and to look at this vexed issue of where a high-speed station at Heathrow would be placed, given that this is a dispersed site with three big terminal centres. He will report in three months on his findings.

However, let us be clear, the Conservatives do not have a proposal for an at-airport station at Heathrow either. I have just read the statement on high-speed policy, which the shadow transport spokesperson issued yesterday afternoon. She must be more clairvoyant than almost anyone since the Old Testament prophets. She managed to issue a paper yesterday afternoon commenting on a Command Paper that had not even been published and with which she had not been able to engage. She criticises us for not putting forward proposals for an at-airport station but says herself that they will support a new integrated Heathrow rail hub,

“along the lines of the plan put forward by engineering firm, Arup”.

It is vital to understand that the proposal put forward by Arup is not for a station at Heathrow but at Iver, well outside the boundaries of Heathrow, some two and a half miles away on green belt and in a flood plain. If they do not even understand that their own proposal for what they call an at-airport station is not at Heathrow but two and a half miles away involving a transit journey for every passenger to get to any terminal, and on green belt in a flood plain, then they have not even begun to engage with the reality of the issues. I am not even sure that the noble Baroness understands that that is the policy of her own party.

We need a mature, sensible and fact-based debate on how we serve Heathrow, not cheap sound bites trying to create false dividing lines which will just put back the cause of high-speed rail by many years.

My Lords, it is essential that Heathrow should become more efficient and ought to be tied up with high-speed rail. What about another aspect of Heathrow, without which it cannot be rendered more efficient? I refer to improvements to the road network. Is that not important as well?

My Lords, there is good road access to Heathrow at the moment. The proposals for widening the M25 and the additional hard shoulder running schemes proposed for other motorways approaching Heathrow will enlarge capacity and make improved access possible.

My Lords, I declare an interest as my group’s member of the Railway Industry Association. I am horrified by what has been said by the party opposite about lack of expertise in the railway engineering industry. The lack of expertise is obviously from the Benches opposite. I ask them to go down to the Railway Industry Association and find out what British companies are doing, or go abroad to see it as the Minister has done. See what we do abroad.

If the Opposition are going to criticise what is being said, where are their report and suggestions? This fine report is well thought-out. The whole future of the country may depend on it. It is depressing if this is going to be a political battle: that will set this country back by miles. It is absolutely essential that there is a cross-party interest in this with knowledge and expertise to understand what the Minister has said. It is quite clear that they do not understand what is going on. This must be rectified. What will happen to our rail system if there is any change of Government after the general election? I am depressed by what has been said here.

Getting away from that, there is another thought about payment. It is possible to consider a railway bond on this issue. I know the Minister does not agree but that should be looked at fully before it is abandoned. In my own experience, recently I travelled on a bullet train in Japan that has been running for 20 years without a single accident. It runs every 10 minutes at 330 kilometres an hour. If and when the high-speed link is built, will it be built before the London-Beijing high-speed rail? I doubt it. The other question is whether we should still be using wheels. If it is going to be so far ahead, should not a magnetic levitation system be considered as well? I think it is too late to do that now but our high-speed rail will be of a much lower speed than most other railway systems in the world. The Government should be supported.

My Lords, I remind the noble Lord, Lord Tanlaw, that it must be brief comments or questions to allow the maximum number of people to take part in the 20 minutes.

My Lords, I pay tribute to the noble Lord, because when I was in China a few months ago looking at the high-speed line it is building between Beijing and Shanghai—which will be completed within two years and will be a remarkable construct—I visited the company in which he has a stake. It is a joint venture company with the Chinese which is building pantographs for the high-speed trains. It does excellent work and is a great example of British engineering expertise being exported. We want to see many more companies like his flourishing in export markets. We already have a good number that do, and that number will be substantially enhanced by the programmes we have in place for Crossrail and electrification.

If companies can see a supply of work coming over the next 20 years—there will be if we proceed with high-speed rail—there will be still bigger incentives to invest and our opportunities to export will be greater still. This applies not only to China, where the noble Lord has great experience; the United States is about to embark on a high-speed rail revolution. President Obama has made significant funds available for development work on a number of high-speed rail projects. In Florida and California, in particular, schemes are being developed which would bring about connectivity and capacity benefits similar to the ones I have described in respect of links between British cities. I expect to see a significant market in the US open within the next few years, and our excellent rail manufacturing, engineering and consultancy sectors are well poised to take advantage of those markets, particularly if we are ourselves committed to developing a north-south high-speed rail project.

My Lords, can the Secretary of State clarify, first, whether in the early stages after completion the trains from north Wales, the north of England and Scotland will run on to the new HS2 line from Birmingham to London? Will the trains from these destinations be, for example, the 140 miles-an-hour Pendolinos or will there have to be a totally new fleet of high-speed trains? Will only new trains be allowed on the high-speed line? Secondly, is there any possibility of services running from, for example, Birmingham to Brussels?

My Lords, there is certainly a possibility of services running from Birmingham to Brussels. The report sets out a number of options for how High Speed 2 and High Speed 1 can be linked, including the possibility of developing a fixed rail link which will enable the trains to run through. There is also a possibility—the two are not mutually exclusive—of a rapid transit system between Euston and St Pancras. By rapid transit, I mean that Euston and St Pancras would be only two minutes away from each other. At the moment they are very difficult to travel between, yet they are much closer than the terminals of most airports. If we could link the two then, given the frequent Eurostar trains from St Pancras, this would greatly enhance the capacity of people coming from the high-speed line to travel on to the continent, whether or not there was also a fixed link between the High Speed 2 and High Speed 1 lines.

Eurostar is also important in the context of services going off the high-speed line. The report envisages that the high-speed fleet would include trains that, like the Eurostars, were capable of running on both high-speed and conventional tracks. You would get the maximum benefits of the high-speed line while the trains were travelling on it but they could serve destinations beyond. This gets very technical. We have the big issue that in Britain we have a much narrower loading gauge than applies on the continent. That is why the Eurostar trains had to be specially designed so that they are capable of travelling on the British tracks; standard continental trains cannot travel on the British tracks because they are too wide. Special trains would need to be designed. This took place with Eurostar and we envisage it taking place for at least a portion of the trains that are to travel on the high-speed line in order that they can serve destinations beyond the line itself.

My Lords, I congratulate the Secretary of State on his visionary approach. However, the experience of past large infrastructure projects is that invariably the outturn costs are more than estimated costs. He is talking about a £30 billion project; this Government are already borrowing one pound in every four spent. Can he say a bit more about how it is to be funded? Apparently, he has rejected the idea of rail bonds. He has touched on the idea of finding ways of securitising some of the income. Given the position with banking and the availability of finance, it would be helpful to hear more about how this will be funded and how the project is to be brought to fruition.

My Lords, as I said in answer to an earlier question, we believe there is room for substantial third-party funding in stations through public/private partnerships, which would deliver discrete parts of the project. There will be big income streams and huge development opportunities in respect of the stations, so we think those sources of funding will be considerable.

However, I am not ducking the fact that this high-speed line will only come to fruition if there is significant state investment. The noble Lord says that there is a history of cost overruns on projects of this kind. I see the noble Lord, Lord Lawson, sitting in front of him. As a former Chancellor, he is only too well aware of having to deal with these issues in the past. It is precisely because of the history of cost overruns that the Treasury—it may have been under the noble Lord’s guidance—insists on large risk additions to the preliminary costing of projects, typically in excess of 50 per cent of the cost. The figure of £30 billion that I referred to includes a substantial risk premium.

We have set up a review into rail costs, because the work of HS2 seems to indicate that the cost of delivering rail projects in this country is twice or more the cost of delivering new rail projects on the continent. We want to get to the root of why that is the case. It may be, as the noble Lord, Lord Bradshaw, says, that it is because we have armies of consultants and advisers who boost costs. It may also be that putting risk premiums into the costings encourages people to bid up costs because they see that in the cost profile; that argument has been put to me. We need to get into these figures because it is a fact that our continental counterparts are able to build high-speed rail lines significantly more cheaply than we appear to be able to, on the experience of High Speed 1. We need to understand why that is the case long before we start constructing this project.

On the point about whether it is affordable, if this becomes the successor project to Crossrail, construction would not start until 2017 when Crossrail is due to be completed. There is, I am glad to say, a near cross-party consensus on taking Crossrail forward. I say “near” because the Conservatives have not absolutely guaranteed that it will proceed, but there is a Conservative Mayor of London who, as he puts it all the time, is joined at the hip with me in delivering Crossrail. The work is proceeding well and I believe this will be a flagship of London’s public transport system when it opens in 2017. The rate of spending on Crossrail now is about the rate of spend you would need to deliver the high-speed line after 2017. So I simply put it to the noble Lord that if it is possible for us to fund a Crossrail line for London, and if this is the big national transport infrastructure project we want to take forward as a country, it is possible in principle to fund this line going north of London after 2017.

I do not believe we necessarily get everything right when we do things differently from our colleagues on the continent. If almost every major European country and most leading Asian countries have found it affordable to build high-speed lines and see huge benefits—such that when they have built their first high-speed line, they almost invariably build other lines thereafter—it may just be that we should follow suit.

My Lords, on the environment issues that will undoubtedly occur when this line gets built, it would be helpful if those who are protesting about the noise on the route or other factors were able to visit HS1 and see the protection that has been put in there and the lack of noise. I declare an interest, having worked on the consultation on that and the Channel Tunnel. It makes an incredible difference. My noble friend has chosen an extremely good route, based on good transport corridors. It is an excellent project and I congratulate him.

I am grateful to my noble friend for his comments. He has huge experience of the rail industry, including the construction of High Speed 1. I take great comfort from his remarks. I make a broader point: there are a lot of fatalists in Britain who think that we cannot accomplish big projects of this kind. We built the Channel Tunnel Rail Link and the Channel Tunnel. The Channel Tunnel Rail Link went through Kent, which is one of the most difficult areas in the country in which to construct a railway line. Just over two years ago we opened St Pancras station, which is one of the rail icons of the modern world. If we can do that, we should certainly be up to building a high-speed line north of London, connecting our great cities and through to Scotland.

My Lords, as chairman of the Environment Agency, I say to the Secretary of State that this Statement is ambitious, far-sighted and enormously welcome. There will of course be a lot of difficult issues to be tackled and decided during the next few years, not least of which will be some of the local environmental impacts of the route of the line, the need for an enhanced pool of engineering skills and the source of the state funding that will be required. However, the overall economic, social and environmental benefits that will come from the development of a serious high-speed rail network in this country will make it well worth it. May I, however, gently suggest to the Secretary of State that now perhaps is a golden opportunity to reconsider his predecessor’s decision on the third runway at Heathrow?

My Lords, I have huge admiration for my noble friend and any advice that he gives I take immensely seriously, but I fear that I cannot promise any immediate change of government policy on that front.

My noble friend speaks from a position of great experience in dealing with environmental projects and I welcome his response to the Statement. It is possible to reconcile our environmental objectives with the provision of this new infrastructure, but I accept that it will require a process of prolonged consultation and engagement, including on how we can best mitigate the impact that the construction of a high-speed line will inevitably have.

Set out in the Command Paper are the comparative figures for different modes of transport in terms of carbon emissions per kilometre. They are very striking. A car with average occupancy has average emissions per passenger kilometre of 128 grams of CO2. For a Eurostar train, the range is between 8.1 grams and 17.6 grams. For domestic flights, the average is 171 grams. The carbon advantage that we gain by carrying large numbers of passengers between our cities by high-speed rail is therefore very great, which is a good part of the environmental case for a high-speed rail line.

My Lords, I, too, disassociate myself from the curmudgeonly Conservative attitude to the Government’s far-seeing Statement, but ask the Minister whether he is prepared at this stage not to rule out the possibility of further extension northwards of the high-speed line, in view of the fact that more than half of Scotland’s landmass lies outside the central belt. The most rapidly growing city in the British Isles is Inverness, and access to North Sea oil and other important renewable energy alternatives lies in that part of the British Isles. Would he at least not rule that out and give it consideration?

My Lords, I am glad to be able to tell the noble Lord, for whose kind personal remarks I am very grateful, that, far from ruling it out, we are going to consult on the strategy for developing high-speed rail beyond the immediate proposals set out in the paper. I believe that, over time, if we develop the 335-mile network that I described in my Statement, there will be very great pressure to extend it. That has been the experience of other European and Asian countries once they have started the process of building high-speed rail networks. I fully accept the noble Lord’s points about the great economic importance of many Scottish cities and the great benefits that they could gain from high-speed rail.

My Lords, I declare an interest as the chairman of the Thames Gateway London Partnership, comprising the 11 East End boroughs of London and the higher education authorities there. I congratulate my noble friend on his Statement; I entirely support his proposition in favour of high-speed rail. It will never happen without leadership, which my noble friend Lord Adonis and the Department for Transport are showing. I have one issue to raise with him. There is a station ready for high-speed trains north of Euston and King’s Cross at Stratford. It is right beside Canary Wharf; it is right in the middle of the area where London will develop in the coming years. Has consideration been given to High Speed 2 stopping at Stratford?

My Lords, I am very grateful for my noble and learned friend’s remarks. Perhaps it is just about in order for me to say to the House that my noble and learned friend’s son is one of my officials in the Department for Transport, so the praise that he is showering on my officials is praise that should be widely distributed within his own family as well. His son does a great job in the department.

On the serving of Stratford by high-speed trains, the Javelin trains, which are providing an excellent new high-speed service to destinations in the Medway towns and east Kent, stop at Stratford and are hugely boosting the regeneration taking place there. There is an ongoing debate about Eurostar serving Stratford, but were there to be through high-speed trains from the High Speed 2 line to the High Speed 1 line, there would be a strong case for some of them stopping at Stratford.

Barnett Formula

Motion to Take Note

Moved By

That this House takes note of the Report of the Committee on the Barnett Formula (First Report, Session 2008-09, HL Paper 139).

My Lords, the exodus having taken place, perhaps I could say one or two words about the Barnett committee. I had the privilege of chairing your Lordships’ ad hoc Committee on the Barnett Formula. It was an interesting committee, whose membership is worth looking at. Not only was the membership good but it produced a unanimous report. We were helped in coming to our conclusion by our special advisers, Mr Alan Trench and Mr Peter Kenway, who gave us invaluable advice. We were extremely well served also by one of your Lordships’ Clerks, Ms Audrey Nelson. It is almost de rigueur now to mention Clerks, but she did an extraordinarily good job and I am very grateful to her.

The mandate given to the committee was necessarily limited. It was,

“to examine the purpose, methodology and application of the Barnett Formula as a means of determining funding for the devolved administrations of the United Kingdom, to assess the effectiveness of the calculation mechanism to meet its purpose and to consider alternative mechanisms”.

I am delighted that my noble friend Lord Davies of Oldham will reply for the Government to this debate. He has always struck me as the sort of Minister who is essential in any Government. You give him a brief on anything and he gets up, he is persuasive, he is bland, he is pleasant and he is very good at defusing a situation and bringing the temperature down. I pay tribute to him for all those qualities, which I have observed on many occasions in the past, but I am bound to tell him that, in all the briefs that he may have handled from that Dispatch Box, to defend the position of the Government on the Barnett formula is going to prove a very difficult, forensic task indeed. At the outset, he has my deepest sympathy.

Our terms of reference were not only limited but they specifically excluded consideration of three particular areas. One was the overall system of funding the devolved Administrations, particularly tax-raising powers. Secondly, we were not allowed to consider other political aspects of the devolution settlements. Thirdly, we were not allowed to consider the distribution of funds within the different regions of the United Kingdom. Therefore, the scope of the inquiry that the Select Committee undertook was focused tightly on the methodology and the practical application of the Barnett formula.

We asked ourselves four main questions and produced unanimous answers to them all. First, what is the Barnett formula; what is its purpose; how did it come to be introduced; how has it worn with time? Secondly, how does the formula at present operate, particularly the part that the Treasury plays? Thirdly, is the formula still relevant and, if not, what should be done? Fourthly, is it possible to produce a formula for the distribution of moneys from central government to the devolved Administrations that is based on an assessment of need rather than, as at present, only on population?

I cannot resist going into the history of the Barnett formula a little, although I see that my noble friend Lord Barnett is here. The history is interesting and, indeed, instructive. It dates back to 1976, when it was felt by Ministers in the Treasury that a formula was needed to determine the territorial distribution of public spending in the UK. As far back as 1888 the Goschen formula—named after the then Chancellor of the Exchequer, the one whom Lord Randolph Churchill forgot—allocated funds based on the population: 80 per cent to England and Wales, 11 per cent to Scotland and 9 per cent to Ireland. Over time the precision of that formula came to be eroded. After World War II successive Scottish Secretaries of State negotiated additional allocations. They argued special needs, such as sparsity of population in the remote areas and density and poor housing in the central belt.

The introduction of what became known as the Barnett formula was part of a wider attempt to constrain public spending in the mid-1970s. The new formula was in essence an update of Goschen, being based on population rather than need. I cannot resist quoting from one or two portions of the evidence given by the noble Lord, Lord Barnett. He made it clear to us that the formula was not designed as a permanent solution. He said:

“I thought it might last a year or two before a Government would decide to change it. It never occurred to me for one moment that it would last this long”.

Later, I put it to him:

“You devised a mechanism which helped the Treasury to distribute money. You did not base it on need. It was a straight population index and you did not think it would last”.

To this, the noble Lord, Lord Barnett, gave a simple and definite answer: “No”. When asked whether he thought that the formula had been successful, he answered in thoughtful terms:

“Successive Governments over 30 years have kept it going. I do not consider it is successful. I do not think it is fair. It cannot be fair with this kind of gap … At the moment, all one can say is that the figures indicate a huge gap in the expenditure of the different regions”.

Right at the outset of this debate, the author of the formula is disclaiming any responsibility for its longevity.

One of the oddities of this part of our inquiry was that it emerged that, at the very time that the Barnett formula was being proposed by the noble Lord, Lord Barnett, the Treasury was engaged in a detailed assessment of need. The noble Lord, Lord Barnett, was asked whether he knew this. He replied:

“If they were, it was not done by me personally. I was not doing any needs assessment”.

Summing up his evidence, I put it to him in this way:

“As I understand it, what you have been telling us can probably be summed up in two sentences. You devised a mechanism which you hoped would last for a few years. You did not expect it to last for as long as it has lasted. You are not sure now whether it is based on the right criteria and you lean towards having, among other things, a needs-based assessment. Is that fair?”.

He answered: “That is fair”.

It is very clear that the formula was devised in a not particularly intricate or sophisticated way to deal with a short-term problem and that it was intended to be temporary. It is perhaps understandable that in those circumstances it was found easier to base it on population rather than on any assessment of comparative need. The formula has been in existence ever since. It has become one of those subjects that most now agree is crude, unsophisticated and ineffective. There is no doubt, based on the totality of the evidence that we have received, that needs and fairness have never been taken into account. They should be and it is high time that they were.

One of the issues that we considered in detail was the role of the Treasury in administering the formula. It is quite frankly opaque and murky. On many issues the Treasury is judge and jury in its own court. Decisions on Barnett consequentials are taken in secret with no consultations and then presented to the devolved Administrations on a take-it-or-leave-it basis. We were firmly of the opinion that this procedure was unsatisfactory. Decisions on, for example, the extent to which expenditure on the Olympics should attract a Barnett consequential were made by the Treasury and put to the devolved Administrations with little opportunity for them to question those decisions. I think that that is wrong.

Of course, the formula works in the sense that it provides a mechanism for determining mathematically the amounts that should go from central government to the devolved Administrations. The flaw is that the formula itself is based on population criteria going back to the mid-1970s. It is no longer sensible or fair to keep the baseline for payments where it was 35 years ago. The proportions allotted to each nation in the 1970s were based on the situation then. That is no longer appropriate. Things have changed. Populations have moved. Different areas have become more or less prosperous and communications have improved, yet the baseline has remained constant. It is very difficult to justify this on any grounds save perhaps prolonged ministerial torpor.

Furthermore, the way in which the Treasury has dealt with formula bypass problems and Barnett consequentials means that the whole edifice is now distorted. When we questioned Mr Liam Byrne, the Chief Secretary to the Treasury, and specifically asked whether he thought that the Barnett system was fair, the furthest that he would go was to say: “it is fair enough”. What “enough” meant in those circumstances was not entirely clear, at least not to me.

One of the committee’s main recommendations was to take the administration of the formula out of the hands of the Treasury and transfer it to an independent expert body, which we suggested might be called the United Kingdom funding commission. It is important that the new commission should be independent. The Commonwealth Grants Commission in Australia offers an institutional model of an independent body with responsibility for making recommendations about the allocation of finance. We said in paragraph 73 of our report:

“It should be the role of such a body to recommend the allocation of public monies based on population and through a new needs-based formula”.

We accepted that the Treasury would need to retain authority over the overall level of the block grant but not the proportionate allocation of the grant between the devolved Administrations.

The example of the Australian commission is helpful. It is an advisory body to the federal Government with terms of reference framed by the Commonwealth Treasurer after consultation with the states and the territories. Crucial to that operation is the fact that its impartiality is accepted by the states and the territories and the fact that the commission’s advice has always been accepted by the federal Government promptly and without demur. We therefore agreed that the allocation of the block grant should be determined by such an independent objective body and no longer by the Treasury itself.

If we concluded that the present system was not based on an assessment of what is fair and what is needed, we then had to consider whether it was possible to produce a needs-based formula to replace the present system. In many ways, this was the most important part of our report. It was not for the committee to decide what a fair allocation was or might be. Our function, as we perceived it, was to show that a needs-based system was possible and would be workable without too much angst. Of course, we accepted that it would not be possible to undertake a fully comprehensive needs assessment every year or two. The one in the 1970s took three years to arrive at its final conclusions, which astonishingly do not seem to have been passed to Ministers at the time. Nevertheless, it was a major, comprehensive piece of work.

Instead of that we came to the conclusion that it was possible to arrive at a much fairer allocation of resources by looking at a smaller number of indicators. In the report, there are two illustrative charts, or webs—one with eight indicators and the other with 12. Neither of them was meant to be wholly definitive, but they are wholly indicative of future possibilities.

We tried to take account of the four major aspects of each devolved Administration: the age structure of the population; low income; ill health and disability; and economic weakness. The age structure of the population was easily determined. Low income could be represented fairly by the number of children in poverty, as conventionally defined. Ill health and disability could be represented by the mortality rate and economic weakness by unemployment. It would be possible to argue that our criteria are too few and insufficient—that may or may not be so—but the fact is that you can get a clear indication of relative needs by using a few major indicators. One would produce a much fairer result on that basis than the operation of the Barnett formula does now.

It is perhaps worth quoting the conclusions that we reached in paragraphs 101 and 102, where we said:

“While we are not in a position to reach a conclusion about precise relative needs in the four countries and regions, on the basis of our initial analysis, we believe that Scotland now has markedly lower overall need than Wales and Northern Ireland in comparison to England. The current allocation of spending does not properly reflect this basic pattern across the devolved administrations … We recommend that an alternative system on the broad lines suggested above be created to establish a new baseline grant for the devolved administrations and to review needs on a regular basis so that allocations of funds to the devolved administrations reflect the changing patterns of relative need”.

Finally, there is the issue of the Government’s response to our report. I am bound to say that in all my experience, both here and in the other place and perhaps elsewhere as well, I have rarely if ever seen a response to a Select Committee’s report that was weaker intellectually or more politically disingenuous. My noble friend who is to wind up this debate for the Government has my deepest sympathy. The essence of the Government’s position seems to be that the present situation is fair enough, whatever that means. The only people who thought so were the Treasury, the territorial Secretaries of State and Mr Brown. Certainly, there was no sign of any deep analysis or appreciation of the magnitude of the issues involved. It was extraordinarily disappointing to be told that the Government did not agree with our report because they had no intention of implementing it and that they had no intention of implementing it because they did not agree with it. That does not seem to me to take the argument much further. Of course, one can and does understand that the electoral timetable makes it difficult for any Government to commit themselves at this stage, but the government response that all is well when it clearly is not is not good enough.

