House of Lords
Wednesday, 3 November 2010.
Prayers—read by the Lord Bishop of Gloucester.
Middle East: Refugees
My Lords, there is a range of refugee problems in the Middle East, including those of the Kurds and the Iranians, mostly in Iraq. The two major refugee issues are of course the Palestinian refugees from Israel in a number of countries, and the 4 million Iraqis displaced both within Iraq and as refugees in surrounding countries. A comprehensive settlement of the Palestinian issue will have to include a settlement for refugees as part of the final agreement. The Iraqi problem depends on restoring stability in Iraq.
I thank the noble Lord for his reply. Does he agree that the Palestinian refugees registered with the United Nations number some 4.8 million, and that Syria, Jordan and Lebanon contain about 1.7 million Iraqi refugees? This amounts to a population larger than that of many small states. Therefore, will the Government work not only for the comprehensive agreement that he mentioned, but more specifically for the resettlement of these people who have suffered so much for so long?
My Lords, the Government are working with the UN High Commissioner for Refugees and the UN relief and rehabilitation organisations to assist these refugees. Most of the Iraqis wish to go back to Iraq when they can. We will have a Question tomorrow about continuing violence in Baghdad and elsewhere, which is part of the problem. For the Palestinian refugees, this is of course a much longer-term and much more complex issue that has to be part of the negotiations for a comprehensive settlement of the Israeli-Palestinian dispute.
Does the Minister agree that it would be unwise to encourage expectations of a mass Palestinian return to Israel, as both sides now accept that only a limited number will be allowed to resettle in the event of an agreement? Does he also agree that Arab states should be urged to do more financially to help Palestinian refugees settle and have a decent standard of living, either where they are or in the territories?
My Lords, I think that it is recognised on all sides that not all Palestinian refugees will return home. That is part of the necessary compromise that will have to be in a comprehensive settlement. We all understand also that reaching a compromise will be very difficult, and that we will need to address the issues of compensation and of a moral acknowledgement by Israel of the suffering endured by Palestinian refugees.
My Lords, in attempting to deal with the problem of refugees, comprehensively or otherwise, might it not be helpful if action were encouraged to prevent the creation of new refugees? I have in mind particularly the persecution of Christians in Iraq and in Iran.
Will the noble Lord agree that Jewish refugees have also been threatened and menaced throughout the Middle East and have gone to Israel? Does he agree that it is imperative that there should be discussions between Israel and Abbas immediately to ensure that the Palestinians can create a viable second state?
My Lords, is my noble friend aware that organisations such as the World Zionist Organisation have had campaigns to encourage British Jews to move to Israel and the Occupied Territories of Palestine? What discussions are the British Government having with the Israeli Government, because many of these people risk contravening international law—the International Criminal Court Act 2001 and other protocols—by settling in the Occupied Territories?
My Lords, Her Majesty’s Government have made it perfectly clear that we are in favour of a two-state solution and that this two-state solution rests on the establishment of a viable Palestinian state. That means that a number of the settlements currently taking place on occupied territory will have to be removed.
My Lords, I think we are all aware that Palestinian refugees currently in Jordan are one of the most difficult and probably one of the most intractable of all the refugee problems in trying to settle the Middle East peace process. Can the Minister tell us what level of aid we are giving to the UN to sustain the Palestinian camps in Jordan? I am sure he will be very familiar with the camps and it would be interesting to know how much we are putting into them at the moment. Can he also tell us what direct discussions the Government are having with the countries of the Arab League, some of which are very rich indeed, about what aid they are prepared to make available both in budgetary and programme terms for resettlement in the future?
My Lords, I do not have the figures and will have to write to the noble Baroness with them. It is not only a question of the refugee camps in Jordan; as she will know, in many ways, the problems of the refugee camps in Lebanon and—worst of all—of those settled in Gaza are much more acute. I have seen Palestinian refugee camps in Damascus which I have to say were relatively well integrated into Syrian society. That seems to me very much the way forward. I agree with her that we should be asking members of the Arab League to provide more assistance.
Can the Minister give an assurance that he will in the mean time encourage that human rights prevail in the treatment of refugees in the Middle East? I am thinking in particular of the lack of rights of Palestinian refugees in Lebanon who are apparently unable to own property and who are excluded from healthcare. There is no reason why those rights should not be extended to them in the mean time.
My Lords, we all support a comprehensive peace settlement between Israel and the Palestinians. Will the UK Government, in supporting that comprehensive peace settlement, indicate quite clearly that they recognise the acknowledged security interests of Israel? Will they also take the opportunity to impress on the Israeli Government that there is no security in ruling all land between the River Jordan and the Mediterranean?