In our report, we have set out what I believe to be comprehensive and convincing arguments: first, that the present situation is unfair; secondly, that it is possible to arrive at a much fairer mechanism than at present exists; and, thirdly, that the administration of whatever the new formula might be called should be taken away from the Treasury and administered by an independent commission. This is one of those issues that for many years successive Governments have found it easier to live with than to reform. I understand the politics behind the reluctance, but I really cannot condone it. The present system is faulty and quite simply unfair. It needs to be put right and put right soon. I hope that this report may hasten that process.

My Lords, first, I thank the noble Lord, Lord Richard, who chaired in an exemplary manner the committee on which a number of us here sat. It was a very agreeable committee to be a member of. I should like to thank the other members, because we had a very good spirit. We had a range of backgrounds and experience and we reached agreement and unanimity without any difficulty and without even the chairman having to wield a heavy stick. We reached a happy unanimity and produced a result which, I believe, will stand the test of time, unlike the Government’s reply, to which I shall come a little later, as did the noble Lord, Lord Richard.

Governments face two kinds of difficulties. There are problems for which the solution is very difficult to discern and problems where the course is clear and it is politically difficult to implement. It is clear where this particular issue fits—in the latter category. However, it matters that we deal with this problem for a number of reasons. The present system is grotesquely unfair, which is leading to an increasing sense of grievance, which could be very damaging for the union. This is not the only important public expenditure issue by any manner of means, but it is one at a time when the need to curb and control public expenditure is the number one challenge facing the next Government, whichever party provides that Government. Therefore, this needs to be addressed. The Government after the election will have to take a whole lot of politically very difficult decisions. If they are going to duck this one, I am afraid that they will be a sense that they will duck everything that is difficult, which would be absolutely disastrous. Indeed, I do not want to attach too much weight to the financial markets, but if they were to think that that was the case it would be a grave threat to our country in ways that I do not need to underline.

The problem is a conceptual one. The purpose of public expenditure is to assist not territories but people. That is the point. Over the course of years, as the noble Lord, Lord Richard, said, we have reached a certain point as a result of differing population trends. I leave aside social security payments of all kinds, which are outwith the Barnett formula; those payments, along with the taxation system, which is also outwith the formula, are the ways in which the differing needs of different people in the United Kingdom are primarily addressed. Here, we are talking about the rest of public expenditure quite apart from that. Public expenditure per head in Scotland under the Barnett formula is 27 per cent higher than it is per head in England. There is no rational justification for that whatever. That has arisen because of differing population trends.

There has been a very considerable growth in population in England since the Barnett formula came into effect, whereas there has been virtually no increase in the population in Scotland. The demographic projections say that that will get worse. People talk about there being an inherent convergence, but from the demographics we can see that there will be a divergence. From figure 1 of our report, we can see that the divergence of population of Scotland and England will be far greater in the next 20 years even than it has been in the past 30 years. Of course, the formula, as the noble Lord, Lord Richard, pointed out, is not based on actual population; if it were, there would be a rough and ready justice, but because the baseline is not touched under the formula and only the annual increment is affected by it, the population basis gets progressively more out of date, unrealistic and unjust. That has to be addressed earnestly by the Government of the day, whoever that may be; they must be prepared to take unpopular decisions on public expenditure, if they are right, on the grounds of fairness and justice.

I find the Treasury’s response to this an embarrassment. I deeply regret it. During my eight and a half years as a Treasury Minister, I had a great respect for the Treasury; indeed, I am one of the few people who had a great affection for the Treasury. However, this reply is an insult to the House. It is only three and a half pages long, of which more than half is just a regurgitation of things that we said in our report, leaving about one and a half pages of actual Treasury response. All it does is to state what the status quo is and its unwillingness to entertain any possible change. Well, we know what the status quo is. Its only argument—if argument it be called—states:

“The Barnett formula operates according to long standing principles”.

That is it. I thought that new Labour was meant to be a reforming Government. Apparently the essence of new Labour now is that if it operates according to long-standing principles, that is the end of the matter. It does not address the population point which, as the noble Lord, Lord Richard, and I have tried to point out, is absolutely central to this. It therefore does not address at all the projected deterioration in the system due to the increasing divergence of population trends, nor does it address the outcome so far. None of that is addressed.

We in the committee have produced a solution—which is agreeable to all sides of the committee and to all parties—to a problem that no Government can escape. I hope that we will have a Government who have the courage to adopt the solution that we have put forward.

My Lords, I hope the House will bear with me, because I am the Welsh affairs spokesperson for the Liberal Democrats and will address most of my remarks in that context. I am sure that my colleague from Scotland, the noble Earl, Lord Mar and Kellie, will address such measures as the Calman report, which is not dissimilar to the Holtham report, which has come out on funding the needs in Wales.

I congratulate the noble Lord, Lord Richard, the chairman of the Select Committee, on this excellent report. The Barnett formula is crucial to us in Wales, where the economy is extremely fragile. It is one of the two key points that have to be resolved in Wales; the other is law-making powers—on which the noble Lord, Lord Richard, also chaired a commission. He and his fellow commission members made recommendations in their report with which I wholly agreed.

Our problem is that, for example, if we get law-making powers in Wales in the referendum which is likely to occur this autumn, we may not have the means adequately to carry out economic policies to regenerate large parts of Wales, because, as has already been said, it is a very unfair formula as regards needs. The Government of Wales Act 2006 opens the door, but if we get law-making powers, we will need to follow those up very rapidly with reform, on a needs basis, of the Barnett formula.

My country, Wales, has large sparsely populated areas. Some parts are as sparse as the highlands of Scotland. Other parts are old, decaying, formerly heavy industrialised areas, for example in the Valleys. We have a low-wage economy. We therefore have a lot of needs. The conclusion of the Select Committee report on the Barnett formula lists quite a number of facets and makes extremely sound recommendations. It says that the advantages of the current formula are,

“simplicity, stability and the absence of ring-fencing”.

There is a failure to take account of population changes, as has already been said, and that creates a significant problem. Therefore,

“the resulting per capita allocations are arbitrary and unfair”,

and, indeed, they often fall short. The baseline represents a population level that has changed and,

“the Treasury is judge in its own cause”.

Much of this has already been stated, so I do not want to go over it in its entirety.

The recommendation for a clear process and open consultation is very important for the devolved Administrations of the UK. This consultation needs to be clear, thorough and accessible. The recommendations on the independent commission which the Select Committee report wants to see in place are of particular interest. It has to be a fair resolution, and it has to be seen to be fair. It has to be comprehensible, stable and predictable. It has to respect territorial autonomy. As the report says, and as the noble Lord, Lord Richard, stressed, any needs assessment has to address the questions of age structure, low income, ill health, disability and economic weakness.

Taking those in the context of Wales, for example, we have a higher number of elderly people by a factor of 3 or 4 per cent. We have lower family income by as much as £7,000 per family. Our levels of ill health and disability are a legacy of heavy industry, whether in the coal and steel industries or from working long hours in the countryside. We also have economic weakness. Our GDP seems to have been stuck on 80 per cent of the average. That penalises many of us, and the result is that Wales does not produce a sufficient surplus for investment in a much more resilient economy.

The government response to the needs list—it is undoubtedly a Treasury response—was rightly criticised. It contains words such as “notes” and “concern”. The Government say that devolved Administrations should be allowed to determine their own assessment of needs and priorities in devolved areas.

The committee also suggested a transition period to implement the new arrangements, but the Government’s response was to say that they have no plans to make such changes. We in Wales find such responses from the Government in Westminster very familiar. The Government’s attitude to the report’s constructive proposals reminds me of a slightly erring child being patted on the head and told, “There, there; we’ll think about it. But please go away now. I have lots of other things on my mind to consider”. Well, we in Wales have news for you. We will not stand for this kind of treatment any longer. We are used to it, but we have overcome it. We have now had 10 years of devolution, and we have a lot more confidence than we used to. We have a just cause not only in relation to public services but in relation to building up a new entrepreneurial economy in Wales, which is extremely important to us.

While the Calman commission has considered the funding of initiatives in Scotland through adjustments to the tax system, we in Wales suggested in 2007 that we should have an independent committee to look at the question of the Barnett formula. The Holtham commission was set up and it reported last July. It concluded that Wales was losing out to the tune of £300 million per year. The result—in lower spending on pupils, higher education, the NHS and local government—is evident. Spending on children’s education in Wales, for example, is £500 per child less than in England; higher education is less adequately funded per student, and the NHS is constrained by higher demand from the factors that I have already mentioned.

Sparseness of population is another issue where we used to be compensated much more adequately than we are now. There is a lack of affordable housing and quality jobs. Public sector employment is sometimes more dominant than private sector employment, so the impending cuts are bound to be another factor affecting, for example, the spending of local authorities. In the private sector, we do not have any multinational HQs or bank HQs, but we often have closures—such as Burberry in the Rhondda, Bosch industries near Cardiff and Anglesey Aluminium, to name just a few. The situation is therefore one of need. The Holtham investigation made some very constructive proposals, which there is no time to mull over now. None the less, they are rather similar to those in the Select Committee report. The main point is that both reports support a needs-based formula. We should proceed soon to finding a fair replacement for Barnett. We will surely make significant progress there, which will be extremely fair.

My Lords, I was informed, as were we all, that the suggested time for speeches is 10 minutes. I have done that.

My Lords, I apologise to the House. I was not in the Chamber at that point. I am very sorry to have interrupted.

My Lords, I also speak as a member of the committee, which, like the noble Lord, Lord Lawson, I enjoyed enormously. It was agreeable and, thanks to our chairman, we were led with great calmness through this rather complex issue towards total unanimity. Of course, the statistical side interested me particularly. I also want to pay my tribute in retrospect to the ingenuity of the noble Lord, Lord Barnett, in creating the formula in the first place. Its survival over some three decades is a tribute in itself, and it makes it doubly significant that the noble Lord himself has urged the case for reviewing his creation.

Let me say straight away that our deliberations and almost all the evidence—with the notable exception of the rather complacent attitude of the Treasury to the whole thing—left me in no doubt at all that the original formula has now had its time. For all the reasons already expressed by the noble Lord, Lord Richard, it does not lead to a fair and truly equitable funding allocation across the UK, which is what it was all about. The time is then right for a new approach, which has to be a proper needs-based formula.

That approach has been considered many times over the years but not pursued. One argument against it has been that a needs-based approach cannot be done objectively. Judgments are, of course, involved in selecting appropriate measures of needs, but if those are done properly—especially by an independent commission—there is a safeguard in total transparency and good research back-up. Moreover, we need to remember that the Treasury’s application of the present formula is not exactly judgment-free either.

It has also been argued that a needs-based formula is too complex to be practicable. As I hope that our report shows, that is just not the case. As the noble Lord, Lord Richard said, we have produced a purely illustrative model with a few key principles involved. The formula has to be simple, not only in its construction but so that it can be easily understood, so we suggest limiting it to a small number of broad-brush proxy indicators that, between them, get to the heart of funding needs. They must be based on good up-to-date official statistics, both to produce a new, sound baseline for the formula and for annual increments. Importantly, the formula must lend itself to easy periodic assessment and adjustment. Because relative needs will change, it is important that it is a flexible instrument. To deal with another possible objection, I stress that in my view this sort of approach in no way undermines territorial autonomy for the devolved Administrations in deciding how to spend their money. That is a different issue.

In our model, we chose illustratively to focus on four broad categories of measurement that have a bearing on needs. They are the size and structure of the population; issues of income and poverty; health and disability; and general economic strength. Each of those, and perhaps others, would he represented by proxy indicators that simply measure the number of people with a particular need as a proportion of the population. Obviously, population is the starting point, as it was for the Barnett formula. Conversely, however, it is not only the size, as in the Barnett formula, but the sex and age structure. Age is particularly important because many needs vary substantially between the young and the old, so, illustratively, our indicators distinguish between the under-fives, those aged from perhaps five to 16, and the old—say, the over-65s.

We make suggestions, as the noble Lord, Lord Richard, has said, for low income as a possible indicator. Child poverty is conventionally favoured in that respect. It is certainly a good proxy, but so would be reverse household income, which some of our witnesses proposed. We have our own suggestions for measuring health and disability, and for the general economy, perhaps through employment measures. I stress, as our chairman did, that these examples in the report are purely illustrative; they are not definitive or complete. It would be totally up to the advisory funding body—the proposed independent commission—to propose the choice of suitable proxy indicators. A great deal will depend on the availability of really responsible up-to-date figures. We were hampered in our examples by not including housing, because there are no suitable figures, or population density—a very important measure, but here again there are no national figures. All this can change with time and improve, and that is one reason why we proposed the involvement of the UK Statistics Authority in this whole task, perhaps allied to the proposed commission.

Choices have to be made not only about the proxy indicators but also about the weights to be attached to each indicator, so that they can be combined into a single, overall measure of needs. We suggested that the weights be based on how much national public expenditure is related to each type of need. Again, there is a choice: there are different kinds of weights that can be considered.

What we have shown, very much with the help of our expert advisers, is how a needs-based formula can be constructed. The age-old objections to going down that route may have political backing, but they certainly cannot be justified on statistical or methodological grounds. We emphasised repeatedly that, especially in the hands of an independent body, backed by thorough and on-going research, this was an eminently practical task. It is just not true to say that it is difficult or too time-consuming or too complex—that is not so.

If we are serious about allocating funding in a fair and equitable manner across the UK, the Government’s duty now seems clearly to be to move to an explicit needs-based formula.

My Lords, I congratulate my noble friend Lord Richard and the committee on an excellent report. When I persuaded the House to set up an ad hoc Select Committee, I hoped it would be a strong committee, and I was certainly not disappointed. It was a very strong and distinguished committee; it had two Secretaries of State for Scotland and the former Chancellor of the Exchequer, the noble Lord, Lord Lawson, with whom I agree from time to time—and I certainly agree with him about what he said today. It was wonderful to hear the noble Lord, Lord Moser, with his great statistical knowledge and experience, speak in the way he did in support of the committee’s report.

The case for a needs-based formula has been set out so clearly in this report and by speakers in this debate that there is no need to repeat it. The reason I have been pressing for change for so long is, as has been pointed out by other speakers, the need for basic fairness in the allocation of expenditure. The worry I have had for some considerable time is that, if we did not do something about it soon, the only people who would benefit from this would be those who wanted to break up the United Kingdom, like the SNP in Scotland—something of which I doubt whether anybody else in this House or in any other House would be in favour. The overwhelming case in this report has been made brilliantly, in my view, as has the case for an independent commission to deal with the job.

I should like to follow the noble Lord, Lord Lawson, on one aspect—this whole question of convergence that we have heard so much about. Like the noble Lord, I have affection for officials in the Treasury; no one who has spent as long as he and I have in the Treasury could not but have affection for officials there. But convergence was referred to in paragraph 53 of the report, and it is worth quoting:

“The most serious criticism of the current basis of funding is that, whilst the core allocation (the baseline) has been built upon since the Formula was first applied, it has never been reviewed”.

The only convergence there could conceivably have been, therefore, would be back to that corrupt baseline. But in any case, over the years that have gone by, there has not been any convergence, so how anyone could say that it would bring about convergence I do not know, because we have seen that it has not brought about convergence.

As I indicated in my evidence, from which my noble friend Lord Richard was kind enough to quote, I never expected that the formula would last three years, let alone 30 years. I think it was the noble Lord, Lord Moser, who said that it was a tribute to the formula that it lasted 30 years. It was not a tribute to the formula; it was a tribute to the fact that Governments of all persuasions do not like to make the major changes that are needed. As we all know, that is really the case—it is not just new Labour; it is everyone else as well.

I myself thought it would last for only a short period. It began to be recognised as the Barnett formula only after the Thatcher and Major Governments kept it going for another 18 years, followed by the Blair-Brown Administration for another 13 years. So, when I published my book in 1982 called Inside the Treasury, which everybody will have read, of course, I never even referred to the formula, because I never dreamt it would last that long.

Now there is the question of pressure for a review. I should indicate that it is not anti-Scottish; it is about fairness. Indeed, when we have a needs-based formula, which I am sure we will have at some time or other, there will need to be a transitional period, as the committee rightly said. It is possible that the review might show that Scotland needs some extra money. There is certainly a case for parts of the north-west of England and the whole of the north-east—if one looks at the figures and sees how badly they have done—to have some more expenditure. I do not know how long the transitional period would have to be, but there may well be a need for a transition if the grant to Scotland were substantially reduced. Why on earth anybody should worry politically about it, I do not know, because after keeping that formula for 18 years—I do not have to tell noble Lords—the Conservative Party lost every single seat in Scotland. So keeping the formula going or turning it into what is called “a recognised formula” did not exactly do it any good. The next Parliament, whoever forms the Government, will, as the noble Lord, Lord Lawson, indicated, need to make major cuts. If it does not do something about this, the people of England will not take kindly to those public expenditure cuts when they see, as the noble Lord, Lord Lawson, said, 27 per cent higher expenditure—approximately £1,600—per head in Scotland. It is very cleverly used by the present SNP Administration in Scotland to the political benefit, it hopes, of that party.

I come now, briefly, to the Government’s “response”, though it is a disgrace to call it a response. The committee made a carefully drafted case for change, and what did the Government say? I do not mean my noble friend Lord Davies, who, I am sure, would not have said this. In paragraph 2.15 the Government note the committee’s views. They go on to welcome “the careful analysis”. What will the Government do? We are told that they will,

“keep all aspects of public spending under review”.

We do not need another review; we have an excellent review here in this report. There has been no attempt to answer the overwhelming case made. In paragraph 2.17, all we have is that there are,

“no plans to make … changes”.

It must not just end here. There is a need now for whoever is in government after the next election to do something about this report. Public expenditure will be a crucial issue. The noble Lord, Lord Lawson, referred to it as the number one challenge for the next Administration. I entirely agree.

In chapter 2 of the report, we are told that spending in devolved Administrations is £62,956 million and the part subject to the formula is £48,976 million. It is not petty cash. I hope the Minister and the Opposition will today make a case. Doing nothing is simply not possible. I hope my noble friend will not, once again, give us some waffle. I know he is very good at it. Perhaps today he will give us a better reply to this excellent report. We have not had it yet but I hope we will by the end of today, whatever my noble friend says and whatever the Opposition say. We should remember that when David Cameron went to Scotland for the first time as leader, he assured the Scots that he would keep the formula. He obviously had not noticed what had happened previously. I hope that whoever is in government after the next election will implement this report. It is vital to the future of this country.

My Lords, it is a pleasure to follow the noble Lord, Lord Barnett, who is responsible for the paternity not just of the formula but of our committee. I recall that he fought pretty hard for it. The first time around there was a view that the committee might not be needed. When I saw the composition of the committee, I thought, “This is going to be an absolute nightmare. Here we have a lot of very strong Members of the House who are coming from completely different directions. There is no way we will be able to get a consensus on something as complex as this”. It is a real tribute to the noble Lord, Lord Richard, and his chairmanship of the committee that we did.

I have to say, it was great fun and this House at its best. The path before us was laid out inexorably towards the conclusions we reached. There was no rancour or division in the committee. Some of it was quite amusing. One of the things that amused me most was all the vast academic tomes and theses that have been produced about how the Barnett formula was carefully constructed to achieve convergence and was all very clever. These were blown sky-high out of the water, not least by the evidence which the noble Lord gave to the committee. It turned out that the formula was a short-term political fix. All the attributes that had been ascribed to it were post facto rationalisation.

It is very hard to argue against having a needs-based formula. I cannot think of any such arguments. When I was Secretary of State, I struggled with that. It is something that is on my conscience. The reason why the work to try to develop a needs-based system of funding was being done when the noble Lord, Lord Barnett, was producing his formula in the Treasury was that it was then anticipated that there would be a Scottish Assembly. However, the referendum was lost. The officials in the Treasury knew very well that you could not have a devolved Administration without some kind of objective needs-based system of funding. All the efforts by the Treasury over the years, as set out in the committee’s report, to move to a needs-based system were as a result of anticipating devolution.

If I may be just a little partisan, one of the things which was quite disgraceful was that when the present Government took office in 1997 and decided to set up a Scottish Parliament, the then Chancellor—not the Prime Minister—gave absolute instructions that there was to be no work done on a needs-based system. The Parliament would be funded on the Barnett formula. That was a fundamental strategic mistake. I agree with the noble Lord, Lord Barnett: the sooner that this is dealt with, the better. It is unanswerable. We have the absurd position of people in the devolved Administrations and elsewhere arguing that it would be very difficult to have a needs-based system. However, when they get their £30 billion, how do they distribute it? It goes to health and local government by using formulae that are based on needs. It is simply intellectually impossible to argue that there is one rule for the determination of the amount and another for its subsequent distribution to devolved authorities within the devolved areas.

I have a confession. When I was Secretary of State for Scotland and negotiating with the Treasury on the Budget, I was briefed by my officials under no circumstances to let the Treasury talk me into moving to a needs-based system of funding. They told me then that it would result in Scotland losing £2.5 billion to £3 billion of funding. I hope the House will forgive me if I saw it as my job to look after Scotland’s corner and took that advice. One of the reasons why I was totally opposed to a Scottish Parliament was that I realised it would mean moving to a needs-based system.

For us, as Conservatives, there was political difficulty in moving towards a Parliament when we could not find a system of funding that would not result in a substantial reduction in funding. The noble Lord kindly pointed out that we were not particularly strong in Scotland, and we were even less so after my tenure. With all the other problems, including West Lothian, that was one reason why we opposed devolution. The moment a Scottish Parliament was established, it became inevitable that we had to have some kind of objective system of funding. The noble Lord says that maintaining Barnett did us no good because we lost every seat. We did not take a position on any of these matters because of what we thought was in our party’s interest. We did it because of what we thought was in Scotland’s interest.

Professor David Bell from Stirling University is one of these academics who has made a great career out of explaining the Barnett formula. He now estimates that the amount Scotland would lose as a result of a needs-based system would be £4.5 billion. I do not know whether that figure is correct but it rings alongside what I was told when I was Secretary of State. On page 41 of the report, the committee produced a diagram which shows broadly the needs of the various parts of the United Kingdom. One of the things that is clear is that the needs of England and Scotland are not very different. We have to accept that if we move to a needs-based system, there will be a substantial reduction in the grant available.

Therefore, what I want to highlight from the report to whoever forms the next Government is that it is absolutely essential that we do this over a long transition period. You cannot do this overnight. This issue is a ticking time bomb at the heart of the union; it is very important that it is defused and not allowed to explode. Therefore, the first point is that we need to have a long transition period.

The second point is that we could do with fewer reports which do not address this matter. The Select Committee in the other place has reported on the Calman commission report today, which had no mention at all of funding or Barnett, which I find quite extraordinary. The Calman commission blithely says that Scotland should move to a needs-based system of funding as soon as practicable, and says that the gap in funding can be filled by allowing the Scottish Parliament to raise income tax. A gap of £4.5 billion, assuming no reduction in yield—which is highly unlikely—would mean putting 15p on the basic rate of income tax. That is before you start to deal with the consequences of the reductions in public expenditure which will be required in order to deal with the deficit.

These are very serious matters which could do enormous damage. What we need is not more taxes in Scotland, but a period of time where value for money can be obtained and where the required reductions can be carried out. Incidentally, the Nuffield Foundation produced a report about a month ago which showed that, although Scotland was benefiting by about a quarter more on expenditure for health, England was doing rather better in many respects because of the reforms carried out here but not in Scotland. There are policy implications here and the Scottish Parliament needs time to adjust to it.

Thirdly, I think it is irresponsible of the Government not to address these issues, but I understand the politics. Therefore it is very important that we have this independent body to recommend what the allocation of funds should be, and that the Treasury’s arbitrary powers be taken from it. We had the extraordinary evidence from the Secretaries of State that the Scottish Parliament wanted to build a second Forth road crossing. This is very expensive, and the Scottish Parliament is not able to borrow. There was a bit of a row, and the Treasury decided that the Crossrail scheme was a UK scheme so there were no Barnett consequences. As a result of the row, which happened to coincide with a by-election—I am sure the two are not in any way connected—it was suddenly decided that, after all, there were Barnett formula consequences from Crossrail. The Government turned full circle. I do not know which is right or wrong. Perhaps the Minister could, in his wind-up comments, tell us whether there will be Barnett formula consequences from the high-speed rail link which we heard about this morning. If that will cost £30 billion, then the Barnett consequences will be £3 billion. I can tell you that Alex Salmond will be spending the money even as we speak. We need to have some order, rigour and objectivity about this, because the Treasury is judge and jury in its own court.

I am conscious that I am out of time. I just say to the Government that this is a very important issue for the United Kingdom as a whole, for people in Wales, for the north-east of England and for elsewhere. I accept that devolution is here to stay. The noble Lord, Lord Barnett, does not have paternity of devolution; the Government have. They owe it to the country and to the future of the United Kingdom to follow through what they started by having a funding system which is seen to be fair, which is objective, and which everyone can look to as a basis upon which to carry on with this constitutional innovation in the regions and countries of the United Kingdom.

My Lords, I think there are only two advantages to the Barnett formula. One is that it has given my noble friend Lord Barnett cause for everlasting fame. People forgot Goschen, but they will not forget the noble Lord, Lord Barnett. That is a good thing.

The Barnett formula has also produced for 30 years, I suppose, a stable and seemingly simple way of adjusting expenditure throughout the United Kingdom. However, I agree with all the previous speakers, who said that it is deeply unsatisfactory. We have had a solution that, as the noble Lord, Lord Barnett, explained, was thought to be temporary in 1978. This emergency stop-gap—this political fix, as the noble Lord, Lord Forsyth, said—has become a long-term feature of our constitution in a way that is very characteristic of this country. It has become increasingly unpopular; IPPR research has shown how unpopular it is. The Government’s response, as we have heard, is pathetic and intellectually contemptible, and I was deeply sorry to see it.

The judgments of the Barnett formula are now clearly out of date. They are based on a passage of time but things have obviously changed. The calculations for the baseline expenditure should have changed. They are based on population not need, and are therefore crude and unfair—particularly for Wales, where the population growth has been slower and where there have been considerable changes in the economy, as the noble Lord, Lord Livsey, said. Therefore, Wales is directly disadvantaged. We have had asymmetrical devolution, and now we have an asymmetrical formula.

I want to speak briefly about not the financial aspects, on which other noble Lords are far more expert than I am, but the constitutional weaknesses of Barnett. First, it seems a very centralised system, dictated by Treasury control—the noble Lord, Lord Richard, said that the Treasury was judge and jury in its own cause. Treasury decisions are based on the allocations in England. England in this context is another country, like the past. This affects the block grant in Wales and goes against the spirit of devolution, which seems to be a fundamental constitutional contradiction.

Secondly, although Barnett appears to be a transparent system, it is not transparent at all. It does not have accountability written into it, and is not at all a model of open government. The Richard committee evidently found difficulty in discovering the relevant statistics on how it had worked. Indeed, when it was operated, there was evidently much confusion. The committee heard, I think, from witnesses about “Barnett plus” and “the Barnett bypass”, where particular kinds of expenditure were taken out of account—notably the expenditure in Wales from Europe under Objective 1.

Another aspect is that the constitutional change so far has not affected England. The Barnett formula seems very unfair to the different regions of England—the north-east, the north-west and East Anglia, where, by the test of needs, there should be very different and more substantial allocations. The operation of the Barnett formula, as we have heard, has been very damaging to Wales. The reason for that is historic. It is rooted in the history of Wales, whose political and administrative personality developed later than those of Scotland and Ireland. Administrative devolution only began in Wales at all in 1907 in education. It was much more developed in Scotland and Ireland, and Wales has suffered.

The progress, such as it is, towards convergence has been very unhelpful and very unfair to Wales; it is based on English levels of spending. It has led to the Barnett formula becoming the Barnett squeeze. The Holtham commission’s findings are devastating on this. It shows how spending per cap has gone down steadily in Wales from £125 per £100 in England down to £113, and projections show that it could go down to £107 or worse. Wales is in many ways one of the most deprived areas of the United Kingdom and is in danger of becoming the most underfunded part of the United Kingdom. That seems very unsatisfactory and unfair. There is therefore a very strong case, which has been brilliantly made by the Richard committee, for a much more rational system. The committee very helpfully suggested the analogy of the grants commission in Australia. Such a system would be transparent; it would be based on objective criteria; it would show an ability to shift baseline calculations over a period of time; and, above all, it would be based on need.

As other noble Lords, and notably the noble Lord, Lord Livsey, have said, the relative needs of Wales are greater than those of England when measured by unemployment, child poverty, claimants of benefits, housing and education. At present, the system does not reflect this and Wales has suffered most unfairly. However, it should be said that we need a system that is congruent with devolution. Some of the solutions that were proposed to and considered by the Richard committee were in a sense relevant to a quite different system—for example, if the United Kingdom were a federal country, which it is not and nor do I wish it to be. Therefore, we need a solution that is consistent with devolution and it needs to come from a Government who believe in devolution.

Taking that context into account, the Richard committee has done a very great service. As has been said, this is the second great service that my noble friend Lord Richard has performed for the people of Wales. His commission in 2004 on the legislative powers of the Assembly brought about an enormous improvement. It led to improvement through the Government of Wales Act, and there will be more improvement if, as I trust, Wales has a referendum on the legislative aspects later this year.

Therefore, we have had major legislative reform and I hope that, in addition, this committee will produce an important fiscal reform. I hope that it will give new authority to the Welsh Assembly. The Holtham commission has suggested ways in which the powers of the Assembly could be shaped in framing its budget and in moving funds from a capital to a resource budget. Very wisely, the Holtham commission suggests that funding for Wales per capita should not be changed until a new system is in place. At the moment, it is manifestly unfair and getting more unfair year by year.

I strongly welcome this report as being consistent with an increasingly pluralist United Kingdom based on differentiation and diversity. I hope that, as part of that, the Barnett formula will soon be reversed, as it is doing considerable harm, and that in Wales the Holtham commission’s proposals will be taken seriously and enacted. Then, I think we will have a devolution settlement that is made on a durable and rational basis, which I am afraid does not exist today.

My Lords, as I approached giving evidence to the Select Committee and as I approached this debate, I was tempted to say, “Here we are yet again”, for many of us have been critics of the Barnett formula over many years, not least in this House. More recently, we have had the Calman commission, to which my noble friend Lord Forsyth referred, with its recognition of the importance of a needs assessment. Now we have this excellent report. The Government’s response has never been argued; it has always been, “Please just shut up and go away”. I congratulate the committee on an admirable report and, in particular, I congratulate its chairman, the noble Lord, Lord Richard, on his masterly introduction to this debate.

I well remember 1978 and the period when the noble Lord, Lord Barnett, was formulating what at that time was not recognised as the Barnett formula. He was under enormous pressure on the public expenditure front. We were giving him a terrible time in the Finance Bill Standing Committee in the House of Commons. It was only when I subsequently became Chief Secretary that I realised why he found the Barnett formula to be an easy way out of one particular problem in the public expenditure round. It meant that for three departments he did not have, yet again, to make tortuous arguments through the night in negotiations to reach a public expenditure settlement.

Certainly, when I became Chief Secretary I was anxious to do something about the Barnett formula. In fact, we set up a small committee of officials to look at some quite limited aspects of change that we might have got through by the time of the 1987 election. I would have liked to set up a needs assessment but the problem was that time was running out in that Parliament. I shall come back to that point towards the end of my speech. We have subsequently seen changes. In the 1990s, we saw some modest adjustments to the population formula but nothing fundamental because, of course, it is the baseline that should be challenged.

The flaws are recognised but, as others have said, putting them right has been too difficult politically at various times, as it is now administratively. I was interested to see that the then Chief Secretary, Liam Byrne, who gave evidence to the committee, placed some emphasis on all the administrative difficulties, but he himself recognised that there were major disadvantages to the Barnett formula. In fact, at one point he said that there were three, and he listed them. They are the sort of arguments that we have been deploying today. He was then asked by the chairman, the noble Lord, Lord Richard:

“But they could all be corrected, those three disadvantages?”,

and he replied:

“I hope you are going to tell me that”.

That is precisely what the committee has done. It has told him exactly how the flaws that he himself recognised—I am not sure that he was adhering to a Treasury briefing—could be put right.

I do not want to go over all the arguments that have already been rehearsed but I want to stress that, for me, it is all about fairness and the obvious inequity in having the key baselines—I keep coming back to them—established on assessments that were made well over 30 years ago and were not based on need. Indeed, my noble friend Lord Lang, in his excellent and charming autobiography, recognised this point about fairness. He said:

“When under attack once again from the Treasury in 1994”—

so the issue was clearly arising slightly again—

“if they had asked me to agree to an impartial reassessment of Scotland’s relative needs, I would have felt obliged to agree to it and to abide by its outcome”.

I do not know why the Treasury did not press him along those lines at that time. My noble friend recognised that the formula,

“makes no attempt to define need”.

The point concerning fairness was also acknowledged by Liam Byrne as Chief Secretary.

It is important to stress that it is a question of fairness not just between the territories but also between the regions. The Treasury calculation of identifiable public expenditure per head in 2006-07 showed, with the UK being 100, Scotland at 117—or 122 if expenditure on social security payments was taken out—England at 97 and East Anglia, where I come from, at 83. Therefore, there are inequities within the regions as well. We were told that it was all too difficult. The noble Baroness, Lady Hollis of Heigham, got that absolutely right in the evidence session with the committee when she pointed out that the rate support grant was calculated on the assessment of need. If that can be done, it can certainly be done elsewhere.

There is a new factor, which is well recognised in the Select Committee’s report. In the summary, the report refers to,

“increasing scepticism about the fairness of the Barnett Formula which may be exacerbated by any deterioration in the public finances”.

That is the point that I, too, want to stress. As my noble friend Lord Lawson said, we are now in that situation and will be for a long time to come. I do not know whether other members of the committee received in their post this morning a briefing for this debate from London Councils. Incidentally, on that assessment of identifiable public expenditure per head based on a figure of 100, London does rather well. In answer to the question,

“Can Barnett survive the challenging financial environment?”,

London Councils says:

“The extremely challenging financial environment for public services further highlights the inequities and unfairness inherent in the Barnett Formula, making its continued application unsustainable and a potential source of tension. This is inevitable in such a tight financial environment with diminished real-term resources for both central and local government”.

It is very interesting that London Councils, of all people, latched on to this and recognised that we were debating the formula today. If London Councils is doing it, you can just imagine the turmoil there will be as we move into the much tougher public expenditure environment if the formula is not tackled now.

The recommendations of the Select Committee will be increasingly relevant as we move into this period of stringent scrutiny of all public expenditure and the fair distribution of it. As I said earlier, I recognise that the fag end of this Parliament is not the time to set up the commission that the Select Committee recommends—that was the problem I faced in 1987. The start of the new Parliament would be the ideal time to set up the commission and let it do its work. However, as speakers before me have pointed out, there is no recognition of this, not even a nod in the right direction, in the Government’s response.

The Government start off by saying:

“We welcome the Committee’s report”.

They do not mean it, and the whole response was a total farce. I hope we get better answers from the Minister today. It is no disrespect to him, and I very much concur with what the noble Lord, Lord Richard, said about him. I admire the way he moves so skilfully and seamlessly from one subject to another, but I have no doubt that in his brief there will be effectively a straight, “Clear off, go away, tell them to shut up”. I hope we in this House will not. We now have an authoritative, all-party report, and I am most grateful to the committee for the comprehensive work it has done and the recommendations it has made. The work clearly and conclusively demonstrates that the Barnett formula is no longer relevant, and the committee has given us the way out.

My Lords, I had better make it clear at the outset to my noble friend on the Front Bench that, like everybody else, I have no words of comfort for him. However, I look across the Chamber to the noble Baroness on the opposition Front Bench: I look forward to hearing her clarify her party’s position on the Barnett formula and say whether Mr Cameron’s position is still as it was reported earlier in the debate.

I have a couple of things to clear up. The first relates to the fact that the Barnett formula has no impact on the distribution of regional expenditure in England. That is an English matter, which the English will have to address; it is not determined by the Barnett formula at all. Secondly, everybody is agreeing with everybody else in this debate, so an element of disagreement might be appropriate. In that context, one turns to the noble Lord, Lord Forsyth. Following the noble Lord is always a bit of a challenge, because he is a passionate, sometimes persuasive and occasionally partisan politician. His two great passions are the Conservative Party and the union, for both of which he has done noble duty. He virtually annihilated the Conservative Party in Scotland and from time to time I am concerned that, despite his commitment to the union, he might be in danger of bringing it to an end. However, I am sure that his heart is in the right place. That is the tragic irony with some of these debates: the political outcomes and the policy discussion get a little out of joint. I fundamentally disagree with the view expressed by the noble Lord, Lord Forsyth, that it was wrong not to change the funding formula when devolution was introduced. I believe that it was right to maintain what had gone before—the Barnett formula—over that transitional period. With a great deal of political change, there was a strong argument to have the stability, continuity and predictability that the continuation of the formula allowed.

However, I agree with all speakers that the mistake has been in not looking at and reviewing the formula subsequently, once the political institutions had bedded down. There is now an urgent case to make it clear that the funding formula passes the test of fairness and equity. Like everybody else, I have come to the conclusion that it no longer does; not only that, but I believe that it is so structured that it cannot pass that test. Let us look at the two elements of the formula: the base and the annual increment. Neither of them can be convincingly defended. The base, as we know, goes back to 1978. If you look at the amount in the base, about 10 per cent predates 1978. Everything in the base from then on are these annual increments that have been built up and aggregated, with the effect that the money in the base is financing services for a population that no longer exists. It is dealing with a series of fantasy populations: they were historically there, but they are not there now. It is a degraded, degenerate population formula. That is its primary weakness. The increment is effectively just a crudely driven population formula that pays no attention at all to need. That is a great weakness.

One of the great things about the inquiry that we held was that we learnt quite a lot as we went along, sometimes from the academics and sometimes not. One of the revealing things was that the explanation for the disparities between the various territories was not what many of us thought it was likely to be—the differential use of formula bypass. Some of us on the committee had spent some time trying to argue for formula bypass, and quite successfully. But it was not that at all. As some noble Lords have pointed out, it had to do with relative population movement over time. Put simply, if your population is going up and you have that type of base formula, your per capita expenditure will inevitably go down.

Let us look at Wales and Scotland, the two nations that are perhaps most obviously affected by the formula. The population of Wales is going up and, according to the needs analysis that we carried out, its needs are greater than those of anywhere else in the other three territories in the United Kingdom, so Wales gets a double hit. In Scotland the relative population is going down, so per capita expenditure is increasing. It is apparent that its relative needs are not as great as those of other parts of the United Kingdom, particularly Wales. Indeed, Scotland is now the fourth most prosperous part of the United Kingdom. That is a policy success. One of the problems is that we are reluctant to recognise such policy successes. Scotland has come up; it has been a success. That does not justify its retention of a high level of public expenditure. Perhaps a readjustment is needed.

If we look forward, the question must be: what is the alternative? The committee came down clearly in favour of a needs-based approach. We did not have to look too far for that because, as the noble Lords, Lord Forsyth and Lord MacGregor, pointed out, you just have to look at what the devolved Administrations are doing themselves. They distribute money to their major spending areas—local government and the health service—on a needs-based system. We have a strange position in Scotland, where Mr Swinney, the Scottish nationalist Finance Minister, wants to retain the Barnett formula to get the money into Scotland but, once it is there, he wants to use a needs-based formula to distribute the money around Scotland. That is not very consistent. The point has been made—and I accept it—that if it is distributed on a needs-based formula, it ought to come in on a needs-based formula.

As the Government are reluctant to embrace the idea of a needs-based system, there is a danger that they might try something else. The obvious thing is to move a percentage out of the base and distribute it according to the incremental formula. If, say, 10 per cent came out every other year, that would over a relatively short period bring about a major change in the territorial distribution of money within the United Kingdom. It would be based purely on population and would not be related to need. That would be a very adverse move indeed.

The greatest argument for moving towards a needs-based system follows on from what my noble friend Lord Morgan said. It is the system that sits most easily with the idea of devolution. Devolution provides for the three territories what I have always considered to be the best of both worlds. They have the ability to make local decisions about local problems according to local priorities, while at the same time, at the macro level, enjoying the benefit and security of being a member of a larger state, which gives that larger state the opportunity and responsibility of dealing with matters such as fairness and equity. That is how I believe you square the circle of devolution. A needs-based approach is the way forward. It is right and proper that you then give those devolved Parliaments and Assemblies the opportunity to make additional adjustments either upwards or downwards through taxation, according to their own values and political priorities.

We are now in a position where virtually no voice is raised in support of the existing system. It is bust; it is broken. I see a finger being pointed, but the noble Lord has said nothing yet; we are waiting for a conversion on the road to somewhere, so he may tear up his speech. The existing system is discredited. We have to move to a needs-based system and it has to be done with a degree of sensitivity. We must recognise that adjustments will be needed and that the long transition period will have to be handled with a degree of sensitivity.

My Lords, I, too, had the pleasure of serving on the ad hoc committee on the Barnett formula. I use the word “pleasure” because, as my noble friend Lord Forsyth, said, the committee turned out to be great fun. At the outset, I had difficulty conceiving how the committee might result in agreement, let alone a unanimous agreement. It was a very pleasant surprise to find that we all agreed. The key term that has come out of the speeches during the day is “needs-based”, and that is what we are suggesting. It is the sensible thing to do.

I emphasise one point which is very important in the context of a needs-based system: we must preserve the concept of the block grant. Reference was made to the formulas for funding local authorities in England. We do not want to see that sort of situation obtaining because that would, effectively, mean detailed Treasury control. It would produce the situation which existed in Northern Ireland under Stormont, when there was detailed Treasury control of all expenditure. We did not have block grants then, but we now have a block grant, which is a considerable advantage to the Administration. As the noble Lord, Lord Moser, said, we are looking for a number of proxy factors which can be taken together to produce a simple formula which is related to needs, but without being a detailed ground-up construction of needs. It is important to make that point.

I do not want to say too much about the needs-based formula itself. Another important term is “transparency”, and I urge the Minister who is to wind up to reflect on that. It is crucial that we have a transparent system. We all know that there is much public concern about Barnett. In parts of England, there is a feeling that we have drifted into a financial arrangement which is somewhat unfair. As that feeling is then focused on the Barnett formula, I can well understand why the noble Lord, Lord Barnett, wants to disassociate himself from that. He does not want the public opprobrium which is around at the moment. It is ill focused, as they think the Barnett formula has produced this unfair situation. That comes back to the absence of transparency. If we are to deal with the public concern—in many cases legitimate public concern—we need a system which is transparent, and if the Treasury is not prepared to move immediately in the direction of the sort of commission we are mentioning, at the very least it needs to make the existing process as transparent as possible. Maybe we will be able to go further, but I emphasise that transparency is hugely important.

It is also important to get some balance in the way in which we are looking at this. At the outset, my noble friend Lord Lawson made the point that Barnett covers only part of the expenditure in the regions—a very significant part—but it refers to annually managed expenditure relating to benefit; the welfare system is not part of Barnett. Essentially, Barnett is a population-based formula and, in addition, we have a number of other avenues whereby money can be found. From the point of view of local administration, the annually managed expenditure comes simply as a result of how many people are on benefits, or whatever, and the main Barnett money comes because of the population formula, which it cannot change. Therefore, the other little extras become very significant and you focus on them because that is the only way in which you get some money and have greater flexibility. Those areas are and, inevitably, will continue to be under the control of the Treasury. The Treasury does not have to feel too defensive about this. We will not deprive it of its major areas of power.

We note in paragraph 46, on year-end flexibility, how, in the course of one discussion, the Treasury suddenly decided in 2007 to release £900 million from the accumulated underspend in Scotland. I am sure that the Scottish Administration thought that it was Christmas when they received that extra money, which they could do something with. There is also the contingency reserve. We had a very interesting exposition from Mr Liam Byrne about the basis on which the contingency reserve can be accessed, which depends essentially on a wholly exceptional situation. From the point of view of the Administration, that is an important matter.

There is also the Barnett bypass. We deal with that in paragraph 42. Whatever might have happened in previous years, in recent years the Barnett bypass has been comparatively limited and the Government said in evidence to us that only matters which they regard as wholly exceptional come through that route. The example given in paragraph 42 is an arrangement which I had the pleasure of negotiating along with Mark Durkan with the Government for what we called a reform and reinvestment initiative in Northern Ireland. That reminds me of a point made again by my noble friend Lord Forsyth in his comments when he pointed out that, although there is more money in the Scottish health service per capita, the outputs are not as good as the outputs in England, where they do better with less money.

That is why we were persuaded and why the Treasury was prepared to give us some additional scope with that initiative, because what Mark and I were proposing, or hoping to do, was to try and start reforming public services in Northern Ireland, which have not been reformed. The changes and reforms that have happened in public services in England, limited though they may be, have not been replicated in the regions and that is a huge problem. Instead of people in Scotland and Northern Ireland approaching this issue defensively, saying, “We must cling on to the amount of public expenditure we have at the moment”, they would be better served if they approached this issue saying, “We need to use the money better and we will find that we can get by on less”. That is important.

I regret to say that, since Mark and I negotiated that nearly nine years ago, nothing has happened. The direct rule Administration that took over after 2002 did nothing about it and the new devolved Administration in Northern Ireland are also doing their best to avoid facing up to the realities which will, inevitably, force their way through.

The fourth extra way in which you can get money is through new projects which generate Barnett consequentials. We give examples of those in paragraph 44 and a couple of them have been mentioned—the Forth road bridge in Scotland, Crossrail and the Olympics. We are not trying to take the power away from the Treasury, but endeavouring to put in position a more transparent process.

In paragraph 60, we recommend that before decisions are made as to whether the system is bypassed, or a consequential is created, there is a clear process and open consultation with the devolved Administrations. I think that that should obviously be there; it is not there at present. The Administrations simply get told whether they are getting a consequential or not, and whether that will change depends on how much fuss they can create and how much pressure they can put on politically.

We further suggest, in paragraph 77, that the new commission that we have in mind might give advice to the Government as to whether these consequential adjustments should arise. So we are not trying to deprive the Treasury of power in this matter, but to put in place a better process that would be more open, more transparent and more likely, we hope, to defuse some of the public concern that is clearly there at present and needs to be addressed.

Parenthetically, on the question of consequentials, the terminology that we have to use—because it is the terminology that already exists—as to whether a project is a UK-wide one, or an England-only one, is misleading. It may mislead people into thinking that some decisions or matters are England-only. The things that are classified as England-only are the ones that trigger consequentials. What is important for the devolved Administrations is whether or not there is a consequential. If it is said to be UK-wide, there is no consequential and no extra money. If it is deemed to be England-only, then there is extra money, so obviously the England-only decisions are matters of huge importance to the devolved Administrations. If anybody runs around with the quaint notion that these England-only decisions should be taken only on English votes, they will find that there are huge uprisings in all the devolved Administrations and a constitutional crisis. I want to underline that: do not let the terminology mislead noble Lords on that matter.

In conclusion, if we do not have the reforms to Barnett that we are suggesting, and if the Government do not go down the line that we have suggested here, the political pressure to go down other lines will become greater. By other lines, I am thinking partly of Calman. I think that Calman, in concept, is misconceived and is the wrong road to go down—it will be very difficult in practice and very dangerous for the union. I say to the Government that if they want to sustain the union, they should not sit back and do nothing, because then things will drift in the wrong direction.

We want to see these reforms introduced. I hope that, as suggested by my noble friend, the next Government, whoever they may be, will take the opportunity of starting off with these ideas and running with them. I can understand why the Treasury of the present Administration, tired as it is—I shall not say too much more about that—is not going to do anything in the remaining weeks, but I hope that the next Parliament will.

My Lords, I am glad that we are debating this report and its conclusions as I believe that it points a way towards a fairer union. It certainly presents difficulties when it comes to implementation in Scotland, but it rectifies underfunding and unfairness for Wales and Northern Ireland and, of course, it could pave the way to a more systematic funding method for the English regions—not that we were allowed to consider their plight, and nor should they be considered as the equals of Scotland, Wales or Northern Ireland.

I believe there to be a substantial desire in Scotland and elsewhere for increased self-government, allied to a belief that the union should be fair and should evolve to accommodate this desire for greater self-government within the union. Certainly, the union has evolved dramatically since 1603. The treaty that my predecessor signed and promoted in 1706 bears little resemblance to where we are today, and nor should it. Multinational states must evolve or become redundant.