Businesses: Contracts and Payments
The Government support the Institute of Credit Management’s prompt payment code, which requires signatories to pay according to agreed terms and to give clear guidance to suppliers. The code is working—Experian analysis suggests that signatories represent around two-thirds of total UK supply chain value. We are also helping suppliers to help themselves through the managing cash-flow guides, which help suppliers to manage their customer relationships, payment terms and invoicing arrangements.
My Lords, that is a most welcome and encouraging reply, following as it does on the policy of the previous Administration and the CBI and the Institute of Directors. Will the Government go a little bit further and consider establishing a blacklist of companies which fail to observe these exhortations when it comes to giving public sector contracts?
My Lords, the question was whether the Government will create a blacklist of firms which consistently act in an inappropriate manner. I do not think the previous Government did that and I do not think we will. The Government are working with the UK’s main business organisations and UK business to promote and encourage good practice. If the noble Lord knows of a practice that has been brought to his attention which is not being sorted, I hope that he will contact me to see whether my department can help in any way.
My Lords, the situation is not working just now. Last year, NatWest research showed that three out of four small and medium-sized enterprises are suffering with a £63 billion mountain of unpaid bills. It is very important that we recognise that large firms, as Serco indicated, are working on the back of small firms to improve their cash flows. I think it is time for a level playing field between the public and private sectors. Can the Minister look at the prompt payment code that was introduced in 2008 and build on it so that we have well defined time periods for the private and the public sectors in order to get rid of the bullying that we saw the other day with Serco?
My Lords, the noble Lord raises two points. He is talking about the private sector and the public sector, which are not necessarily exactly the same. He will know about the work we have been doing in the public sector on speedy payments. The public sector is paying faster than ever before. Central government departments aim to pay 80 per cent of invoices within 10 days. There is now a contractual requirement for main contractors to pay their own suppliers within 30 days. With regard to the private sector, the law stands. We also have very big organisations, such as the CBI and the Institute of Directors, with which we work all the time, as did the previous Administration, to see whether encouragement can be given—not to intervene in that sector, as that would not be correct. I have been a small supplier to a large company. I would say that there needs to be more training and education and more pressure on small companies to ensure that, when they get wonderful contracts with big companies, they do not get overexcited and that they reward the salesman but do not reward the invoice clerk in the back office who gets the invoices wrong 30 per cent of the time.
My Lords, has the noble Baroness reflected on the solutions offered by the Federation of Small Businesses, to which I drew attention in a Question I asked last week, which included obliging firms to pay their subcontractors as quickly as the Government pay the contractors, thereby easing the cash flow of small businesses, which is such a vital advantage in this competitive market?
Yes, my Lords, I well remember that Question being asked by the noble Lord and the supplementary question. Central government is paying within five days. I also know that some of the people it is paying within five days are paying their people within 20 or 30 days of sight of invoice. We shall certainly look at all those contracts that have been set up as soon as they come to their due date. You can be absolutely certain that I, as a Business Minister, who has been on the receiving end of that, will ensure that the terms are right all the way through the system.
My Lords, I am a bit of an expert on Sir Philip Green’s report because I have read it now. His report says nothing specific about government payment terms. In interviews, he says that the norm in most departments is to pay suppliers in five days, compared with the standard 30-day-payment period for most private sector transactions and the 45 days demanded by some bigger companies like his own. If the Government demanded a minimum of 30 days of credit from suppliers, they would save hundreds of millions of pounds in financing costs. That is what he has said in conversation but his report actually says nothing at all about it.
Will the noble Lord, Lord Strathclyde, consider issuing vuvuzelas to his Benches? They would make a much better noise. In the document recently published by BIS, Backing Small Businesses, I have read many of the claims which the Minister has stated today about 80 per cent of invoices being paid in five days, prime contractors paying their subcontractors within 30 days, and 15 per cent of business being dished out by Government to small businesses. That is a restatement of what the previous Chancellor said in the Budget of 25 March this year. Do the Government have any of their own ideas of what they are going to do to back small businesses instead of restating policies that have already been implemented?
My Lords, the noble Lord, Lord Sugar, knows what a fan I am of his, so I will always try and please him. I am delighted to know that the previous regime did such work in this area and we intend to do good work to build on that. I hope he will give me time to get that all under way.
My Lords, can the Minister clarify one brief and concise point? When it comes to government contracts being given to big companies, is it not right and proper that those big companies should be required by Government to pay small suppliers within the same time that the Government undertake to do so?
I have sympathy with that and we are certainly looking into all the government contracts we have to see how they have been dealt with in the past. We can see that there is great room for improvement and I hope the noble Lord will follow my progress on this.