Given my own minority position, as someone seeking political independence for Scotland and a confederal union, this inquiry and report was an interesting exercise in how to develop the current devolution settlement. Leaving aside the problem of altering the block grants, perhaps the biggest problem of the present system, the Barnett formula, is the inevitable fact that, as devolution expands and the years pass, so policy deviation will increase—quite rightly—to the point that the various polities are doing significantly different things. The Barnett formula is, of course, derived from policy in England. That connection may become ever more irrelevant and obscure. This is made worse by the Treasury’s control of the decision about consequential funding, or the decision that a new policy is a UK activity or a devolved activity.

These increasing anomalies are replaced by the new formula of indentified objective criteria, needs assessment and an independent grants commission. The needs assessment process should be placed on a statutory footing and carried out every so many years. In between these assessments, the agreed percentages will be used by the Treasury to announce the annual block grant. It would be just as easy as it is now. This needs assessment and grants commission formula would be an improvement to the devolution settlement and prolong its life.

However, greater self-government is demanded and is certainly needed. The union has a lot more support than the current settlement deserves. Further development would take us to either the anomalous “devo max” and the convoluted thoughts of the Calman commission; or to a federal union, which would be very difficult to construct; or to a confederal union, where sovereign states pool some of their sovereignty in limited policy areas.

I hope that the United Kingdom Government will begin to respond more favourably to this report than they have done so far. They should take confidence from the strong support for a fairer union and face up to the alteration to the block grant, in the name of fairness. If that should happen to make the people of Scotland think that taxing themselves and making all their own decisions was simpler and more logical, then the British family is growing up and moving out, back into the world. Scotland may well come to realise that it is the 35-year-old who needs to leave home. This report may provoke such a reaction in the long run. In the short term, it sorts out unfairness and copes with policy deviation.

My Lords, given the relatively short time available, I hope that the House will indulge me if I focus my remarks primarily on the situation of Scotland in the scheme of things in this debate, not least since it was with the then Secretary of State for Scotland, Bruce Millan, that the noble Lord, Lord Barnett, signed his original deal which gained the soubriquet, the Barnett formula. I am delighted that the noble Lord, Lord Barnett, is with us today participating in our proceedings. He is clearly in very robust health. I wish that we could say the same for his formula, but sadly not.

My other reason for wishing to focus on Scotland is that towards the end of my tenure there, I was approached by my special adviser with the news that I was the longest-serving, continuous-serving Minister in the entire history of the Scottish Office. Moving on to another department, I was able to preen myself that at least there was something to show for my nearly 10 years in the job, when my honourable friend Lord James Douglas-Hamilton immediately overtook me, whereupon he celebrated that achievement by moving to this House and changing his name from Douglas-Hamilton to Lord Selkirk of Douglas.

It was in the nature of territorial departments of government that the Secretaries of State for such departments would—indeed, must—fight for cash to deal with the territory’s problems. His duty of loyalty was clear and absolute. It was the way to deal with issues of relative need. Indeed, it was the only way. The fruits of victory of such Ministers and their special pleadings became baked into the respective baselines. They can still be seen like sedimentary layers in the geology of their spending blocks. The Barnett formula did not change the size of those blocks in the devolved territories, which is one of the reasons why it was never a long-term solution. But it simply tweaked the annual increases.

In the economic conditions of the late 1970s and the early 1980s, there was perhaps a rough justice in the funding levels that then obtained. But neither the block nor the Barnett formula specifically recognised relative need and that, as many others have pointed out in this debate, is still the case and the core of the problem. In addition, since the late 1970s, a number of things have happened. For example, the relative sizes of populations have varied without always being adjusted into the funding arrangements. For a time, Scotland’s relative economic position in the United Kingdom improved. It has not persisted in the past decade, but in the late 1980s and 1990s it rose quite sharply.

But a significant change in the situation was brought about by devolution. As my noble friend Lord Forsyth has already argued, devolution changed everything. Among its follies was the loss of the role of the Secretary of State for Scotland. All the benefits that such a role had brought Scotland cumulatively over the previous 100 years were simply discarded. Scotland’s voice at the centre became more muffled. The Secretary of State no longer has a department to speak of. He has no budget of any size and, therefore, no influence. His role is largely confined now to telling Mr Salmond what he can and cannot do, and to filling a seat at the table to pad out the Cabinet. Any idea that the Scottish Secretary can still influence Cabinet colleagues—Crossrail notwithstanding—to grant more money to Mr Salmond to do with it what the Secretary of State’s own party in Scotland is probably opposing, defies credibility.

As this and other shortcomings of devolution have emerged, the call for further change and more powers has grown. Some of us used to talk about a slippery slope and were castigated for doing so. But the fact is that the constant call for more powers was built into the DNA of devolution from its very beginnings. That is why there is now so much dissatisfaction with Barnett north and south of the border. As usual, the unhappiness centres around money.

Of course, the system lacks accountability and the Government should explain why they ever thought that devolution without accountability of some kind was sensible. That devolution settlement is becoming increasingly unsettled, with three separate strands of possible turmoil. First, there is the question of independence. Perhaps I may digress for a moment. Of the funding of public expenditure in an independent Scotland, I would simply say that to base a country’s future public expenditure plans on revenues from oil—a wasting asset of indeterminate life expectancy, of increasing production costs, of uncertain national ownership and of wildly fluctuating price, and traded in volatile currencies—is irresponsible in the extreme. In the past seven years, the oil price has ranged between $25 and $145 a barrel.

Then there is the Calman commission, which proposes that half the income tax revenue raised in Scotland should be kept and spent in Scotland, preferring to rely on a large proportion of the not-very-large, not-very-strong tax base of Scotland, rather than the much larger and, I venture to suggest, more resilient base of the United Kingdom as a whole. That might certainly bring home quite forcefully the meaning of accountability because, after a decade of relative decline in Scotland’s economy, its tax base is diminishing and a Manchester University study points out that more than 770,000 Scots—one in three Scottish workers—have jobs paid for by public expenditure. As for those who seek fiscal autonomy in Scotland, I simply wonder if they know what they asking for. Full fiscal autonomy would be independence in all but name.

My reason for digressing briefly into these areas is to point out that none of these proposals can be sensibly debated and carried forward if the starting point, Barnett, remains unstable and unresolved. Devolution has changed the game with the gradual disaggregation of the United Kingdom, a slow motion landslide now under way. Every action creates a reaction and the English have woken up. They see the unfairness to them of the present arrangements, which our report confirms. They see the Scottish Parliament with its tax-raising powers. They hear its demands for more powers and they now want to have their say. That, in essence, is why the special committee on Barnett was set up. I believe that our unanimously agreed report has achieved a breakthrough. The key to that is our illustration of the way that the relative-needs assessment issue can be solved. Our proposal is illustrative, but not necessarily the ultimate solution. But it is one of the reasons why I support the report’s conclusions.

We have come up with a way of changing a formula that enshrines unfairness and replacing it with one that will enshrine fairness not just for now but for the longer term. The Government’s response to this crucial feature in the report is, to say the least, disappointing. It says that the Barnett formula has,

“the merit of allowing the devolved administrations to determine their own assessment of needs and priorities”.

But that is not the point. The issue was one of relative need between the different Administrations, not within them.

We need an outbreak of realism in dealing with this issue. Yes, it may reduce Treasury funds coming to Scotland. If so, that should be done only gradually and I am the first to agree that now is not the ideal time to start that process—the middle of an economic crisis that the Government have not yet begun to solve. However, looked at objectively, I believe that it is impossible to argue against correcting a long-running injustice when a solution is available. But it is vital that that solution is brought in with a long transition. Personally, I would like to see that closer to 10 years, than to five years.

Essentially, it is a moral question, rather than an economic one. If an independent and objective review process of the kind our report recommends finds that Scotland’s share is fair, that is well and good. If not, Scotland, which has had and has deserved favourable treatment in the past, will still be able to receive it again in the future, if and when its case is justified.

Can we morally justify a situation where a Scottish Parliament, which has the right to vary income tax in Scotland, continues to receive more than is justified by an impartial, independent appraisal, knowing that other citizens of the United Kingdom are thereby being disadvantaged? I think not. It is not fair to Wales or, to a lesser extent, to England. It probably is not fair to Northern Ireland. It is not even fair to Scotland, because all the high-flown plans for new departures there are being founded on a false prospectus, if the existing arrangements are unfair and unsustainable.

If we can exchange the present atmosphere of mutual suspicion and resentment for a sense of fairness, self-esteem and mutual respect, we might even engender also a shred of national unity.

My Lords, the original decision by my noble friend Lord Barnett, as Chief Secretary to the Treasury, was to simplify the very complicated examination of the expenditure and to avoid the many sessions with those concerned with expenditure in England, Scotland and Wales. I was the Financial Secretary and I agreed fully with what he had to say, which was that England should have 85 per cent, Scotland should have 10 per cent and Wales should have 5 per cent. That was a sensible reduction of the complicated expenditure system. It was intended to last for a limited time, with perhaps a year or two before it was changed. We did not consider that the decision would be successful after more than a few years. This was not a matter that came before us.

The formula was substantially based on population, not need. It avoided the negotiations with and pressures from all Secretaries of State, which would have been a major problem for the Chief Secretary to the Treasury. In Question 74 in the evidence, the noble Lord, Lord Lawson, said to the noble Lord, Lord Barnett:

“What has happened since then—it is not your fault because you had no intention in this regard—is that the population trends have diverged and that has not, except to an absolutely minimal extent, been taken into account by your successors in the operation of the true system”.

The noble Lord, Lord Barnett, said, “Yes”. That was a sensible response.

Although there was no needs assessment at the time, there was one in December 1979, after the noble Lord, Lord Barnett, had left office. A major problem has been the failure to take account of the change in the population in Scotland compared with that in England. At the end of the session, the chairman said to the noble Lord, Lord Barnett:

“You devised a mechanism which you hoped would last for a few years. You did not expect it to last for as long as it has lasted. You are not sure now whether it is based on the right criteria and you lean towards having, among other things, a needs based assessment. Is that fair?”.

The noble Lord replied, “That is fair”.

In the years that followed, what needed to be the main considerations in assessing the needs of Scotland compared with England were the age of the population, the levels of population with low income, the numbers with ill health and disability, and the levels of unemployment. The change in expenditure over the country over the last 30 years has been enormous. Expenditure in Scotland was £126 per head, in England it was £103 and in the United Kingdom it was £100. This has grown up enormously, far more than anybody ever expected. If they had taken that into account, those 30 years would have been quite a different period.

The noble Lord, Lord Lawson, said in his valuable speech that we need to assist people, not the territories. Although that is opposed by Scotland, it is justified. He further said that the Treasury response to the Barnett formula report is an embarrassment. I look forward to hearing the response from my noble friend Lord Davies to all the questions in the debate that we have had today. The view has been unanimous, so he will have a rather difficult time in dealing with some of these points. The Barnett formula has no legal standing. It can be removed and I believe that it should be.

My Lords, I am glad to follow the noble Lord. I enjoyed his speeches as a Minister in the House of Commons and I enjoy them in this House as well. All noble Lords will be aware of the Schleswig-Holstein question. Lord Palmerston famously remarked:

“The Schleswig-Holstein question is so complicated, only three men in Europe have ever understood it. One was Prince Albert, who is dead. The second was a German professor who became mad. I am the third and I have forgotten all about it”.

Unfortunately, today we are not able to follow the mathematics of the Barnett formula like Lord Palmerston into a state of happy oblivion. The issues are far too important.

I mention an interest as a former Member of the Scottish Parliament—I was a Member for eight years—and as a member of the Calman commission, which reviewed the working of the present devolution of powers from Westminster to Scotland and made a number of significant recommendations for change. The most important and far-reaching of those was to give the Scottish Parliament more tax-raising powers, which would be proportionate to a reduction in the current block grant from Westminster.

I request of the Government—and whatever Government may follow—that the report from the Select Committee be considered in conjunction with the Calman conclusions, the Holtham commission report to come this summer about funding devolved government in Wales, and the position of Northern Ireland. That is extremely important, as the report that we are debating and the Calman report do not entirely endorse each other. Calman wished to retain the Barnett formula at least for the time being, while the Select Committee wants to see it replaced by a new needs-based funding system. Paragraph 37 of the Calman report states:

“Until such time as a needs assessment is conducted, the Barnett formula, proportionately reduced to take account of devolved taxes, can continue to be used to determine the grant element in the Scottish Budget”.

This may indicate a different approach from that taken in the Select Committee report; it certainly does on the issue of a timescale. Interestingly, the response from the Government to getting rid of the Barnett formula was fairly dismissive. The Government defend the present arrangements, saying:

“The Government’s view is that the Barnett formula has a number of strengths, among them the merit of allowing the devolved administrations to determine their own assessment of needs and priorities in devolved areas”.

They later say that they have “no plans” to make the changes to the funding formula recommended in the Lords report.

The Select Committee chaired by the noble Lord, Lord Richard, contributed a great service in two respects: first, in its recommendation of the example of the Australian commission on grant funding, which takes account of individual needs, and, secondly, in what it says about transitional arrangements. I agree with the noble Lord, Lord Lang, that the timescale should be considerable and perhaps even longer than the Select Committee recommended. I note that London Councils has come out in support of the Select Committee by stressing the importance of equity. Part of the remit of the Calman commission was to concentrate on accountability, but equity is every bit as important.

There is no time limit, but this is an important point. My noble friend was on the Calman commission. My understanding is that it acknowledged that we would have to move to a needs-based system. To have a needs-based system, you have to have a needs assessment, which will obviously take time. It was not defending the idea that we should continue with Barnett. Is that not correct?

The point that I was making, if my noble friend had followed me closely, was that this is a matter of practicalities and timescale. Until the needs-based assessment is fully conducted throughout Britain—for all parts of the United Kingdom—the Barnett formula can continue in the interim.

I note that, while the Government welcomed the Calman commission’s recommendations, the shadow Chancellor of the Exchequer, the honourable Member for Tatton, stated in the Scotsman on 26 November:

“We will use the recommendations in the Calman report as a starting point. We believe the Scottish Parliament needs to have greater powers over raising and spending taxes and borrowing”.

To sum this up in one sentence for the noble Lord, Lord Forsyth, if there is to be a massive reduction, there should be the opportunity for substitution. That is the essence of the Calman recommendation. The shadow Chancellor also emphasised that the most important aspect of the Calman commission was that it had as its foundation,

“the protection and continuation of the Union”.

The Select Committee report does not say by how much funding for devolved responsibilities in Scotland would be cut. As the noble Lord, Lord Forsyth, said, Professor David Bell, who I understand was advising the Welsh commission, has stated that moving down this path could lead to a reduction of £4.5 billion for Scotland. That would have dramatic effects on the Scottish budget. Many experts believe that, while an immediate change in the funding formula would mean a huge loss for Scotland, it would make a relatively small difference in funding per head in England. Indeed, the leader of the Conservative Party has been quoted as saying that there is no crock of gold for English regions. That raises a real difficulty at a time of recession, when public expenditure is likely to be cut and severely restrained throughout the United Kingdom. The question arises: is it wise to make major cuts over and above what is needed to bring the UK’s deficit under control? I urge considerable caution over any swift moves to replace the Barnett formula, while hoping that the Calman proposals will be considered as an overall package of measures to be brought forward.

Constitutional reform has traditionally played itself out over a long timescale. The opinion polls in Scotland show that the voters believe that, on the whole, the Scottish Parliament is working well; in fact, a clear majority favours giving it increased powers and only a much smaller minority wishes to see Scotland torn out of the union. I am not one of those who believe that the form of the union and the partnership should be constrained in a constitutional straitjacket. For those of us who wish to see the union thrive and prosper, I refer to Charles Darwin, who made the claim that the species that survived were not necessarily the cleverest or the strongest but those that could best adapt to changing circumstances. I rest my case.

My Lords, like other members of the committee, I enjoyed serving on it enormously, not least because one learnt a lot about the past history of Labour—and, intriguingly, Conservative—discussions, debates, in-fighting and public expenditure bids and how such procedures took place.

Why does the report matter? It matters because more than 50 per cent of public expenditure to the devolved nations comes via the Barnett formula—a formula that, as every previous speaker has said, is founded on the basis of adjusted 1970s population figures rather than on need. It was meant to be a one-year fit, as the noble Lord, Lord Lawson, said, but it lasted for 30. As a result of predictability and inertia, few of us would now press its virtues on any allocation of moneys. I estimate that between £4 billion and £5 billion a year are misallocated.

We were assured by retrofit statisticians that over time, in almost the words of the noble Lord, Lord Forsyth, the discrepancies would narrow—the Barnett squeeze—but that has not happened. The Barnett squeeze was invented after the event to justify the unjustifiable, but it has not even done that and it simply will not do. Nowhere else in government that I am aware of do we allocate resources not by need but by adjusted 1970s population figures. It would be unthinkable to do this for benefits in DWP, for aid via DfID or for expenditure on education, public health and local government. We certainly would not claim, as the Treasury does in paragraph 2.13 of the report, that “it has worked well”—although, of course, in Treasury-speak that is not about fairness, which most of us would think relevant, but about the simplicity of administrative and arithmetic rollout.

I was especially shocked to read paragraph 2.15, where the Government state that the Barnett formula,

“has the merit of allowing the devolved administrations to determine their own assessment of needs and priorities in devolved areas”.

For sophistry, that takes the prize. They are saying that, because we all know that the devolved Administrations allocate resources by need, it does not matter that the original sum received is not allocated by need. To give a non-PC example, that is like saying that because white male teachers are paid more than other teachers, it is okay that female and black teachers are paid less because they all have equal freedom to spend their salaries.

I know that my noble friend will have to stonewall, but I have news for him: this is not acceptable. Almost every other public body providing services gets its central government finance according to the criteria of need—the RAWP formula in health authorities and local government. Let me spend a moment on how the allocation of need is decided within local government. Typically, a shire county and local authority will receive RSG on a number of headings—children’s services, adult personal services, police, fire and rescue, highways maintenance, environmental protection, cultural services and capital finance. Digging down a bit lower, one sees that within children’s services, for example, there will be allocation by education and by youth, community and conventional social services. Within the education sector of children’s services, there will be an allocation under further criteria—a standard pupil per capita, a pupil deprivation top-up for children such as those on benefits, and sparsity. The system is similar for adult social services, where allocation is determined by age per capita, with an additional increment for the older elderly, for those with disability, for those in rented accommodation, for one-person households and for deprivation as measured by being on personal pension credit.

The point is that this is done year in, year out for more than 400 authorities. It is not rocket science. All that information is collected now as part of the National Statistics service on which departments plan their policy, as the report makes clear on page 55. Any of us can access almost all that disaggregated material on government websites. In figures 2 and 3—our spider webs on pages 41 and 42—we show what a similar approach might look like, simplified and for four nations only as opposed to the 400 or so local authorities that currently benefit from RSG. What do we find? We find that Scotland has greater need because of its poor mortality and morbidity figures, but that on child and adult poverty and unemployment it is either at the national average or better. While Northern Ireland does well on mortality and morbidity, it does poorly on children’s needs. Wales does poorly on almost all of it. Our estimates have been confirmed in the past month or two by John Hills’s report An Anatomy of Economic Inequality in the UK, which shows that Scotland has more people in higher education and in employment and that, although the median wage in England is 2 per cent higher, the cost of living in Scotland is more than 4 per cent lower.

By a formula similar to the one with which local authorities allocate moneys in England, the devolved nations distribute their own resources downwards. I return to the question asked by the noble Lord, Lord Forsyth: if they can disaggregate downwards, why cannot we aggregate upwards? If they can so easily distribute money downwards on the basis of need, why cannot we distribute it to them in the first place on the basis of their aggregated need? What could be more unfair—the noble Lord, Lord MacGregor, is right about this—than an elderly, frail person in East Anglia receiving perhaps only two-thirds, in public expenditure terms, of what an equally elderly, frail person in Scotland receives, even though the person in East Anglia is poorer, because we are hanging on to an unfair population basis of estimating subsidy?

It has been estimated by the Society of County Treasurers—I do not always agree with county treasurers, but I think that they are spot on here—that people in Scotland received more than £1,600 per head in 2007-08 than people in England. No wonder Scotland can afford free personal care; it is being subsidised by the elderly of East Anglia, who have lower incomes and greater need and enjoy no such benefit. It is regressive and bad value for money.

Our report says that we should set out not a formula but merely the pathway—the journey, the route to take—of an independent commission to establish criteria of need. We give examples based on a local authority RSG, greatly simplified, in our proposals for the four main categories identified by the noble Lord, Lord Moser, and we recommend a long transitional period.

As the noble Lords, Lord Forsyth and Lord Lawson, have said, the tighter the finances, the more essential it is to establish value for money along with fairness. Otherwise, disparities grow. The present funding mechanism misallocating £4 billion to £5 billion a year is indefensible. The only people who defend it are the Treasury and some politicians from places that gain unfairly. However, to coin a cliché, they would, wouldn’t they? That does not mean that we have to.

My Lords, it is a daunting task to follow the noble Baroness, Lady Hollis of Heigham, and her tour round the whole of government finance. The Barnett formula keeps coming up in discussions on finance and it is over 12 years since the last time the operation was considered in as much detail. The House owes a debt of gratitude to the noble Lord, Lord Richard, and his committee for the width of evidence that was collected and the way the committee has presented its conclusions. It has been drawn to our attention that, in the intervening years, devolution has come to three regions of the UK, which makes this study all the more appropriate.

Having sat through the arguments on the passage of the then Scotland Bill, it is interesting to look back now and see what areas of administration were envisaged and the criteria that we now have to apply to things such as climate change or the marine environment. In many ways what was contained in the Scotland Act gives Scotland the opportunity to act more independently of the UK if it wishes to do so. My noble friend Lord Forsyth raised the strange anomalies in the question of the replacement of the Forth road bridge with a second bridge. But if the concept of the definition of “national infrastructure” had been foreseen, as has now occurred with the Infrastructure Planning Commission, it would have been easier to argue that something like the new Forth road bridge was an investment with implications for the whole UK economy and not just for the Scottish block grant. As it is, the Infrastructure Planning Commission projects are for England only, but their financial implications will mostly trigger adjustments under the Barnett formula.

Reading the report, one can only be struck by the number of arguments put forward for greater transparency and a definition of criteria by almost all respondents except the Government. The House of Commons Select Committee even called for the publication of the criteria governing the inclusion or exclusion of spending in the statement of funding. Perhaps it is a step too far to ask the Minister to say when they plan to do this. There is obviously a tension between a totally defined transparency and a pragmatic approach. The contribution in the report provided by Dr Gillian Bristow merits much consideration, with her proposal that what was needed was what she termed territorial justice provided by,

“broadly equal levels of public service at a similar tax burden”.

She then offered three yardsticks. One was to use needs assessments—which we have all been talking about—that presume some sense of merit or desert linked to GDP per capita. The second was perhaps more narrowly linked to merit alone. The third was our current welfare state, where distribution is linked to contributions.

There is a great challenge before us. We are faced with a loosening of the ties and administration that have bound the UK together. There is no doubt that different countries in our union have all maintained their cultural differences with unabated enthusiasm over the years, even though we have operated under one Administration. On a point alluded to by the noble Earl, Lord Mar and Kellie, I like to think that I have ancestors who played their part in the pride that the Scots maintain, fighting at the right hand of the original William Wallace, although not the Hollywood one.

The suggestions which seem to find favour with the Government at present of seeking a measure of greater fiscal autonomy for Scotland will present new and greater challenges as to how anything like the Barnett formula should be calculated. As the noble Lord, Lord Barnett, himself pointed out, those involved need to think clearly about whether the path chosen is one which helps us to celebrate our unity and diversity or whether it merely drives a wedge more firmly between us.

My Lords, like all other noble Lords who have spoken, I begin by congratulating the noble Lord, Lord Richard, on producing this report, and not just on its content. The way he led his committee has meant that those who were on it have an unusual desire to have a final committee meeting. Three-quarters of the members of the committee have spoken in today’s debate, which I suspect is a record for any Select Committee debate in your Lordships’ House. It has seemed at times as though those of us who were not on the committee are intruding into this final wind-up session. I also congratulate the committee on the report. The conclusions that it reached had unanimous support in your Lordships’ House. The Liberal Democrats accepted those conclusions some time ago. In terms of gaining public acceptance for a conclusion which will inevitably mean funds being taken away from Scotland, it is interesting to note that within the Lib Dems we had quite a spirited discussion with our colleagues in Scotland when we first proposed this, as you can imagine. In the end, the argument that fairness is the only long-term sustainable basis for allocating expenditure won the day, as I am sure it will in future as this case is made more widely.

I will not detain the House too long because I know all Members are agog to discover whether the noble Lord, Lord Davies, is going to be able to do a better job than the Treasury in defending the Government’s refusal to look at this issue. Without repeating everything that has been said, looking at the strengths and weaknesses of the system tells us a lot about the way in which we run Britain today. In terms of the strengths, it is easy to say that this is a short-term fix and does not deserve to continue, but it has continued. Surely its apparent simplicity is one of the reasons why it has survived. It is interesting that over two-thirds of the speakers in today’s debate were Ministers. A significant number of them had at least some ability to change the formula during their period of office, but none of them did so, so clearly the formula has some strength or else surely it would have been changed. Bizarrely, the apparent simplicity which is probably its greatest strength turns out to be a chimera, as the noble Lord, Lord Selkirk of Douglas, pointed out. It is not simple at all. It has, like the Forth road bridge, been repainted to such an extent that it is an extremely complicated system and one which, outside your Lordships’ House and the few cognoscenti of public finances, is barely understood.

The example in the report which surprised me—and I thought I knew a small amount about this—was that of Crossrail. How many people, given the ongoing arguments about the cost of Crossrail, realise that one of the hidden costs is £0.5 billion allocated to Scotland which would not otherwise have been allocated? Extraordinary amounts of money are sloshing backwards and forwards north and south of the border, depending on a more or less arbitrary decision by the Treasury on how to allocate funding. While the original formula was a political expedient, it is clear that the way it is implemented still involves considerable political expediency rather than it being a straightforward matter.

The principal argument as to why the formula deserves to be changed is simply that of fairness, and there is virtually nothing new to be said on that. The other argument that was advanced by the noble Lords, Lord Forsyth, Lord Lawson and Lord MacGregor, and others relates to the effect on the union if you do not change the Barnett formula, and the relationship between the formula and the devolved settlement in Scotland at the moment. The noble Lord, Lord Forsyth, said that a revision was inevitable now that there is a Scottish Parliament. I am surprised by this issue’s lack of resonance up and down the United Kingdom. Every now and then, there are some rumbles in the north-east of England about the clear disparity between provision there and in Scotland. It is at its starkest simply because they can see it—it is just up the road. However, as the noble Lord, Lord MacGregor, pointed out, East Anglia does extremely badly under the current system, but I do not believe that the Barnett formula has ever been an issue in politics in East Anglia—perhaps it should have been. When we had the great arguments about devolution to the English regions—I cannot agree, I am afraid, with my noble friend Lord Mar and Kellie about the de minimis nature of regionalism in England—the Barnett formula component was small compared to issues such as the cost of establishing provision across the English regions. The political arguments for changing the formula to protect the union are very strong and have been made extremely well today.

The noble Lord, Lord Sewel, spoke about Scotland being a policy success on the back of the high levels of public expenditure that have been extended to it. He is right, but that is an argument for higher rather than lower levels of public expenditure. If Wales had had the same level of public expenditure as Scotland, I suspect that it too would have been a greater economic success than it has been.

My argument was that because Scotland is now an economic success does not automatically justify continuing high levels of public expenditure.

I thought that the noble Lord also said that one of the contributory factors to making it an economic success was that it had been the beneficiary of very high levels of public expenditure.

If we agree that the formula should be changed on fairness grounds, how difficult is it? The Government have implied that it is really rather complicated. A number of noble Lords referred to the Independent Commission on Funding and Finance for Wales. Its report, published in December last year, looked specifically at the technical basis on which one could recast public expenditure on a fair basis. Unlike the Select Committee, which looked at four measures, the Holtham commission looked at six, sparsity being one and ethnicity the other of the two additions. Its conclusion was:

“A formula for calculating relative needs across the devolved administrations that combines simplicity with a high degree of completeness and is based on real world funding allocations by the UK Government and the devolved administrations finds that Wales should receive some £115 for every £100 of funding spent on comparable activities in England. At present, Wales receives only £112 for such activities. For Scotland and Northern Ireland, the figures generated by the formula are £105 and £121 respectively”.

This report, along with the report by the Select Committee, proves that it can be done.

A number of noble Lords spoke about the need for a long transition. Given the current public expenditure climate, the arguments for a very long transition are extremely strong. It is clear that to try to make substantial reductions to expenditure in Scotland when one is already making some reductions is politically impossible and undesirable. A 10-year transition, particularly given the current situation in terms of public expenditure, would be entirely sensible.

I mentioned the expectations of your Lordships' House for the speech to be given by the noble Lord, Lord Davies, but the noble Lord, Lord Sewel, challenged the Conservatives to explain what they were going to do. Unless I was mistaken, I thought that I saw a hollow laugh and a shake of the head from the noble Baroness, Lady Noakes, as he made that point. Given the immense steam of enthusiasm on the Conservative Benches for a change of the formula towards a fair system, I hope that she will be able to go beyond the point to which we expect the noble Lord, Lord Davies, to be able to go and tell us that, were there to be an incoming Conservative Government, one of their first changes would be to move in the direction of this excellent report.

My Lords, I congratulate the noble Lord, Lord Richard, and the Select Committee on their thorough and sensible report on the Barnett formula. Perhaps even more congratulation should go to the noble Lord, Lord Barnett—who I see is returning to his place—on his persistence in getting a Select Committee set up to study the formula which bears his name. It was good to see that the committee had the noble Lord, Lord Barnett, as its first witness.

The Select Committee’s report makes the issues seem beguilingly simple, but the allocation of resources, whether it is between countries and regions, between government departments or between or within public bodies, is always fraught with difficulties. However much people search for reason and science to inform decisions, judgments have ultimately to be made which are always subjective and often political. Even more subjective judgments have to be made if any form of transition is involved. Change is rarely accomplished without winners and losers, and the winners always want to benefit today while the users want to defer the impact of any loss.

The Select Committee has been quite clear and united in its recommendation on the need to move to a needs-based assessment for the allocation of devolution funding. In principle, this is something which my party supports. We also support the transparency advocated by my noble friend Lord Trimble. The Government have been rightly criticised for their response. They say only that they,

“will continue to keep all aspects of public spending under review”,

as if that was a proper response. This is code for never moving towards a needs-based assessment and not making moves towards more transparency.

The committee’s report demonstrates that there have long been concerns about whether the allocations of resources to Scotland, Wales and Northern Ireland were fair. These concerns existed before the Barnett formula was introduced and the Barnett formula was never going to provide an answer to them. The Barnett formula might, I suppose, have produced a result that converged with an assessment based on what each country needed, but I think that would have been accidental and was probably highly unlikely. This leads to an inevitable conclusion that change is necessary. That is where the problems start. We believe that we have to start with what a needs-based assessment actually includes. There has to be much more thorough study of that accompanied by an open debate about the issues and the options. There is just as much controversy about what is included in a needs-based assessment as what is excluded.

We are not sure that the committee’s solution of an independent commission is the correct one. There are clearly attractions in putting complex problems in the hands of experts. As the report acknowledges, decisions would have to be made by the Government, and any such body would only be advisory. Do we really want to create another quango?

If my noble friend will allow me, I am slightly puzzled. As I understand it, our party wants an independent commission to advise on the whole of fiscal policy, so why is it outrageous to have one advising on this small and defined corner of it?

My Lords, the Office for Budget Responsibility, which I think my noble friend is referring to, is of a different kind. Perhaps I can discuss what is involved in that with my noble friend outside the Chamber. I was challenging whether we need another quango, and the Office for Budget Responsibility is not one of those.

The TaxPayers’ Alliance has estimated that there are currently more than 1,100 quangos spending a total of £64 billion a year. I know the Government produce slightly different figures, but nevertheless there is an agreement that there are a lot of quangos and they spend a lot of money. My party’s policies are to reduce the money spent on quangos and indeed on Whitehall by one-third over the next Parliament. Even the Government have said that they would abolish or merge 120 quangos to save £500 million. That makes it very difficult to sign up to creating another quango, because it would make the job of controlling the costs of them even harder. Furthermore, against the background of reducing the cost of Whitehall, it would also be hard to find the resources to do the work within the budgets of Whitehall departments. We are committed to cutting the cost of bureaucracy while protecting front-line services, but the review of a funding formula would not be a front-line service. The cost would have to compete with all the other priorities within Whitehall. The noble Lord, Lord Richard, wishes to—

I want to put one point to the noble Baroness. Is she really saying that the consideration of the Barnett formula should come down to an analysis of whether you are going to create one more quango, what sort of quango it is and how much it is going to cost? Is that really what the Conservative Party is saying?

I am saying that this is a very difficult background against which to move towards the proposals made in the report from the noble Lord’s committee. I am not saying that the money could not be found. I am simply saying that it is more difficult to find it against the background of a need to cut the costs of Whitehall while protecting front-line services and trying to deal with the huge number of quangos that already exist.

One of the greatest problems will be making any change to a funding formula—the cost of transition. We all assume that a needs-based assessment will produce a significantly different result from the application of the Barnett formula: a figure of £4.5 billion was referred to today. We cannot be sure of that until we have been through of a lot of prior work, but any transition would be hard and the report acknowledges that. The report suggests a transition period of between three and five years and no longer than seven years. It is very difficult to say how long a transition period would be without actually seeing what an agreed needs-based assessment produced. The judgment then has to be pragmatic. My noble friend Lord Lang has already indicated that 10 years may be nearer the mark. That may well be true. But I do not think that we can be clear about what sort of transitional period would be involved until we see the overall fiscal context in which any moves take place.

I have referred to my own party’s concern to cut the cost of Whitehall and quangos, but that is only the tip of the iceberg. We have a deficit of 12.5 per cent forecast for this year and next, and debt is forecast to rise to nearly 80 per cent of GDP. This is the worst public expenditure background for any major changes to resource allocation that could possibly be imagined. We do not believe that the Government have yet set out a credible path to reduce the deficit. We share that view with the Governor of the Bank of England. It remains to be seen whether the Budget in two weeks’ time will be any more forthcoming on whether that credible path will be demonstrated.

At the time of the PBR last December, the analysis of the Institute for Fiscal Studies showed that the hidden story of the Pre-Budget Report was that expenditure in departments that were not protected by some kind of spending promise would have to fall by up to 19 per cent. That was after allowing for some pretty heroic assumptions on efficiency and growth. A document published last month under the Freedom of Information Act shows that Treasury officials acknowledged the need for very significant cuts, but the Government have not yet even commissioned a comprehensive spending review and are hiding behind some excuse of uncertainty. Perhaps they will announce one in the Budget, but they have lost valuable planning time.

There is one certainty—that there will be significant public expenditure cuts over the medium term, whichever party is in power. We do not need to get into the issue of when those cuts start for the purposes of this debate; it is a fact that those cuts will have to be made, and that will inevitably have an impact on the resources available for Scotland, Wales and Northern Ireland. My noble friend Lord Selkirk recognised the difficulties here.

I am most grateful to my noble friend. We had a debate about the impact of Barnett and the post facto rationalisation that said that Barnett would produce convergence over time. Does she agree that in a period when cuts are being made in public expenditure, the effect of Barnett is to produce divergence and more unfairness? Surely, if resources are scarce, that is all the more reason to be able to demonstrate that they are allocated fairly?

I understand the point that my noble friend makes, but it is very difficult to make any transition from one formula to another at a time when significant cuts have to be made. It just overloads the system.

I join the Select Committee in wanting to move to a needs-based assessment. That is the position of my party; but the timing is far from ideal. I apologise to my noble friend Lord Lawson if he thinks that I am being insufficiently courageous at the Dispatch Box today. I can see by the look on his face that he does think that.

The Government have issued their White Paper on devolution and said that they wished Scotland to move towards raising some of its income by way of taxation, but that, as other noble Lords have pointed out, is not an answer to the Select Committee’s report, because money still needs to be allocated to Scotland. That leaves the Barnett formula still needing to be dealt with. My noble friend Lord Forsyth pointed out that it will not be possible for a Scottish income tax to pick up the strain of any gap that would open up between a needs-based assessment and the current basis. Indeed, whatever the Government plan for the position in Scotland, the position in Wales and Northern Ireland remains to be dealt with under the Barnett formula.

This is not an issue that we will settle today. I am sure that we will return to it, one way or another, in the next Parliament. It may grieve the noble Lord, Lord Barnett, but I think that he will have to put up with the formula bearing his name for quite a little while longer.

My Lords, like all noble Lords I am grateful to the noble Lord, Lord Richard, for having chaired the committee and produced this report and to all members of the committee, who have worked so hard on this important topic. My noble friend indicated that he thought that I might have a difficult task at the Dispatch Box responding to the report. I always have a difficult time at the Dispatch Box, but particularly when dealing with Select Committee reports. The great advantage of the operation of Select Committees is that a cross-examination has already gone on during the process, so the Government line has been well identified long before the committee concludes its report. Furthermore, the Government’s response in formal terms—prosaic, perhaps, and a little limited for some tastes—is always published before we have the advantage of the debate. The great danger from this Dispatch Box is that I might mechanically read out and reflect on the paragraphs already submitted in the Government’s response.

If I am to retain any reputation at all for responding to a debate, I propose not to follow either of those formulae but to respond to the actual points made in the debate and deal with the issues that have been raised rather than spend a great deal of time advocating a Government position that is all too clear and is well known from the documents already presented.

Noble Lords have quite clearly cohered around certain significant positions. In looking at those positions, I hope to be able to throw some light upon the situation and perhaps give a greater note of optimism about the position than has been reflected in the course of this debate. Divergences among the Members of the Opposition about their economic policies has stood out—divergences that are reflected in approaches to this issue as well. When David Cameron went to Scotland he indicated that he did not foresee—I concede that this was a couple of years ago—any real changes with regard to the Barnett formula. I wonder why that speech was made in Scotland. His speech on his most recent visit to Wales was full of suggestions that, in fact, the Barnett formula was out of time and that there was a need for significant reform. I wonder why that speech was made in Wales—I give way to the noble Lord.

Unfortunately, my Lords, I am not so sure that the Leader of the Opposition quoted liberally from this excellent report. He might do well to study it with greater care.

The noble Lord, Lord Lawson, was scathing about the Government’s response; partly because of that I will reply to the debate in slightly different terms. He did not join in with the position that was generally taken up by former members of Conservative Administrations in the past, which recognised the difficulties that the Barnett formula throws up—and threw up—and the difficulties of how to present an alternative position. The noble Lord, Lord MacGregor, reflected on this position in 1987. The noble Lord, Lord Forsyth, reflected on this position with even greater candour nearly a decade later. The noble Lord, Lord Lang, reinforced this position. All of them—one or two decades after the Barnett formula had been established—reflected that the Barnett formula has difficulties attendant upon it, which have been rightly identified in this debate, including the fact that it is based upon a population base that is a considerable 30 years old.

However, in all those cases, Ministers with administrative and political responsibility shied away from producing a solution to it. That is because the solution is not easy. I understand entirely the points that have been made in the report. After all, this report also had the advantage of having looked at what the Holtham inquiry had done for Wales and the Calman commission for Scotland. This report had the benefit of identifying many of the problems attendant upon the Barnett formula. There is no doubt that this position is felt particularly strongly in Wales. As has also been hinted at, but not developed quite as strongly as might have been the case, some regions in England think that they are disfavoured under this arrangement. My noble friend Lord Barnett himself commented on the regional dimension. Why is it, then, difficult to produce a radical solution when, as has been indicated—I think it was by the noble Lord, Lord Forsyth—this Government are based upon both principle and radicalism, and would therefore be eager to right wrongs if that could be done easily, clearly and in a radical fashion?

The answer is quite straightforward. It is very easy to say that it should be based upon needs rather than the dated formula on which the Barnett position is established, but the problem is: what would be the definition of the needs? I know that the Select Committee gave an example of a formula that might be developed for illustrative purposes, but government is not about illustrative purposes. It is about impact upon a population and distributing resources within it, so illustration will not do. I appreciate the point that the committee had the enormous benefit of having the noble Lord, Lord Moser, helping with regard to statistics, but I am quite sure that he will also recognise the Government’s difficulty when it is not just a question of that.

Among others, my noble friend Lady Hollis again emphasised, as she has done in previous debates on this issue, the importance of our shifting the formula to needs. Yet she also knows that the formulas we have in other contexts vary enormously. There are different methods for allocating RSG in each of the four countries involved. There is no agreement across the UK on a single best method of allocating that element of spending, and the same is true of any of our other big spending programmes, such as health. The actual concept of the allocation of need, and how one can be precise about it, is fraught with difficulties. Consequently, noble Lords opposite have recognised—and I think this is also true across the House—that the shift from the Barnett formula to any other would, first, create a significant administrative problem.

I recognise frankly that it is a difficult political problem as well, and as open as this House always is, that has been frankly recognised on many Benches. It is also one that has no chance whatever of being solved overnight. If one plea has come strongly on all sides regarding the challenge for reform, it is that there would have to be a long interim period of adjustment. I know what noble Lords will say: that it may of course be a long journey, but somebody has to take the first step. I want to be a little optimistic about that first step.

I emphasise the fact that the moment that the Calman commission produced its report and the Holtham report came from Wales, Government Ministers immediately took a very real interest in what those reports said, and they have been active in those areas. The Secretary of State for Wales indicated on 26 November that he was very concerned about the identification of the problems in Wales—and he derived benefit too from this House’s work in that area—and immediately addressed himself to the issue. He is meeting the Chancellor of the Exchequer on those points to emphasise that the Barnett formula brings very significant disadvantages to Wales, which are not acceptable and need to be addressed.

I have followed the Minister’s argument closely. If it is the case that it can be accepted that the Barnett formula brings real disadvantages to Wales that should be corrected, why does the obverse not equally apply: that if there are very real advantages to another nation of this country, those, too, should be adjusted?

Remedying abuses, of course, is a good deal easier than correcting advantages. The noble Baroness has been in politics long enough to know that that which people have they are most reluctant to yield. She is merely reflecting the general difficulties we have in this area. However, I emphasise that when the Secretary of State for Wales was talking about this point, he was aided by the fact that the Chief Secretary to the Treasury had also indicated that he appreciated significant criticisms with regard to the Barnett formula. As he said, the Barnett formula was not exactly constructed in stone. I know my noble friend has created a significant piece of practical history over the last 30 years, but he has been one of the keenest advocates of looking at the issue again because of some of the difficulties, and the Chief Secretary to the Treasury agrees with him.

This is not an issue that can be resolved in the short term: it requires a great deal of consideration and a Government with a significant mandate for reform—one who have the power to look at issues over the long term. That is a Government who will be returned in June, or maybe a little earlier, when this Administration are returned, and we will be able to look at the Barnett formula against a background of what the committee and this House have done, allied to those very important reports which have been presented against this background. They have created a framework within which the disadvantages of the Barnett formula are such that a reforming Government would need to look at them.

At this stage, I can go no further than that. I agree with the noble Lord’s comments about the block grant. It is important that any change to the Barnett formula does not create micro-management of economies which have been used to this degree of discretion. This is one of the virtues of the Barnett formula, and we will need to protect that. I recognise the value of this report, and of all noble Lords who contributed so fully to this debate, but I cannot go any further than that at this stage. If we renewed this debate in a couple of months’ time, however, I have no doubt that, from this Dispatch Box, I would be a good deal more optimistic.

My Lords, I thank all those of have taken part in this debate; it has been interesting, though somewhat brisk, and we covered a lot of ground. I am bound to say that the breathtaking, almost brazen irrelevance of the Front-Bench collective in the course of what they had to say I found a little strange. I started off this debate by expressing sympathy for my noble friend who had to reply to it, but I think I should now express my condolences and call for two minutes’ silence.

Motion agreed.

Consolidated Fund (Appropriation) Bill

First Reading

The Bill was brought from the Commons, endorsed as a money Bill, and read a first time.

Arrangement of Business


My Lords, there are nine speakers signed up to the next debate. If Back-Bench contributions are kept to 10 minutes each, the House should be able to complete its remaining business of two statutory instruments and rise this evening at around the target rising time of 7 pm.

National Minimum Wage


Moved By

To call attention to the impact of the National Minimum Wage on household and individual poverty; and to move for Papers.

My Lords, in an age when the scale of bankers’ bonuses dominates the headlines, I feel privileged to be introducing a debate about how we make work pay and deliver social justice hand-in-hand with economic stability. Eleven years since its introduction, the national minimum wage has delivered a new deal and a fairer society to thousands of households and millions of individuals. There is now a consensus that the introduction of the national minimum wage was a giant step away from poverty towards economic equality and social justice. In this debate, I want to set out the business case for the national minimum wage, together with the case for the social justice that it brings.

Last year we celebrated the 10th anniversary of the national minimum wage, which has been one of the Labour Government’s most significant achievements and a key part of the strategy of making work pay. The policy has delivered a fairer wage to lower-paid workers without limiting their employment opportunities or harming the efficiency of business. Today, I want to stand back and look at the impact of the national minimum wage on households and individual poverty.

Prior to 1997, when critics and cynics spoke about a minimum wage, they did so using the language of fear and hysteria. They said it would drive up inflation and drive down productivity. They said it would lead to business closures and mass unemployment. They said it would damage our economy beyond repair. However, fast-forward to 2010—11 years since the introduction of the minimum wage—and it can be seen that none of the predictions of the merchants of gloom and doom has occurred. The hysterical forecasts about economic Armageddon have proved to be totally without evidence and completely without foundation. The reality has been that the introduction and development of the minimum wage was accompanied not by job losses but by rapid job creation. Despite the severe problems of the recession, there are still 1.5 million more people employed in the UK economy now than there were when the minimum wage was introduced. Indeed, the Low Pay Commission’s most recent research, which looks back at 10 years of the minimum wage, says:

“In all, we conclude that the minimum wage continues to exert a benign influence on the economy”.

I would also argue that the minimum wage has had a major impact, and it has been an impact for the better.

I will highlight six areas of real advances. It has helped to tackle poverty by raising the living standards of the lowest-paid. I am proud to say that well over a million people have benefited from the introduction of the minimum wage. It has played a major part in closing the gender pay gap, with 70 per cent of low-paid women workers gaining from the minimum wage. It has also helped to close the pay gap for ethnic minority workers and those with work-limiting disabilities. The minimum wage has played a part in reducing exploitation and protecting vulnerable workers. It has protected the good and decent employers from the bad, rogue employers who undercut by paying poverty wages. The minimum wage has also been good for taxpayers because it has helped to make work pay.

The minimum wage leaves no one behind. Even those described as the invisible workers, working from their kitchens and back rooms as home workers, have seen their piecework prices upgraded. I believe that the national minimum wage, as a law, deserves and should get the support of all of us. I use the word “all” deliberately because I am pleased to say that the minimum wage now seems to enjoy cross-party support, which is to be welcomed.

Before the minimum wage came into force, the current leader of the party opposite went on the record to say that the minimum wage,

“would send unemployment straight back up”;

but I am pleased to note that in 2005 Mr Cameron expressed yet another change of heart and yet another change of policy by saying:

“I think the minimum wage has been a success, yes. It turned out much better than many people expected, including the CBI”.

I say hear, hear to that. I welcome any conversion to a just cause, no matter how late in the day it may come. My advice to Mr Cameron is simple: stop listening to the CBI; start listening to the TUC. It got it right, the CBI got it wrong.

I welcome that change of attitude and approach. I welcome it because the minimum wage is a matter of national importance which requires a national consensus. Yes, the minimum wage has proved a success; and yes, it is now an integral part of this country’s industrial and economic landscape. However, we live in testing political and economic times. So whatever the verdict of the electorate in the weeks ahead, I would argue that the minimum wage cannot be supported with party press releases and left unresourced to wither on the vine. To do so would undermine all the good that it has achieved in the 10 years and more. As we emerge slowly from recession, it would also pull the rug out from under the tentative recovery.

Cutting people’s living standards, increasing poverty and reducing the tax-take is no way to generate economic growth; and that is precisely what would happen if all the minimum wage got from politicians was warm words. I was therefore delighted that in his speech to the party conference in Brighton, the Prime Minister announced that he would ensure that the minimum wage was raised for at least the next five years.