Coroners: Terminally Ill Patients
My Lords, the Government are committed to improving the coroner system. In taking forward the changes outlined in my Written Statement of 14 October, we shall be considering the secondary legislation and guidance which governs coroner investigations. The issue that the noble Baroness raises will be included as part of that work.
I thank the Minister for that reply, but how will the Government detect, evaluate and deal with the poor performance of a coroner without the long awaited chief coroner? Quite specifically, what powers are in place to influence Greater Manchester’s coroners’ anomalous ruling that the expected deaths of terminally ill patients at home must be referred to the police if the GP is unavailable to write the death certificate, tying up between 4,000 and 8,000 hours of police time annually, and causing unnecessary distress to families who have complied with the patient’s wishes to be cared for and die at home?
My Lords, as the noble Baroness will be aware, the coroners’ service is under local jurisdiction and the protocol established in Manchester is something that has been decided between the coroner’s office and the police in Manchester. It does give us concern and the department intends to issue guidance under its new powers which we hope will smooth out some of the variants in how coroners apply their powers. This is one of those that will be looked at.
The Minister will know that the director of the Royal British Legion, no less, has said that the Government’s decision to scrap the new post of chief coroner is a deep betrayal of bereaved service families. Does he agree that during the passage of the Coroners and Justice Bill all sides of this House were as one in believing that not only was the reform of the coronial system an urgent necessity but also that the establishment of a chief coroner, along side a chief medical officer, with powers to set national standards, to lead, and to hear the new system of appeals, was at the heart of the reforms? Why have the Government taken the absurd and counterproductive step which, in the words of the co-director of INQUEST, renders the new model “completely hollow” before it has even started, and a step that has, moreover, managed so deeply to upset bereaved service families and the Royal British Legion?
My Lords, I am sorry that the Royal British Legion has made that judgment. The decision not to go ahead with the chief coroner was made, as the noble Lord knows, mainly on financial grounds. The setting up of the post would have been expensive. The alternative that was put forward in my Written Statement is that we are going to take much of what was in the legislation in-house in the Ministry of Justice and do the tasks ourselves. I am well aware that in so doing we set ourselves a pretty important task because, as the noble Lord rightly said, when the Coroners and Justice Bill was going through this House all sides wanted to see an improvement in consistency in the coroners’ service. That is what we intend to do in-house and we will be judged on our performance.
Does the Minister accept that very rarely at the time of a coroner’s post-mortem is permission sought for the retention of tissue samples and slides after the post-mortem? Such archive material is invaluable for research into human genetics and into the management of human disease. Will the Minister ensure that coroners are advised to seek such permission when coroners’ post-mortems are undertaken or at least consider amending the Human Tissue Act to make such retention of material obligatory?
My Lords, will this review include some clarification on what is admissible as evidence in an inquest? I am aware of a very unfortunate case of a death where there had been a settlement and admission of responsibility, but the coroner would not allow evidence to that effect to be given.
My Lords, I declare an interest as having been, a long time past, a coroner’s officer and having occasionally deputised for a coroner. I ask the Government to be very careful not to trench upon the independence of coroners who are judicial officers. All the advice and the rest of it that is being recommended should have respect for that crucial independence.
I do not think there is any question of us trampling on the independence of coroners. What slightly surprised me when coming to this and looking at the file is the wide variation in the behaviour of coroners, which is not likely to produce public confidence. That was one of the reasons why the idea of a chief coroner was put forward. As I explained at the beginning of this exchange, when we looked at it, it proved to be too expensive, but the bulk of the suggestions and of the content of that Act will now be brought in-house. Judge us by what we do. We will follow the guidance of the Act in bringing consistency to the coroner system, but not on the basis of a rather expensive, at this stage in our careers, chief coroner.
My Lords, it is important to make clear that the National Institute for Health and Clinical Excellence does not have any powers to ban the use of drugs in the NHS, so suggestions that this is a role that will be removed from it are based on a misunderstanding of the position. Our NHS White Paper makes it clear that the role of NICE will continue and, indeed, that it will be extended.
My Lords, I thank the Minister for that Answer. I am a little confused, but perhaps he can help me to understand the change. In the world that he envisages, is it intended that every single GP consortium will take its own decision about which drugs it is willing to fund? If that is the case, will it be about every single individual drug or treatment? And, if that is the case, can the Minister explain how he will protect patients from the uncertainty and confusion that must arise from a return to a postcode lottery of that magnificence?
My Lords, currently the NHS is faced with the decision of whether to say in effect yes or no to a new drug at the price that is proposed by a pharmaceutical company. We want to change that so that the price of a drug to the NHS is based on an assessment of its value, rather than pharmaceutical companies being free to set whatever price they choose and expecting the NHS to pay. So value-based pricing, which is the term we have used, will ensure that licensed and effective drugs are available to NHS clinicians and patients at a price to the NHS that reflects the value that they bring. That should get rid of the postcode lottery.