Is the minimum wage perfect? Of course it is not. I believe that we need to go further to ensure progress in a number of areas. We need to improve it, and that means regular uprating. We need to extend it, and that means including apprentices. We need to make it fairer, and that means scrapping the age bands that discriminate against young workers. Although the Government are to be commended for their comprehensive and co-ordinated structure of enforcement, we need to strengthen the provisions of enforcement, and that means heavy penalties and credible sanctions for those breaking the law.

Whatever the facts about the need to improve it, one thing is for certain. From day 1, the minimum wage has made a real, lasting and positive difference to the lives of many. The national minimum wage is one of the great achievements of the past decade. It has improved the lives of thousands of vulnerable workers and their families, including women, ethnic minorities and people with disabilities.

Sadly, we still have millions working in subprime jobs, receiving subprime pay, with no access to acquiring skills or training. The Child Poverty Action Group reminds us that there are more than 2 million children in working homes which are still below the poverty line.

The business case for the minimum wage has been well met. We now need to see more support for the case for social justice. As we celebrate the success of the minimum wage, the challenge for the Government, and for us all, is to build on their achievements with a new deal for a fairer society—a society which guarantees fairness and protection for all, and a society which combines economic stability with real social justice. I beg to move.

My Lords, I congratulate my noble friend Lord Morris of Handsworth on securing this important debate. He, of course, reached the very pinnacle in working for trade unions. My noble friend the Minister can claim the same and, over the years, my colleagues on these Benches have also worked for various trade unions. I welcome that, although I would have welcomed contributions from other sides of the House as well. However, we shall make of this debate what we can.

Since the national minimum wage took effect in 1999, it has had a dramatic effect on the number of people in low-paid employment in the UK. When the legislation was introduced, some 460,000 adults were earning less than the adult rate. In 2008—the last period for which such figures are available—that total was around 225,000. Therefore, over a decade, that is a reduction of more than 50 per cent, and those continuing to be paid less than the legal minimum are largely those in excluded categories, which means that less than 1 per cent of employed adults are now paid below the current adult rate of £5.80 an hour.

That provides evidence, were it required, of the need for the legislation that introduced the measure. The fact is that the operation of the market in terms of wage levels demonstrates that there needs to be a statutory safety net beneath which pay cannot fall. That is why every modern industrial country has a minimum wage—indeed, the USA has had one since 1938.

Many will recall the harbingers of doom, to which my noble friend Lord Morris referred, when the legislation was proceeding through its various stages in this House and in another place in 1998. There was scarcely a member of the Opposition who believed it was necessary at all. They argued that it would create extra costs for businesses and cause unemployment, especially among young people. Indeed, as has been stated, Mr Cameron was one of them, although, in the light of evidence to the contrary, he has now significantly changed his position and that of his party.

That said, it seems that he still has some convincing to do with some of his parliamentary colleagues. As recently as a year ago Mr Chope, with the support of a dozen colleagues, introduced a Private Member’s Bill in another place seeking to allow people to “opt out” of the legal minimum and accept an even lower wage. Thankfully, that attempt to turn the clock back did not progress but it demonstrates that there remain those who look beyond the need for a legal safety net to perceived concerns about the effect of a minimum wage on employment levels. This despite the fact that, according to figures published last month by the Office for National Statistics, the number of people currently in employment in the UK is just under 29 million—an increase of very nearly 2 million on the figure that existed on the day that the legislation was introduced in 1999. Of course, there has been a downward trend in employment over the past two years due to economic factors, of which we are all too well aware, yet the Department for Business, Innovation and Skills stated last month that, even in the recent economic climate, the national minimum wage has not adversely affected employment rates.

Remarkably, those figures do not appear to have registered with the Chartered Institute of Personnel and Development, which only two months ago published what it termed its “manifesto for work”. One of its recommendations was that the national minimum wage for younger workers should be frozen in absolute terms in 2010 to ensure that government efforts to combat youth unemployment were not “fatally undermined”. Without explaining how such a fatality might occur, the CIPD’s chief economic adviser was quoted as saying:

“It is right that younger workers lucky enough to have jobs should play their collective part in helping maximise the chances for those who do not”.

Such a freeze, far from assisting economic recovery, would simply lead to the exploitation of hundreds of thousands of young workers. I find it thoroughly distasteful that an organisation with the reputation of the CIPD should seek to target young people, patronising them with the tag of being “lucky enough to have jobs”. Why should vulnerable young people, who receive a starting rate of just £3.57 an hour, have to pay the price for the recklessness of voracious bankers? The CIPD manifesto contains a list of other measures that the organisation would like to see introduced, but I searched in vain for a demand that bankers’ pay should be frozen, far less that their enormous bonuses should be restricted, in order to aid economic recovery.

The CIPD is correct in its assertion that restraint is a feature of this year’s pay round, but it does not follow that those receiving the national minimum wage should be expected to contribute to that restraint. We are talking about people living on or below the poverty line—people who have next to no room for manoeuvre when it comes to tightening their belts. To put the adult minimum wage in an annual perspective, someone aged at least 22 working a 35-hour week will earn £942 a month, which translates annually to £11,310 gross income. After PAYE is deducted, that figure becomes £811 a month or £9,732 a year at current rates. That does not allow much leeway for belt-tightening.

Indeed, London Mayor Boris Johnson believes that the minimum level should be significantly increased for those working in the metropolis. He has supported the London Living Wage, ensuring that all City Hall employees and sub-contracted workers now earn at least £7.60 an hour, and he has gone further, promoting that level to employers across the city. It is pleasing to note that a number of the major banks have already heeded his call in respect of their cleaning staff. Perhaps I could invite my noble friend the Minister to indicate whether Whitehall might be persuaded to follow suit. I notice that one of the principal aides to the Leader of the Opposition, Steve Hilton, has been advocating this initiative recently.

The Government have asked the Low Pay Commission to consider introducing a national minimum wage rate for apprentices; as my noble friend Lord Morris said, recommendations are scheduled to be announced in the commission’s 2010 report, which I believe is expected before the end of this month. Making sure that all apprentices are entitled to an hourly minimum wage can prevent exploitation, improve the quality of apprenticeships and help to ensure that more young people complete their courses. The TUC has set out its support for the proposal complete with three different age rates, and the CBI has recognised the need, while arguing that,

“any new minimum wage for apprentices must be set at a cautious level”.

The question of how effective the national minimum wage has been in reducing poverty cannot be dealt with in isolation because it is complicated by other issues. Since 1997, the Government have implemented a raft of redistributive policies, such as the tax credit for the low paid. However, many people remain below the line, despite the introduction of social support for low-income families in difficulty, and with childcare, nursery education and Sure Start children’s centres for new parents. Universal childcare is developing and is allied to flexible working, which millions of women now claim from their employers. Maternity pay has doubled in value and tripled in time off work. Women have gained most from the introduction of the national minimum wage.

All this has helped many families, yet working-age people without children now suffer record levels of poverty. If you are poor, and neither a pensioner nor a parent, you are often worse off. However, we know that around 1 million people now benefit from the national minimum wage—that is to say that, were it not for that important legislative wage floor, most if not all of those people would be receiving less.

The very helpful Library note provided to all participants in today’s debate highlights the impact of the national minimum wage in various categories. As has been mentioned, because more women than men tend to be found in low-paid employment, a larger proportion of women have benefited from the establishment of a legal minimum. The Equality and Human Rights Commission has also concluded, again as my noble friend Lord Morris referred to, that the ethnic minority pay gap has narrowed—although, intriguingly, those from Indian and black ethnic groups have benefited more than those from the Bangladeshi and Pakistani communities. It would be interesting to hear some reasons for that. It is also interesting to note that the Low Pay Commission claims that age is arguably the most distinguishing factor with regard to the national minimum wage. It has had a positive impact on the earnings of older workers, with a rise in employment rates for people over state retirement age.

As for poverty levels, the indicators of relative poverty—defined as 60 per cent of median earnings—declined consistently between 1998 and 2005, though unfortunately the trend has been slowly upwards in the three following years. The 2009 report from the Institute for Fiscal Studies, Poverty and Inequality in the UK, contains statistics on absolute poverty—after housing costs have been factored in—illustrating that same trend, but over the period 1999 to 2008 there was a large fall in the proportion of children in that category, from 29 per cent to 17.5 per cent. The proportion of the population as a whole designated as living in poverty shows a reduction of one-third—significant, but the figure still stood at 8 million in 2008.

That figure must come down much further, and that will entail a reversal of recent trends. However, overall comparisons during the lifetime of the Government show a significant decrease in levels of poverty. Although it is difficult to disaggregate the contribution of the national minimum wage to that decrease, there has certainly been an important effect that has assisted the process. It must be allowed to continue, and any attempts to impede the essential role of the national minimum wage must be resisted.

My Lords, it is not often that I can claim to be at the forefront of a policy initiative, but on the issue of the minimum wage, I like to think that enlightenment came to me rather earlier than to some of my colleagues in the labour and trade union movement. When I first became active in the Labour Party in the 1970s, the predominant view was that free-collective bargaining was the best way to improve workers’ pay. Even then, some maverick unions took a different view and, in 1979, I went to work for one of them, the National Union of Public Employees, precisely because it took a radical view on low pay and supported a national minimum wage. The campaign continued to gain ground and, in the mid-1980s, as a young constituency delegate, I seconded the motion which finally converted the Labour Party conference to support a national minimum wage. It would be nice to claim that it was the power of my rhetoric that swung the conference, but, in truth, it was the culmination of years of hard work and a brilliant speech from the general secretary of NUPE, Rodney Bickerstaffe, that persuaded the doubters. He deserves much of the credit for that change in policy.

It is, of course, a policy that we all now take for granted, but it was cloaked in controversy to the last moments of parliamentary debate, when the incoming Labour Government in 1998 finally passed the legislation that would make the establishment of the Low Pay Commission and the principle of a national minimum wage a reality. It was, as my noble friend has reminded us, fiercely opposed by the Tories and by business. It was argued that it would increase unemployment, with some estimating that up to 1 million jobs would go; it was argued that it would destroy Britain’s competitiveness in the world; and it was argued that it would prove to be inflationary. It did not and it has not. Instead the policy remains one of Labour’s proudest achievements because it was a bold statement of our values and it was a simple principle which everyone could understand. Overnight, it gave a pay rise to more than 1 million of our lowest paid workers, who previously had been working for poverty pay.

I was working as a trade union official at the time when the national minimum wage was introduced, and I saw the direct effect of the new policy, particularly on the hundreds of thousands of women who benefited. It was clear to me that, in addition to the welcome pay rise, the national minimum wage gave them a new dignity at work; it closed down the argument that they worked for pin money; and they gained new respect from their partners and families. It also, as we now know, had a significant impact in narrowing the gender pay gap at the lowest end of the income scale.

The minimum wage is now in its eleventh year and it continues to be a success story. It has become an accepted feature of employment rights in Britain. It is estimated that more than 2 million workers directly benefit from it—around one in 10 of the total work force. The fact that it is well established leads to the danger that it is taken for granted, whereas in reality there is a need to nurture and to defend it because the value of the national minimum wage is only as good as its last increase. If, over time, it does not continue to be uprated, at least in line with inflation, it will become worthless.

I am confident that when the Labour Government are re-elected, as I sincerely hope they will be, we shall continue to ensure that the minimum wage is increased regularly to provide an effective protection against poverty pay. I note that the Conservative Party has had a rather late conversion to the principle of the minimum wage and is no longer saying that it will abolish it, but if it beats the pollsters’ predictions and becomes the next Government, can we be sure that its warm words will extend to maintaining the independence of the Low Pay Commission and implementing its recommendations for increases? One thing is for sure, the same businesses which lobbied so hard to prevent Labour implementing this policy, with doom-laden talk of job losses and uncompetitiveness, will no doubt be out in force again seeking a new opportunity to hold down wages and increase their profits by persuading a future Government to freeze the level of the minimum wage.

Yet this period of economic uncertainty is the very time when the minimum wage could come into its own, because it is arguably one of the most effective ways of helping the country to climb out of recession. An increased minimum wage would immediately increase the spending power of those at the bottom of the economic hierarchy. Moreover, it would go some way towards compensating these workers for the rapidly increased costs of energy, food and transport in recent years.

For example, a project by the Joseph Rowntree Foundation has calculated that the cost of a minimum household budget has risen by about 5 per cent for most families in the year to July 2009, a much higher figure than the official inflation rate for that period. The same study calculated that, in a two-parent family with two children, both adults working full-time would need to earn a minimum of £7.15 an hour to achieve a socially acceptable minimum income standard. So the minimum wage still has some way to go to lift the lowest earners out of poverty.

There is still something wrong with an economic system that requires the Government to bail out bankers and their bonuses, but where a decent minimum income remains out of reach for many hard-working families. We have come a long way, but there is clearly more to be done in order to create a fair society. I believe that today’s leaders need to champion the cause of the lowest paid workers in a new crusade. Let us introduce a system, similar to that already in operation in Sweden, where everyone’s wage is published, and then people will be able to see, right across the spectrum of bankers, footballers, media commentators, politicians and front-line staff, what constitutes fairness in a civil society. Perhaps then we will reassess our priorities and accept the case for a real living wage.

In the meantime, we should acknowledge the success story of the national minimum wage and the undoubted contribution it has made to lifting individuals and their families out of poverty. I therefore thank my noble friend for giving us this opportunity to record its success and debate its future.

My Lords, I welcome this debate and thank my noble friend for introducing it. We should be proud of the introduction of the minimum wage. I well remember when it was first introduced and there was a debate in this House. It occasioned a great deal of opposition from the Conservative Benches. This turned out to be unjustified. In fact, it has played a substantial role in dealing with poverty. A number of Government interventions—the introduction of the minimum wage, tax credits and other benefits—have helped to take families out of poverty. It is said that half a million children have been taken out of poverty. The Child Poverty Bill, which is currently before the House, is expected to assist still further. Tax credits are said to have taken 700,000 families out of poverty.

However, the biggest cause of poverty is joblessness. We are currently in a recession, which we hope is receding. The way forward is not, as is currently claimed, by cutting public services, which, of course, involves cutting public service jobs. That would create more unemployment and more people who cease to be taxpayers and become benefit recipients. It causes more damage to the less well-off, since they are more reliant on public services than are the well-off.

One of the problems has been the decline in manufacturing industry, a decline for which the Thatcher Government were largely responsible. It was never sensible to rely on financial services alone to produce sustained growth in the economy, and thus the possibility of achieving relatively full employment. Fortunately, the present Government seem to realise this. Recent pronouncements indicate support for manufacturing and this is beginning to show in some of the statistics. That is important.

The Government have sought to reintroduce apprenticeship schemes. This is necessary, because we need a skilled workforce, but there needs to be an industry available to produce jobs for the workforce when trained. Present economic policies seem to be based on this assumption and should be welcomed. A key part of all this is the requirement for a minimum wage, properly monitored to ensure that it continues to provide a wage on which it is possible to live free of poverty. There also needs to be a proper inspection process. Many employers have sought to keep wages down by employing immigrant workers who are often not aware of the minimum wage entitlement. Some employers have believed that the option of employing immigrant workers enables what is sometimes called “wage inflation” to be contained. By that they mean that it keeps everyone else’s wages down. That must not be allowed to happen. Immigrant workers should be encouraged to join trade unions, so that their employment rights are safeguarded.

In the mean time, the Government have taken steps to ensure that the level of the minimum wage is kept under review. The Low Pay Commission, an independent body on which unions and business have representatives, makes recommendations as to rates, and it recently did so, with the result that there was an increase last October. It also recommended that the adult rate should in future be paid to 21 year-olds, to which the Government have agreed. So it will be paid from next October.

The Employment Act, which was operative from April 2009, contains measures to deal with employers who fail to pay the national minimum wage. It removes the limit on the fines which can be imposed for non-payment. The most serious cases can be tried in the Crown Court, which can impose an unlimited penalty. The Act introduced a fairer way of dealing with national minimum wage arrears, calculated so that workers do not lose out. In the past year alone, the Government helped to restore £3.9 million in arrears to more than 19,000 workers and have also increased the enforcement budget for the national minimum wage by £2.9 million.

As already indicated, we must maintain the national minimum wage. It must be properly monitored and we must make sure that it keeps families out of poverty. It is an important element in a policy with which we are all in agreement; that is, to make sure that work produces a standard of living acceptable in what is, after all, still one of the world’s most highly developed economies.

My Lords, I join other noble Lords in congratulating my noble friend Lord Morris of Handsworth on having initiated this debate. I am ashamed that so few noble Lords have seen fit to contribute. Those who have are all on this side of the House. But the compensation is that every speech so far has been a little gem and lovingly polished. Noble Lords have said much of what I was proposing to say anyway.

The minimum wage is one of the most important innovations of the Labour Government. It is crucial however to recognise that it does not stand alone and cannot be assessed alone. It was and is part of a much more ambitious endeavour to transform and modernise the welfare state in such a way as to combine high levels of employment with combating poverty, especially child poverty. Tony Blair’s celebrated Beveridge lecture in 1999 brought all these themes together. It was one of the first places where he introduced the proposal for the national minimum wage and was when he announced plans to radically reduce child poverty. The whole lecture was built around the idea of the transformation of the welfare state, in which he invoked the name of one of my predecessors at the LSE, William Beveridge. He said that William Beveridge would have approved of his radicalism, which I believe to be the case.

The best way to make an impact on poverty is to get a high proportion of people in work above a decent minimum wage. One can say that over the 13 years that Labour has been in power, this strategy by and large has worked effectively. On its initial introduction, the national minimum wage elevated the pay of more than 1 million workers immediately by about 15 per cent. As other noble Lords have mentioned, it affected women workers in particular in a positive way. About 8.5 per cent of all women workers saw their incomes raised, compared to 3.2 per cent of men. The minimum wage has gone up from £3.60 in April 1999 to £5.80 today, which is an increase of 20 per cent in real terms. That is a substantial increase and further increases are projected.

Studies by the Centre for Economic Performance at the LSE show no significant job losses for workers directly affected by the minimum wage, nor is there any evidence of knock-on effects for better-paid workers. It is fair to say that the minimum wage has not played a major role in actively reducing inequalities, but it has held down inequalities at a time when these were rapidly rising in other countries. The conclusions of the studies of the Centre for Economic Performance were backed by research organised by the Low Pay Commission. As other noble Lords mentioned, in spite of the frequent observation that inequalities have not declined under the Labour Government, the lot of the poor has substantially increased. In John Hills’s recent study of inequality, the bottom 10 per cent has profited more than any other comparable group over the period—at least up to the recession, which of course puts things in some disarray. By and large, these policies taken as a package have been notably successful. They are part and parcel of what a decent society means. We should seek to shore them up still further.

They are of course in a process of continuing evolution. I have one or two questions which the Minister is free to answer or comment on as he sees fit, as would be the case for representatives on the other Benches. First, it would be interesting to hear the Minister’s views, if he has any, on the Living Wage Campaign, which my noble friend briefly alluded to. This campaign was originally initiated in the United States and has achieved a large following. It does not undercut the national minimum wage. The idea is to create a living wage in certain core sectors. These could be progressive vanguard sectors within the economy. The idea is worth experimenting with. According to the Rowntree Foundation, looking at cost of living, something above £7 would be a basic living wage. It would be interesting to combine that with the Government’s intention to look at John Lewis as a model for possible forms of corporate organisation, to see if you could create a vanguard which would not undercut the national minimum wage but create the possibility of elevating income further without destroying employment.

Secondly, as other noble Lords mentioned, what of the continuing issues of enforcement? This has quite rightly been given prominence by the Low Pay Commission. It says we have reached a watershed, especially in respect of migrant workers. It is crucial to enforce the minimum wage for employers across the economic spectrum or it could lead to the creation of secondary underground labour markets. The issue of enforcement is a continuing one. What plans are in train to continue to ensure that the minimum wage is properly enforced?

Thirdly and finally, is the Minister inclined to comment on the possibility of a high pay commission to complement the low pay one? There has been a strong movement to establish a high pay commission. It makes some sense to me. The point of having a high pay commission would not simply be to discuss the salaries of what my noble friend called the wretched bankers. It would have a more thorough-going role. The point of the Low Pay Commission is to assess the functionality of the minimum wage, to find the point at which it elevates a floor without compromising employment. It is not easy to assess where that level is. The same thing would be true of a high pay commission. It would look not simply at the banking sector but at the functionality of high pay—that is, the consequences of high pay for the rest of the economy in terms of job generation and other factors. I do not know whether the Government are looking at this issue but there would be an interesting balance between a Low Pay Commission and a high pay one.

My Lords, I thank the noble Lord, Lord Morris, for introducing this timely debate on a very important issue. He is right to point out that rates have risen generally, not only for those at the lower end of the scale but right through and upwards. Clearly this has resulted in a closing of the gap for minorities and vulnerable people and we should all support it.

The noble Lord, Lord Watson, spoke strongly and with great feeling, as did many other speakers. He is right: the minimum wage has affected poverty. He referred to the record of the Official Opposition, to which I shall return shortly, and the noble Baroness, Lady Turner, mentioned their inconsistent approach. Were they to come into government, we would all be concerned to ensure that they did not abandon this important initiative.

The noble Baroness, Lady Jones, acclaimed this as a proud achievement for the Government. We on these Benches would not resile from that and agree that she is right to say so. One million people received pay rises as a result. It gave them dignity—a feeling that they were doing a decent job and that their work was appreciated. I shall return to this issue later.

The noble Baroness, Lady Turner, made clear statements about concerns for the future and the importance of concentrating on jobs. That occupies all of us in this day and age. I speak for these Benches on skills and small businesses, but we all have to get round the issue of not only setting the right rate but creating jobs for people to do.

The noble Lord, Lord Giddens, with his expertise, said that the minimum wage was the right thing to do. He gave the statistic that the bottom 10 per cent who are working had profited more than others. That is very important in at least trying to address poverty and the concerns that we have for those people who are still struggling in this society. All speakers have said that, in its way, it has helped, but that many other things need to be done to improve the situation of people at the disadvantaged level of society.

On these Benches we support the minimum wage as a concept and in reality. I was a member of the committee on the minimum wage in the other place. At that time there was fierce opposition from the Tory party—the Official Opposition. I know that to my cost because historically we had the longest ever committee sitting—I think it went on for 24 hours—and, during that sitting, I came to appreciate what filibustering meant. Some of the speeches made in the early hours of the morning by the Official Opposition seemed to be less than targeted towards the subject we were talking about; they seemed to be engaged in a long exercise of keeping the talking going.

As I said, I have had experience in the other place and I am glad to say that we on these Benches have consistently supported the minimum wage. Despite concerns, the legislation became law and those who thought that there would be 2 million job losses were proved wrong. All the speakers to whom I have referred so far have made these points in their own individual way.

We have had a good debate. Clearly the existence of the minimum wage has been extremely important in all kinds of ways. I do not want to use the trite expressions which come to mind, but if you pay derisory rates, as used to happen, you cannot expect the workforce to be dedicated to doing the job well or to feel valued and that they are doing something worth while. That has become clear in the hospitality industry, where people were often paid quite low rates in cafés or restaurants, for example. People who are concerned about the minimum wage need to be aware that if you do not pay people well, not only are they not able to live a reasonable life, but they feel, “What is the point? Why should I bother?”. If somebody claps a cup of tea down on the table because they are cross about that, we should not be too surprised.

Once rates were raised, it made it much better not just for employees but for employers. They could feel entitled to say, “At least I am paying a reasonable rate”, and they would feel it more worth while—to come to a very important subject—to train their employees. The fact that they had to pay them a bit more meant they would say to themselves, “I need to get all I can out of them”, in a nice way. That raised esteem all round in the workforce and has proved a major success in motivating people to take the jobs that perhaps not everybody else would want to do. However, as the noble Lord, Lord Giddens, and the noble Baroness, Lady Turner, said, it is important to ensure that enforcement is carried through. Even now, there are occasions when the minimum wage is not adhered to.

There are still issues around providing jobs. This is akin to what we are talking about. It is important to have the right rates but it is also important—as colleagues have said—that we do all we can in the manufacturing industry and all spheres of activity to encourage the creation of jobs in this recessionary period. I am glad to say that most people have got the message that we need to be training and skilling people and trying to provide jobs to keep them in work.

I am sure my colleague will forgive me if I say that the record of the Conservative Party has been disappointing. It has said that it accepts a national minimum wage but—as the noble Lord, Lord Watson, said—just last year an attempt was made from the Tory Benches in the other place to introduce a Bill to allow workers to opt out and accept a wage less than the national minimum wage. This implies a lack of commitment to the national minimum wage, which is a concern, and I hope colleagues from the Opposition Benches will address this issue. The fact remains that the Conservative Party was dragged reluctantly to accept the national minimum wage, and only last year tried to put through a Bill which seemed to resonate with what they were saying before about the need to get rates down to get through the recession. It did not succeed but it is a concern.

I thank the noble Lord, Lord Morris, for the debate. At the end of it all, we must set out to raise, not lower, standards and give people good opportunities where they are valued and where they can make a real contribution to society and to the economy.

My Lords, this has been an interesting debate and I thank the noble Lord, Lord Morris of Handsworth, for giving us an opportunity to discuss poverty from an angle from which in this House we have perhaps not examined it for some time. My noble friend Lord Freud from these Benches has been engaged with a number of your Lordships for several days recently with the Child Poverty Bill, analysing the causes of household and child poverty and the ways in which the Government can assist those suffering in it. If one thing has become clear in those debates, it is that, although it may be a relatively straightforward matter to identify the causes of poverty, it is not so easy to address them successfully and lift people out of it.

What is clear, however—the noble Lord, Lord Giddens, spoke of this—is that assisting and encouraging people to find jobs is of critical importance, not only to their income levels but also to other parts of their lives. Employment not only brings a pay packet; it also brings social, educational and health benefits. It even increases one’s life expectancy.

Of course, as the Motion of the noble Lord, Lord Morris, suggests, poverty, even among those who have jobs, is a serious problem. We share his concern and the concern of other noble Lords that people should be appropriately rewarded for their work. Exploitation in the workplace must be prevented. Perhaps I may—I hope, gracefully—acknowledge the prods from noble Lords on the Labour Benches, the noble Baronesses, Lady Jones and Lady Turner, among them, and say that a minimum wage is a useful tool in achieving that. I promise the noble Lord, Lord Cotter, that I shall not filibuster today.

The recession has led to worryingly rising levels of unemployment. The First Secretary of State has admitted that the figures would be even worse if many employees had not taken cuts in their working hours and incomes to help the businesses which employ them survive. I suggest that those employees and their employers are to be congratulated on the pragmatic and constructive way in which they have approached this.

Private sector employers, to whom we look to offer employment, are in many cases themselves struggling as a result of a lack of available credit, inefficient and inconsistent regulation and red tape, and an acute shortage of skilled workers. The cost of such funding as is available is in severe danger of escalating if public sector debt is not brought under control, because of its potential to affect interest rates. Temporary employment has been a valuable source of work and income, so I remain concerned about the impact of the agency workers directive, with all its considerable complications and confusions.

The Low Pay Commission makes specific note of the impact of the minimum wage on the rate of employment and hours worked. There is a balance to be struck. We must all hope that its 2010 report will not indicate that, in our enthusiasm to ensure that low paid workers have a sufficient income, we risk pricing people out of the job market. An effective way of addressing poverty among those in employment will always be the strategy of ensuring that both the employed and unemployed have access to high-quality training and education. The Low Pay Commission has just consulted on the minimum wage for apprenticeships. Apprenticeships should not be used as cheap labour by unscrupulous employers—indeed, the very unscrupulous employers to whom the noble Lord, Lord Morris, referred. However, there is a balance to be struck and it would do the army of the more than 1 million people who are not in employment, education nor training a disservice if the minimum wage were to discourage companies offering useful apprenticeships.

Due to the variations in pay levels across the country, I hope that it is not too contentious to suggest that the national minimum wage, which takes no account of regional living costs, is something of a blunt instrument. The areas with the highest proportion of minimum wage jobs are Wales, the north-east or England and Northern Ireland. Those areas need special attention.

The noble Lords, Lord Giddens and Lord Cotter, spoke of enforcement. I understand that it is the role of HMRC to enforce the national minimum wage. It does so not only by responding to complaints but also by visiting a sample of employers to check compliance. It would be interesting to hear from the Minister, by geographical area, how many such visits take place and what is the offending rate so uncovered. On the other hand in London, the Greater London Authority’s living wage, to which the noble Lord, Lord Watson, and others have referred, is £1.87 above the national minimum wage. The long list of socially responsible businesses which have signed up to ensure that all their employees are paid the higher rate in London, to take account of higher living costs in this great city of ours, shows how many find the national minimum wage irrelevant to their attempts to ensure fair working practices. We wish the Living Wage Campaign every success in signing up London employers. Can the Minister tell us what of a similar nature is being done elsewhere?

My Lords, I thank my noble friend Lord Morris of Handsworth for calling for this debate. The issues he raises are important both on their own terms and in light of the tough economic climate. He prefaced his remarks by saying that the introduction of the national minimum wage was a giant step for equality and social justice and that the doom-mongers were proved wrong. These are sentiments that I wholeheartedly endorse.

He went on to make a comment about what he described as “sub-prime” jobs. Unfortunately one-third of UK employers still do not do any training. We have taken some steps to improve the situation. From 2013 we are raising the participation age for training so there will not be young people aged 16 and 18 without any training: they will have 280 guided learning hours. Further, in the Apprenticeships, Skills, Children and Learning Act we introduced the concept of the employee’s right to request time to train. Again these are important steps forwards but they will not be the total answer to the problem.

It is very important that there should be fair standards in the workplace and that work should pay. Many noble Lords have commented on that. That is why we introduced the national minimum wage. Since it came into force in April 1999 it has brought substantial benefits to the lowest-paid workers and combined with the tax credits system provides minimum income guarantees that ensure that work pays. It is worth reminding ourselves about the situation prior to its introduction. We estimate that in 1998 around 400,000 people were paid less than £3 per hour, and some were paid as little as £1.50 or £2 an hour. We endorse the point that the noble Lord, Lord Cotter, made when he talked about the dignity of work and the corrosive effective of derisory pay rates.

The Low Pay Commission’s first report, in June 1998, found that there had been a growth in earnings inequality over the previous 20 years, leading to a substantial degree of in-work poverty, particularly among families with young children. In making its recommendations, the Low Pay Commission has always sought to balance the potential benefits of the minimum wage to low-paid workers against the risk of adverse economic effects. It has taken a cautious approach to minimum wage rate recommendations in more difficult times, with more generous rate recommendations during periods of growth. That balanced approach has enabled us to introduce a minimum wage without having adverse employment effects, as so many noble Lords have pointed out.

Since 1999, average earnings have consistently risen faster than prices and the minimum wage has increased substantially faster than average earnings, especially since 2001. Since its introduction in April 1999, the adult minimum wage has risen by around 61 per cent in real terms. The value of the adult minimum wage has risen by one-third when deflated by consumer prices and by around one-quarter when deflated by retail prices. The minimum wage as a proportion of median earnings is often termed the “bite” and is a measure of how high up the earnings distribution the minimum wage cuts in. The bite of the adult minimum wage is currently around 51 per cent; an increase of around 5 percentage points since 1999.

However, as my noble friend Lord Giddens remarked, it cannot be seen in isolation. It forms part of the Government’s wider strategy for tackling low living standards, and because people’s circumstances vary it should be seen in conjunction with others measures for alleviating poverty. The minimum wage complements tax credits in achieving both fairness and flexibility in the labour market. One may consider the position of a family with one child and one adult working 35 hours a week. The minimum wage, when combined with working and child tax credits and other benefits, provides the family with a net income of £306 per week, compared to £182 in 1999, when the minimum wage was first introduced. So noble Lords can see the collective beneficial effect of the minimum wage with those measures in reducing poverty.

Measures taken by the Government since 1997 have therefore boosted in-work incomes, improving incentives to have a job and tackling poverty among working people, which we saw as so profoundly important. However, it is important that we do not inadvertently harm the low paid by damaging their employment prospects. Using the minimum wage on its own to increase in-work income would mean setting it at a level that would cause job losses for low-skilled workers. While wages do not respond to family circumstances, such as number of children, tax credits do. Nor should we forget that the Government’s action to help businesses and families through the downturn has been successful in mitigating its impact. The noble Lord, Lord De Mauley, talked about private employers suffering. If we had listened to the siren voices of Her Majesty's Opposition, they would have been suffering even more, because they opposed most of the measures that have proved beneficial. For example, more than 3 million people have been helped to move off of unemployment benefit since November 2008. The temporary VAT cut has, on average, increased households’ purchasing power by the equivalent of around £20 per month and 400,000 families whose income has fallen have received extra help through tax credits—on average £37 more per week.

Skills, to which a number of noble Lords referred, play a crucial role in transforming the lives of people and their families. We have improved skills achievements at every level, simultaneously laying the groundwork for a strong exit from recession and greater competitiveness in the global economy.

Both the Government and the Low Pay Commission believe that lower minimum wage rates for young people are justified to protect employment and reflect the training element attached to these workers. I know that that is not agreed by everyone, but we genuinely feel that that is the case. Unemployment rates are higher for young people and employment rates lower. Both are more sensitive to the economic cycle. We are concerned that removing the youth rates would adversely affect their employment levels. Getting young people back into work is an important area. While continuing to participate in education or training to at least age 18 is in the long-term best interest of young people, it is important that those who have chosen to work do not lose their jobs, or find it harder to access the important employment opportunities that might advance their careers. There is little point pushing wages up if it means that jobs are no longer available. Once young people are in work they gain important skills and experience which help them progress. We are doing what we can to keep them there.

As I have said on many occasions, when we looked at apprenticeships in 1997, they were really in a dire state. Now we have a target of 250,000 people a year starting an apprenticeship in England by 2020 and a commitment that one in five young people will be on an apprenticeship by 2013. We are well on our way to achieving that target, with 245,000 apprenticeships and a 71 per cent completion rate. That is a real success story.

It is important that there is a fair deal for apprentices which protects them from exploitation, but which does not deter businesses from taking them on. There I agree with the noble Lord, Lord De Mauley. An apprenticeship is an investment for both employers and individuals, with apprentices having life earnings on average considerably more than people without an apprenticeship qualified at the same level.

Last year we asked the Low Pay Commission to consider detailed arrangements for apprentices under the minimum wage framework, and to recommend an appropriate apprentice minimum wage. The commission has now reported to Government, and we will publish that report alongside our response shortly. As noble Lords will appreciate, I cannot give any more details at this time. However, they have already benefited from an increase in the minimum rate of pay for government-funded apprenticeship training. It has gone up from £80 to £95 per week. In reality, the average net wage of apprentices was £170 per week, which surprised me. That is not to say that I do not encounter apprentices that earn considerably less but still it is an impressive average figure.

We are committed to enforcement. Again, there is not much point in having a national minimum wage if we cannot provide effective enforcement. We have put a lot of effort into dealing with this. We need to support workers and businesses by deterring non-compliant employers from underpaying their workers. It removes the unfair competitive advantage for business that underpayment can bring. Since 1999, HMRC has identified more than £38 million in arrears for more than 130,000 workers. In the 2008-09 financial year, nearly £4.5 million of arrears for more than 23,000 workers were identified: £580,000 more than the previous year. It is an excellent record by HMRC. However, the best protection we can offer workers and compliant businesses is to ensure that arrears do not arise in the first place.

The noble Lord was beginning to answer my question but he has now left it. I asked specifically about the geographic distribution of the results of the compliance work.

I will have to write to the noble Lord. I do not have that information and there is limited time.

We have implemented a tougher enforcement regime to provide a fairer outcome for workers who have been underpaid and a more effective penalty regime to deter non-compliance. It is already delivering results. We are reviewing our compliance strategy, covering the work done by HMRC in enforcement and awareness-raising activities—led by my department—to achieve the greatest impact from the resources and tools at our disposal.

There was a reference to agency workers. The conversion to raising the pay and conditions of workers by the noble Lord, Lord De Mauley, who once again resorted to the view that he felt that this was not necessarily a step in the right direction, does not seem to be quite complete. Its purpose is quite clear: to provide equal treatment for agency workers compared to a worker who would have been hired directly by the employer to do the same job. This will guarantee fairness for agency workers and maintain flexibility in the labour market, which I agree with the noble Lord, Lord De Mauley, is important for job creation. For the first time, agency workers will be entitled, after 12 weeks in a given job, to equal treatment on basic working and employment conditions—including pay and holiday—as if they had been hired directly by the hirer. That is fair. It is important that temporary agency workers have appropriate protections. UK agency workers are already entitled to be paid at least the national minimum wage and are covered by working time legislation.

I am conscious of a number of other issues that were raised. I will try to address as many as I can. There were one or two references to the London living wage. We are not in favour of setting a separate minimum wage for London. However, we recognise the progress of the London living wage. It was my noble friend Lord Giddens who described it as “a vanguard approach”. That is absolutely right. If individual firms are in the position to pay higher London wages, we welcome that. However, imposing a higher minimum wage on all firms in London might be counterproductive due to potentially negative effects on economic activity.

I am grateful to my noble friend for giving way. On the London living wage I specifically mentioned Whitehall. The Government could perhaps take a lead—be in the “vanguard”, as the Minister said—in terms of Whitehall staff. Has any thought been given to that idea?

Yes. It would not be right for the Government to have one rule for public sector workers and another for the private sector. Saying that public sector employers should not be paid less than a certain London minimum wage is a judgment on a fair wage. It would be very difficult not to apply it also to the private sector workforce. So we have looked at that.

While I am on the subject, I might as well deal with the question of a regional minimum wage. We are not considering regional minimum wage rates. The national minimum wage does not set the average wage. It sets a minimum threshold. Differential regional minimum rates would introduce substantial administrative complexity for businesses and the Government seeking to monitor and enforce the regime. Single national rates are less bureaucratic and more easily understood by all concerned. There are some other details, but that is currently our view.

My noble friend Lady Turner referred to migrant workers. We are keen to ensure that all workers have appropriate rights and protections. Legal migrant workers in the UK have the same employment rights as their indigenous equivalents. We will not tolerate mistreatment of migrant workers. We have established a really good innovation in the Pay and Work Rights helpline, which can respond to calls in more than 100 languages and has proved very successful. Since it was established last April, it has had something like 50,000 calls and hundreds of thousands of hits on its website. We have also run a national minimum wage awareness campaign targeting migrant workers, which involved outreach work with migrant communities, articles and advertisements in the press and posters.

My noble friend Lord Giddens postulated a number of ideas on the London living wage. We certainly agree that the John Lewis Partnership approach is something worth exploring, so I would not demur from that. We do not seem to be on board yet for the concept of a high pay commission. The Government believe that businesses and workers are generally best placed to determine the pay of employees but that the Government have a role in preventing exploitation, especially where the pay system promotes the wrong behaviours. We have been concerned about excessive remuneration. The Financial Services Authority is to introduce a code of practice on that. Directors’ pay is a matter for the company, but it is interesting that there have been a number of examples of shareholders voting against remuneration reports of excessive pay and bonuses.

My noble friend Lady Jones gave us an interesting historical point of view. She is absolutely right. I, too, remember the days when the Labour movement was very much wedded to collective bargaining as being the answer to all the problems. She was quite right to remind us that the National Union of Public Employees played a pioneering role in achieving the national minimum wage. We believe that the measures that the Government have taken overall, together with the minimum wage, have had a profound effect on removing poverty and reducing inequalities. We see no room for complacency in that area, which is why we have been encouraging our enforcement agencies to work together. Examples of that are HMRC working with the employment agency services of the Health and Safety Executive to ensure that, wherever we can, we eradicate exploitation of workers.

On the question of equality, briefly, we have also taken action to help parents improve their work/life balance through the right to request flexible working, free and early education for all three and four year-olds and statutory maternity and paternity pay. Once again, that gives parents a greater choice, enabling fathers to play a more substantial role in bringing up their children and allowing mothers to return to work earlier if they so wish. We believe that the minimum wage plays a part in narrowing the gender pay gap, as women are more likely than men to work in lower-paid jobs, particularly part-time jobs. Another area of exploitation that we have recently removed was the fact that tips and gratuities were included in minimum wages by some businesses. We have acted quickly on that with a code of practice, a campaign which we have run asking people to put the question, “What happens to the tip?”, and encouraging employers to sign up to a code that calls for openness and transparency.

The noble Lord, Lord Cotter, talked about hospitality workers; they must now be paid the minimum wage, not including gratuities. Care workers are another area where there is room for significant improvement. I have already referred to the importance of enforcement and we now have an automatic civil penalty of between £100 and £5,000 if businesses do not comply with minimum wage requirements. The worker will receive back-pay at current minimum wage rates, and HMRC will enforce this. We also had a drive recently on the agricultural minimum wage in Lincolnshire, with a campaign consisting of regional press and community radio. The feedback has been very positive.

My time is up. I have tried to answer as many questions as possible. I congratulate the contributors and my noble friend Lord Morris on initiating what I think has been a really important debate. We are fully committed to ensuring that low-paid workers are treated fairly. The principle of fairness cannot be applied or ignored depending on the economic climate. At the same time, we need to ensure that we do not disadvantage low-paid workers in the jobs market. I believe the measures I have outlined to help low-paid workers prove our determination to make a difference to the lives of the UK’s lowest-paid people.

My Lords, I thank my noble friend the Minister and all noble Lords who have contributed to this debate. It has been a good and well-informed debate, a debate whose outcome will, I trust, assist the Low Pay Commission in its work ahead. As long as there is injustice and as long as there is poverty, then of course the issue of fair pay will make a contribution to changing the lives of many. That is the essence that I take from this debate. Meanwhile, I beg leave to withdraw the Motion.

Motion withdrawn.

Social Security Benefits Up-rating Order 2010

Motion to Approve

Moved By

That the draft order laid before the House on 27 January be approved.

Relevant document: 7th Report from the Joint Committee on Statutory Instruments.

My Lords, this is our annual benefit and pension uprating order, but the past year has by no means been usual. The collapse of the global banking sector and the resultant recession have hit many people hard in this country. Times have been tough: people have lost their jobs and unemployment has increased. We have discussed on numerous occasions the actions that this Government have taken to respond to the recession and to support both people and the economy—measures such as the fiscal stimulus package, the support for the banking sector and for business, and the £5 billion investment in back-to-work support.

This support is having an effect. As I have said before, unemployment is some 450,000 lower than forecast at the last Budget. While there will probably be some increases in the claimant count to come, the labour market figures are showing positive signs and unemployment appears to be levelling out. Meanwhile, the latest official economic data show that the UK economy returned to growth in the last quarter of 2009 and, while I would not want to tempt fate, we are cautiously confident about the future prospects of the economy.

While there is much to be positive about, it would be wrong to withdraw the support on offer—both the support to help people back to work and the financial support that we provide to those out of work on low incomes or those retired. This is what today’s order is about: providing an additional £2 billion in pensions and benefits at a time when the vulnerable need our support more than ever.

As is usual, income-related benefits for those of working age will be uprated in line with the Rossi index—the retail prices index, less housing costs. We use this index because housing costs are usually met separately from those benefits. This means that people receiving jobseeker’s allowance, employment and support allowance and incapacity benefit, for example, will see the support that they receive increase by 1.8 per cent from April 2010. This is more than double the rate of wage inflation.

Noble Lords will be aware that it is usual to increase the state pension and some other social security benefits in line with the September retail prices index figures. As a consequence of the credit crunch, however, the RPI moved into negative territory for the first time in around 50 years. In September 2009, it stood at minus 1.4 per cent. This means that those who rely on benefits being uprated by the RPI will see their benefits frozen in cash terms, with no increase at all from April of this year. However, continuing the commitment that this Government have shown to supporting the most vulnerable in society, my right honourable friend the Chancellor announced in his Pre-Budget Report last year an increase for key carer and disability benefits of 1.5 per cent from this April to help people now, when they need it most. This includes increasing attendance allowance, carer’s allowance, disability living allowance and maternity allowance to ensure that they do not fall behind.

Since September, inflation has increased, with the RPI for the year to January 2010 standing at 3.7 per cent. It is important, however, to bear in mind that the uprating process is cyclical and that inflation between last October and this March will be taken into account when benefits are uprated next year. When it comes to uprating in 2011, the annual inflation to September 2010 will include the return to positive RPI inflation from November last year.

The basic state pension is also traditionally uprated in line with the retail prices index. However, the Chancellor used the Pre-Budget Report to reconfirm our commitment that the basic state pension be uprated by 2.5 per cent from April 2010. This amounts to an above-earnings increase. It means that, from April, the basic state pension for a single person will increase by £2.40 per week to stand at £97.65. It also means that the standard rate, based on a spouse’s or civil partner’s contribution, will increase to £58.50, giving a pensioner couple a total of £156.15 per week.

The Government believe that the most effective way of helping pensioners is to increase the basic state pension. This increase, which is delivered as a result of a commitment first given in 2001, will ensure that more than 11 million pensioners receive an increase in the value of their basic state pension over and above the level of earnings. It will mean that pensioners will have benefited from a long-term real increase to their basic state pension of 12 per cent since 1997, worth more than £10 a week.

When we looked at the potential to uprate additional pensions, the uprating of which has always been linked to prices, we faced several challenges. The RPI was negative for the first time in around 50 years. You cannot look at additional pensions in isolation, since any increase in additional pensions feeds directly through to public sector pensions and some aspects of occupational pension schemes. Nevertheless, we looked at whether it would be possible to uprate additional pensions by the 2.5 per cent underpin used for the basic state pension, but that would have cost the taxpayer an additional £1.2 billion this year. We also looked at whether it would be possible to uprate them by the 1.5 per cent used this year to uprate key disability and carer benefits. However, we felt that to do so without creating unintended consequences for public sector and occupational pension schemes was difficult. In the circumstances, we decided to hold additional state pension flat in cash terms this year. Nevertheless, the 2.5 per cent increase in the basic state pension means that, on average, recipients in Great Britain will see an overall increase of 2 per cent in their state pension.

For the poorest pensioners, the Chancellor also confirmed that the standard minimum guarantee in pension credit will increase by more than earnings from April by £2.60 per week for single pensioners and £3.95 for couples. This means that, from April, no single pensioner will be living on less than £132.60 per week and no couple on less than £202.40 per week. This demonstrates a real-terms increase of over a third for the poorest pensioners since 1997. The above-earnings increase in the pension credit guarantee underlines the continuing commitment to tackling pensioner poverty by a Government who have already taken 900,000 pensioners out of relative poverty since 1998-99. In fact, the Government have spent around £100 billion more on pensioners since 1997 than we would have done if we had simply allowed the policies of the previous Government to continue.

We have taken action that shows that returning to growth and pre-recession levels of employment will be the Government’s first priority. In this package of uprating proposals, worth around £2 billion for 2010-11, we are providing further significant help for those who are among the poorest and most vulnerable in society—real help when it is needed most. I commend the order to the House.

My Lords, first I must give apologies from my noble friend Lord Kirkwood of Kirkhope, who was all geared up to make a powerful contribution to the debate about this order. However, the Statement on high-speed rail has put paid to his plans and so he is, at this moment, on a non-high-speed train heading north to Scotland.

I have to say at the outset that I am a very poor substitute on this matter. However, even I, with no particular head for figures, can see why my colleagues in another place, led by my honourable friend Steve Webb, were so outraged at the Government’s decision to freeze state pension top-up payments this April, which will leave almost 9 million pensioners worse off, that they voted against the order last week.

At this point, I should declare an interest in that I receive a disability benefit and a state pension.

Steve Webb characterised the Chancellor’s original Statement about what would happen to the annual uprating of benefits in the Pre-Budget Report last December as “a complicated stitch-up”. The reason for the complication was that, for the first time in 50 years, as the Minister has just said, the retail prices index was negative. RPI inflation in September was minus 1.4 per cent. The Chancellor announced that, unless he took positive action, this would mean no increase in benefits. As a result, he confirmed that various benefits and the basic state pension would not be frozen but would rise by 2.5 per cent in April. With regard to pensions, he did not make it explicitly clear that the 2.5 per cent applies only to the basic state pension, not to the additional pension or increments gained through deferment.

Most pensioners look at their total pension, not at separate bits of it, and will wonder why their pension is failing to keep pace with their rising household bills, particularly high fuel bills. Inflation has now started to rise, which will further erode their savings. It is now at 3.5 per cent, so to give pensioners an average of 2.5 per cent on just their basic state pension will feel more like a real cut than a real increase. We all know that RPI fell last year because of mortgage payments, which do not affect most pensioners, who are therefore having the worst of all worlds.

For the record, it may be worth saying how many pensioners we are talking about: 6.5 million pensioners receive just SERPS, the state earnings-related pension; 1.8 million receive both SERPS and the state second pension; and another 150,000 receive only the state second pension. That is well over 8 million pensioners who will not receive a 2.5 per cent increase. By this sleight of hand, the Chancellor is saving half a billion pounds. Why should the poorest people have to bear this particular burden?

If the Minister counters with the fact that the Government are being kind by bringing forward an increase to help the most vulnerable people in society, including pensioners, it must be pointed out that, as my honourable friend Steve Webb said in the other place, this year the increase is being brought forward temporarily and is not being consolidated into the rate of benefit that must be increased. The 1.5 per cent does not go into the base level that is then indexed; it is taken away so that the indexation applies only to the pre-increase rate. That might be termed “indexation theft”.

Just to underline the point, looking at child benefit and disability benefit increases, the Minister has said that an increase in those benefits will be brought forward by 1.5 per cent this year, when inflation is notionally nil or negative, instead of next year. Next year, they will go up by whatever inflation is, less 1.5 per cent. It is no coincidence that there is an election in the offing.

Finally, my noble friend Lord Kirkwood of Kirkhope urged me to mention two further matters. The first is the Government Actuary’s report, which he thinks ought to have more publicity than it does, and I can see why. It is not a point that has escaped my honourable friend Steve Webb either. At point 1.3 on page 3 the report says:

“The updated estimates of benefit payments and contribution receipts in 2009-10 are £75.7 billion and £78.1 billion, respectively”.

So there is surely no excuse for not being more generous to pensioners. Points 1.5 and 1.6 say:

“The balance in the fund at 31 March 2011 is estimated at £50.2 billion, or 63.8% of the estimated benefit payments (including redundancy payments) of £78.7 billion in the year 2010-11 ... The balance in the fund at 31 March 2011 is expected to be comfortably above the recommended level of 1/6th of annual benefit expenditure”,

and so on. If this cushion of money is a work of fiction, why is it talked about in the Government Actuary’s report as though it really exists? If it is set out as I have mentioned, it is quite legitimate to ask what has happened to it.

The one further point that my noble friend urged me to make relates to the whole business of the uprating of benefits, tax credits and tax allowances, and refers to the fact that they rise only in line with inflation and not with average incomes. According to a report from the Joseph Rowntree Foundation in 2008, which was the first major study to analyse the long-term impact of uprating in both the benefits and tax systems, the existing uprating rules on their own could result in child poverty rising to unprecedented levels within 20 years. This debate is long overdue, but it is worth making the point here that there is no doubt that the cost of raising money through uprating taxes and benefits more slowly than earnings growth is borne disproportionately by those on lower incomes.

My Lords, I am sure that all noble Lords will find it difficult to think of the noble Baroness, Lady Thomas of Winchester, as a B team player, much as we hold the noble Lord, Lord Kirkwood of Kirkhope, in high regard. I am very pleased to be able to follow her in our discussion on this order.

I have an interest as a businessman, and my first observation is on the context in which the Minister placed this order in his introduction. I cannot share his subdued optimism about the immediate economic future. The raising of VAT since January and the ending of the car scrappage scheme are having an impact; they certainly are in the business circles in which I am involved. The outlook for this current quarter, and for subsequent quarters after the election, is not good. However, I thank the Minister and welcome this order, as far as it goes. Noble Lords know that it is not in my nature to be churlish, so I will explain.

I acknowledge the particular circumstances of last September’s RPI and the impact on the calculations that had to go into these annual upratings. However, as much as we are generally pleased on this side of the debate to welcome uprating orders, this one contains more than the usual number of disappointments and fudges. Indeed, the Minister has been unusually defensive in his speech presenting the order, and I am not surprised. Although we will not attempt to throw the baby out with the bath water, as the Liberal Democrats attempted to do in another place—I am sure that they are not intending to do so in this place, as we are perhaps more enlightened in how we deal with these things—I hope the Minister will have no doubt about the Conservative dismay at the Government’s refusal to acknowledge the true situation. He must know what the real outcome is.

My honourable colleague Mr Nigel Waterson had a frustrating exchange with the Minister in another place on what is or is not a cut. I assure the Minister that when the Government promise that child benefit, disability living allowances, carer allowances and incapacity benefit will rise by only 1.5 per cent less than inflation next year, they are promising a cut. It may not be a cut now, in the months before the election, but it is a cut, and one that will become ever more evident after the election. The Government may continue to kid themselves that the public are fools and do not look beyond the press release headlines, but telling recipients that it is not a cut will not make more money appear in their pockets.

Amazingly, the Government have resorted to this sort of defence twice, as the noble Baroness, Lady Thomas, has pointed out. After promising a 2.5 per cent rise in state pension, some Ministers appear to be almost pleased to point out that they only ever actually promised to raise the basic state pension. I do not think that the many thousands of pensioners who will not receive the increase which they thought they were promised will be comforted by the knowledge that it was all their fault for not reading the fine print. Perhaps the Minister will disagree and say that people should not trust the headlines that the media hand out where this Government are concerned. We have examined the small print, and I look forward to hearing how the Minister responds to my observations on it.

My Lords, I thank the noble Baroness, Lady Thomas, and the noble Lord, Lord Taylor, for their contributions to this debate. Although we miss the noble Lord, Lord Kirkwood, at our proceedings, I agree with the noble Lord, Lord Taylor: the noble Baroness, as ever, acquits herself extremely well.

Let me deal first with the issue around the basic state pension as both the noble Lord and the noble Baroness referred to that and to what is happening. We made a commitment to increase the basic state pension by the higher of 2.5 per cent or inflation; that is exactly what we said and that is exactly what we did. On freezing additional pensions—SERPS and the state second pension in particular—as I said in my presentation, this involves not only cost implications; we also need to think about the implications. Those components of the pension are linked by statute to public service pensions because those schemes are contracted out of SERPS. Therefore, had those components of the state pension been increased, it would have fed over into requiring increases in public service pension schemes and there would be a potential mismatch with private sector pension schemes which would typically be uprated by inflation or with the 2.5 per cent cap. So there would have been a zero increase in a whole range of private pensions and we would, by this mechanism, have caused there to be an increase in public service pensions. That is part of our consideration as well.

We believe that by focusing on the basic state pension we have targeted resources most fairly. There are a number ways that we could have done this through uprating. We have decided that the fairest way to target resources to help pensioners is to increase the basic state pension, as that still delivers, on average, an increase of £2 a week in overall state pension. It would put about an extra £1 billion into the pockets of pensioners.

I reconfirm what I said. Increasing additional pensions automatically feeds into public sector pensions and if the extra £1 billion that we have applied to increases in the basic state pension were delivered instead by uprating the basic state pension, additional pensions and public sector pensions—if we spread it a different way—this would deliver on average an increase in the state pension of only £1, half the average increase generated by increasing the basic state pension by 2.5 per cent. So we do not apologise; it was the right thing to do. It is targeting resources in the right way, particularly because of this connection between SERPS and the state second pension and other pension provision.

As for the uprating of a range of benefits by 1.5 per cent, what we need to do, if we are making a fair analysis, is to work through what would have happened under the normal rules. The normal rules are that you increase this range of benefits by RPI. We know that RPI was negative and that that would have implied that benefits would have simply stayed level. It would mean that, for next year, if inflation were 3 per cent—which I think is part of one of the projections in September 2010—then, in April 2011, a 3 per cent increase would have applied to that static base. By applying the 1.5 per cent increase, we have pulled forward part of that. That seems to me to be beneficial for people. Had we just followed the normal rule, there would have been no increase. People would have ended up in 2011-12 in the same place as they will now, but they would have missed the benefit of having part of that increase brought forward. Again, we do not in any way apologise for that.

The noble Baroness, Lady Thomas, made reference to a bit of an old chestnut. I know that the noble Lords, Lord Kirkwood and Lord Oakeshott, are very keen on the National Insurance Fund, thinking that there is all this money sloshing around, so why can't we use it to increase pensions? Although the current estimates for the fund put the previous balances at around 67 per cent, the annual balance in 2010-11 is projected to be a deficit of £520 million. However, we cannot just use the money that is in the funds, because the surplus currently reduces government borrowing and therefore allows money to be invested in public services such as schools and hospitals. Without the fund—if we applied that in a different way—we would have to raise an equivalent amount by way of taxation. So it is not just a reserve sitting there to be used. If we did what was pressed on us, it would have very profound implications for public expenditure.

On the question of why we should not use that fund to increase the basic state pension to £165—the current number that is bandied around—almost 90 per cent of the National Insurance Fund is spent on the basic state pension and the additional pension, with about 70 per cent spent just on the basic state pension. So if we raise the basic state pension to £165 a week now, it would cost something like £40 billion per year in the earlier years, significantly greater than the in-year surplus expected in the fund this year, and it would push the fund into a large deficit next year. It is simply not doable.

The noble Baroness made reference to tax credits and tax allowances. Obviously, issues around those allowances are the prerogative of another place. However, as the noble Baroness will know, because we spent quite a long time discussing it in relation to the Child Poverty Bill, this Government are committed to a sustainable eradication of poverty, and child poverty in particular. Direct tax and benefit measures that we have introduced since 1997 mean that, in 2010-11, households with children will on average be £2,200 a year better off, and households with children in the poorest fifth of the population will be, on average, £5,000 a year better off.

The noble Lord, Lord Taylor, said that my presentation was a bit subdued. I am sorry—maybe it is the day of the week and the hour of the day. He said that we have put the 2.5 per cent back on VAT. I am interested that we are challenged on that point by the noble Lord. I am not sure that his party supported the reduction of VAT in the first instance. It was an important part of the fiscal stimulus, but obviously there is always a balance in these things. We must have regard to the need to raise revenue as well in order to tackle the deficit we face. I am grateful for the fact that, on balance, he welcomes the order.

As for the economic outlook this year, we will have to see. The Chancellor’s projections have been good. As I said, the last quarter of last year showed growth in the economy. The projections for this year as a whole are for the economy to grow, and it will grow more strongly the year after. It will not long before we have the first-quarter figures for this year. I said that we have cautious optimism, and I believe that that is right. We should not be complacent because we are highly dependent on what is happening in the rest of the world. We need to make sure that we continue to invest in the way that we have, which has ameliorated the effects of the recession. If we were to pull the plug on that, then I fear that the noble Lord’s fears may well be realised. But that is not something that we are going to do.

I hope that I have dealt with each of the points raised. If not, I would be happy to try again to answer any residual questions.

My Lords, I am a bit concerned as to why the National Insurance Fund is still called the National Insurance Fund if it is really more like a bank that the Government can use to borrow money for other parts of public spending.

We could debate the semantics around it for ever. However, it is used in large measure, as I have outlined, for pensions. It takes us into the issue of contributory principles and that much wider debate—which is perhaps a debate for another day. Having said that, I commend the order to noble Lords.

Motion agreed.

Jobseeker’s Allowance (Lone Parents) (Availability for Work) Regulations 2010

Motion to Approve

Moved By

That the draft regulations laid before the House on 20 January be approved.

Relevant document: 7th Report from the Joint Committee on Statutory Instruments.

My Lords, the focus of these regulations will be familiar to noble Lords from our discussions during last year’s Welfare Reform Bill, which is now an Act. They provide a guarantee that lone parents with a youngest child aged 12 or under who are receiving jobseeker’s allowance will have the right to restrict their availability for work to their children’s school hours.

The regulations augment other flexibilities, some pre-existing and others added by the Welfare Reform Act—in a large part due to discussions in your Lordships’ House—that help us strike a sensible balance between the requirement on parents to undertake work or work-related activities and the need for children to be raised in a secure environment with an involved parent or parents.

Before outlining the provisions, it might be helpful to remind the House of their context. Our requirements on jobseekers are clear and well known. They are normally expected to be available for work for up to 40 hours a week. There are, however, a number of existing flexibilities that qualify this requirement for certain customers whose personal circumstances may inhibit their ability to work full-time or to look for work on a full-time basis.

In particular, when we introduced the lone parent obligations in 2008 we strengthened the flexibilities specifically for lone parents claiming jobseeker’s allowance. These flexibilities allow lone parents to limit their availability for work, in discussion with an adviser, to a minimum of 16 hours a week in order to take account of their childcare responsibilities and to allow them to refuse a job or leave employment if this childcare is not available.

Meanwhile, we introduced a further safeguard in the Welfare Reform Act 2009, which places a requirement on Jobcentre Plus advisers to take into account the well-being of any child affected when drawing up a jobseeker’s agreement. These agreements frame the jobseeking action that follows, so this is a significant addition to our safeguards.

Such flexibilities and safeguards are essential given this Government’s aim of ensuring that lone parents who are able to work and are claiming benefits should be expected to look for paid work to support themselves and their family once their children become older. We understand that our efforts to help people back into work would be counterproductive if we failed to recognise the difficult social circumstances in which many customers found themselves.

Noble Lords here today will be familiar with our still relatively new lone parent obligations, which is a staged regime designed to get lone parents back into work or work-related activities as soon as they are able. Since November 2008, we have required our income support customers who are lone parents with children aged 12 or over to move off this passive benefit regime and on to jobseeker’s allowance. From last October, those with children aged 10 or over have had to do the same, and from this October those with children aged seven or over will follow.

Since the lone parent obligations were introduced, more than 15,000 lone parents claiming JSA have moved into work. We predict that 45,000 lone parents will move from income support to JSA between October 2009 and October 2010, with a further 60,000 moving on to JSA after this October. The findings of an early evaluation of the lone parent obligations will be published later this month.

During the passage of the Welfare Reform Act, the main focus of our discussions on lone parents was on those with younger children, who will not be subject to the lone parent obligations and will not have to comply with the requirements of jobseeker’s allowance. There will be stepped requirements on these lone parents to engage with Jobcentre Plus and work-related activity, but their obligations will stop short of the full jobseeker regime.

It is worth stressing that the regulations do not apply to this group. They refer only to those lone parents who are on jobseeker’s allowance. A number of separate safeguards and flexibilities exist for this other group of lone parents, including the ability to limit work-related activity to school or nursery hours. But the focus of our discussion today is those lone parents subject to the full jobseeker’s allowance regime.

These regulations are being created using existing powers in Section 6 of the Jobseekers Act 1995. They strengthen one of the existing flexibilities for lone parents on jobseeker’s allowance and provide lone parents in eligible circumstances with an automatic right to limit their hours of availability to their child’s school hours. This new right puts the power to determine their availability back into the hands of lone parents because they are the ones who are best placed to make judgments about their responsibilities and lifestyles.

The Government are committed to helping lone parents back into work. We want to help them find sustainable employment. But this regulation represents an acknowledgement that lone parents have specific and difficult caring obligations. The new right will apply only to lone parents with children of 12 years of age and under. We feel that, by the age of 13, children are less dependent on their parents for intensive support and their move into secondary education will have been accompanied by resulting shifts in their lifestyles and those of their parents.

These regulations do not attempt to define school hours. They are subject to a wide variation across the country. In any case, our intention is to fit the provision with regular attendance at school, whatever that might mean in individual cases. Neither do they attempt to define school holidays, nor provide the right for such lone parents to limit their hours of availability during them. Regulations 13 and 14 of the Jobseeker’s Allowance Regulations 1996 allow for customers to discuss with their adviser anything which may hinder their ability to work. School holidays would certainly fall under this should there be an absence of free or affordable childcare.

To conclude, this is a simple change which is relatively straightforward to implement and explain. It could have a valuable impact on the lives of lone parent jobseekers up and down the country. It is crucial that we facilitate a work-life balance within our jobseeking regime which can cater adequately for this large group of families. This change will involve only modest IT changes and staff instruction. We aim to implement it on 26 April to ensure that lone parents can benefit from it as soon as possible. Jobcentre Plus preparations are well advanced. These regulations are an important part of our efforts to make our welfare services more flexible and bespoke. I hope noble Lords will agree that this is a right and necessary change, and appropriate to the nature of employment and lone parenthood in Britain today. I beg to move.

My Lords, I thank the noble Lord for explaining these welcome regulations. Any measure which seeks to balance in a practical way a lone parent’s care and responsibilities with work or jobseeking must be a good thing. Under these regulations, it appears that what was just a flexibility has turned into a right. What is behind this subtle change?

At present, the adviser—presumably the personal adviser in Jobcentre Plus—has to agree with the lone parent of a child of 12 or under a restriction of working only 16 hours a week, presumably because of a lack of affordable childcare. As personal advisers in JCP offices must be under such pressure, particularly if they are in a pilot area for one or other of the new initiatives, it must make life easier for them if their discretion in this matter is removed. I understand that the personal adviser’s discretion will still be required during the school holidays. If a lone parent receiving JSA cannot obtain appropriate and affordable childcare they will still be able to obtain that benefit as they are still technically looking for work. Paragraph 7.5 is written oddly but I think that is what it means.

On the evaluations, I have acquired some relevant findings from research report 624, published last month. This found that, in the phase 1 areas where the jobseeker regime and Flexible New Deal had started, lone parents had definitely benefited from the increased help they were offered by JCP. This was compared in the evaluation with the phase 2 areas, which will not get this increased help until next month and where the outcomes for lone parents were not so good. With increased help, lone parents were not only much better motivated to seek work but a significant number actually found jobs. If I carry on with the findings of this part of the evaluation, I will be doing the Minister’s job for him, so I had better stop there.

While being in a complimentary mood, I was pleased that DWP officials sought the views of the Lone Parent Voluntary Group, who were content with the proposals. This group includes such old friends as Gingerbread, the Child Poverty Action Group and Citizens Advice. I gather the regulations were slightly amended to take account of their views. I have in the past been critical of the lack of consultation by the department so it is good to be able to redress the balance. Another welcome piece of information is that this instrument will be comprehensively monitored and reviewed.

A final point follows from one made by my honourable friend Paul Rowen in another place. He raised the problem of housing benefit and the fact that many lone parents in receipt of housing benefit find they are no better off in work if it means they lose the benefit. When the Minister reminded the Committee in another place that housing benefit was also an in-work benefit, she said that the Government were proposing to fix housing benefit at the moment at which a person takes a job for an extended period, to give people a transition period. When is this expected to happen? Can the Minister assure me that personal advisers will be able to make the point to their customers that housing benefit is at present an in-work as well as an out-of-work benefit?

My Lords, I thank the Minister for presenting the regulations. I am pleased to follow the noble Baroness, Lady Thomas, in her observations on them.

As with the previous order, these regulations also fail to tell the whole story. We do not, of course, oppose them but I would like to take the opportunity to probe the Minister a little more on the inconsistencies that exist within the Labour Government on their attitude to lone parents. There is no doubt about the importance of supporting lone parents back into the workplace when they are able. Indeed, we have heard echoes of the debates that we had on the Welfare Reform Bill, where there was considerable agreement on this task. I know that the Minister will agree—indeed, he referred to this in his opening remarks—especially after several days of debate with my noble friend Lord Freud on the Child Poverty Bill, that the benefits for both the parent and the child are immense. Employment is not only one of the surest routes out of poverty but also important for general health and happiness.

In line with the principle of these regulations, I am sure that the Minister would also agree that parents without any other option should not be penalised. Given his stated concern for a lone parent of young children to be there for them when they come back from school, has any further consideration been given to the Conservative policy for parents of very young children? I am sure that noble Lords will regret that the very sensible amendment that this House voted into the Welfare Reform Bill last year, which would have prevented any financial sanction being imposed on a lone parent with children under school age, was removed in another place and never made it into law. Does the Minister not think it rather inconsistent to protect a lone parent of children under 13 from being penalised for not being available outside school hours but not to protect the lone parent of a child under five from the same penalty?

The Government are giving out a mixed message on childcare. Limiting work requirements to school hours is one thing, but the only long-term improvement for parents seeking to combine work with bringing up a child is genuinely flexible working. The Conservatives would extend the right to flexible working to all parents with children under the age of 18. In contrast, the Government recently attempted to remove tax relief for childcare vouchers—hardly a policy that would support the lone parent seeking to get back into work.

These regulations do only half the job of providing a strategy to increase the opportunity for lone parents to engage in the world of work and, at the same time, to ensure that they and their dependants are supported and protected and their interests recognised.

My Lords, I am grateful for the strong support from the noble Baroness, Lady Thomas, for these regulations and a degree of support from the noble Lord, Lord Taylor, although he would like them to cover other things as well. The noble Baroness is right that there are opportunities under the arrangements at the moment for flexibility to be introduced into the system, but making it a particular right in these circumstances is really to give added reassurance to lone parents of young children. We think that it makes it easier for them to access the labour market in a way that they can feel confident about if there are normal schooling arrangements for their children. It simply adds to existing flexibility, but that existing flexibility will continue and does not just focus on lone parents.

The noble Baroness referred to research report 624. I was not quite sure whether that was an evaluation relating to the Flexible New Deal. We think that it is too early in the evaluation to give an assessment of the operation of lone parent obligations. We are due to publish findings on the early implementation and experiences of the income support and jobseeker’s allowance regimes in the spring, so the impact of the lone parent obligations has yet to come. To emphasise the point that I made a moment ago, let me say that the right that we are covering in these regulations is intended to help lone parents to work around their children’s school hours. It therefore just applies during term times. Issues around holidays can be dealt with within the confines of the existing flexibilities. There will still be opportunities—particularly when there is no affordable, accessible childcare available during school holidays, for example—for advisers and claimants to agree on claimants not being available for work during that period.

I was pleased that the noble Baroness acknowledged that there had been good consultation with stakeholders. I think that that is a strong strand of what the DWP is about. As we announced in our recent White Paper, Building Britain’s Recovery: Achieving Full Employment, published in December, we have launched a family-friendly working hours task force to look at the support that employers need to make work much more family-friendly. That deals in part with the thrust of the point made by the noble Lord, Lord Taylor. I agree with him about the importance of work for the health and self-esteem of individuals and that it is their best route out of poverty; I also agree about the importance of having such role models in families. We are determined to break the endless cycle of people growing up with nobody in the household working, which passes down through generations. I believe that we are making good progress on that.

I revert to the point raised by the noble Lord about sanctions and the disagreement that we had over the Welfare Reform Act in relation to the progression-to-work group—those lone parents with the youngest child between the ages of three and six. We intend, as we pilot that progression to work, to have a different sanctions regime on the Gregg model, which starts with people being notified and contacted with warning letters before we ever get to financial sanctions. The difficulty with the proposition of the noble Lord and his colleague the noble Lord, Lord Freud, is that it is illogical. They accepted that you could have a financial sanction for not turning up to a work-focused interview but could not be subject to a financial sanction for not undertaking an action that would have been directed under the action plan. Not only was that confusing, but it was illogical. The thrust of the point made by the noble Lord, Lord Freud, was that, even if he did not, in certain circumstances, want financial penalties, he did not preclude there being sanctions of some sort, although we never quite got to the bottom of what that might mean.

The noble Lord, Lord Taylor, talked about protecting lone parents with children under the age of five. Lone parents with younger children will have this protection if they are required to undertake work-related activity in the progression-to-work pathfinder areas. This will be introduced in October. Lone parents will be able to restrict their work-related activity to school and nursery hours.

The noble Baroness, Lady Thomas, asked about the impact on lone parents. We know that around 15,000 lone parents on JSA have moved into work since the lone parent obligations were introduced. Around 900 lone parents have been sanctioned, so fears about the potential scope of the sanctions have perhaps been overstated. Approximately 51,000 lone parents were on jobseeker’s allowance as at December 2009. That was a small increase on the previous month. On-flows are still occurring, but off-flows are occurring as well, at a rate that is almost equivalent. According to the latest national statistics, from August 2009, 715,000 lone parents were on income support. This has fallen by more than 100,000 in the past five years. The early estimate for the working-age income support lone parent client group stood at 695,000 in December, which was down by around 35,000 since November 2008. There is a process whereby lone parents are moving