Does the Minister agree that to devolve responsibility for prescribing expensive drugs to GPs faces them with a very difficult ethical dilemma? Should they prescribe a very expensive drug, costing thousands of pounds, with only marginal benefit for the heart-rending patient with cancer facing them, knowing that to do so may prevent them from funding 20 or 30 patients requiring eye operations or hip replacements or drugs for schizophrenia, or should they refuse that treatment? Have the Government thought through the implications of devolving the cost-benefit analysis that NICE does so well?
My Lords, I think the noble Lord has perhaps misunderstood the purpose of the plans that we have set out. Prior to the introduction of value-based pricing, we will continue to ensure that the NHS funds drugs that have been positively appraised by NICE. I hope that that reassures him that clinicians are not going to be placed in an awkward position. We will be consulting on our plans for value-based pricing before the end of the year, but I can assure the House that the point of moving to a new pricing system is to increase patient access to new effective drugs. That is what we aim to do.
My noble friend, with her experience, is of course quite right. I am told that it costs upwards of $1 billion to develop a new molecule and bring it to the market. It is a very expensive process. That is recognised in the freedom of pricing that currently exists for drug companies at launch and in the patents that they are able to enjoy in subsequent years.
My Lords, I declare an interest as I was in the Department of Health at the time that NICE was created. If the Minister accepts that the NHS, which spends upwards of £11 billion a year on drugs, is right to have a clinically-led method of assessing whether they work satisfactorily, will he confirm—there seems to be some confusion—that that will not be replaced by some hundreds of separate ways of doing the same thing? Will he also confirm that, whatever new arrangements he has in mind, the Government will speed up the process? There is sometimes that complaint about the NICE process at the moment.
My Lords, we have been very clear that NICE, which enjoys international pre-eminence in the evaluation of drugs and health technologies, will continue to have an important expert advisory role, including the assessment of clinical benefits for new medicines. The noble Lord will know, I am sure, that in recent years NICE has done a lot to speed up its evaluations of new medicines and has introduced end-of-life flexibilities, for example, which have meant that patients have had increased and improved access to those new medicines.
Parliamentary Voting System and Constituencies Bill
The Bill was brought from the Commons, read a first time and ordered to be printed.
Higher Education: Funding and Student Finance
My Lords, with permission, I will repeat a Statement made by my right honourable friend the Minister of State for Universities and Science.
“I would like to make a Statement on higher education funding and student finance. This follows the Statement made by my right honourable friend the Secretary of State on 12 October.
Our higher education system has many strengths, but also faces challenges—the need for more focus on the student experience, the need to widen access and the need for sustained funding. These challenges led the previous Government, on a cross-party basis, to set up the Browne review. We are grateful to Lord Browne for his excellent work. I think that he has made us all re-examine our positions.
On 12 October, my right honourable friend said that the coalition endorsed the thrust of Lord Browne’s report, but was open to suggestions before making specific recommendations, which would be radical and progressive. We have listened very carefully and with open minds. I can now give the details of our proposals.
First, we will introduce a progressive system of graduate contributions to the cost of their university education, with nobody having to pay up-front fees. Lord Browne suggested that there should be no cap on the graduate contribution. We believe that a limit is desirable and are therefore proposing a basic threshold of £6,000 per annum. In exceptional circumstances, there would be an absolute limit of £9,000. No publicly funded university will be able to charge more than this for its undergraduate courses. Since there will be a cap, we see no need for institutions to pay back a proportion of the graduate contribution as a levy to the Exchequer, as proposed by Browne.
We are also proposing a more progressive repayment structure. At present, graduates start repaying when their incomes reach £15,000. We will increase the repayment threshold to £21,000, and will thereafter increase it periodically to reflect earnings. The repayment will be 9 per cent of income above £21,000, and all outstanding repayments will be written off after 30 years. Raising the threshold reduces the monthly repayments for every graduate.
We will introduce a real interest rate on a progressive taper. For graduates earning below £21,000, the real rate of interest will remain at zero. For graduates earning between £21,000 and around £41,000, a real rate of interest will be tapered in to reach a maximum of inflation plus 3 per cent. When graduates are earning above £41,000, they will be making a full contribution to the costs of the system, but still incurring interest well below normal commercial rates. Under our proposals, a quarter of graduates—those on the lowest incomes—will pay less overall than they do at present.
The Government are committed to the progressive nature of the repayment system. It is therefore important that those on the highest incomes post-graduation are not able unfairly to buy themselves out of this progressive system by paying off their loans early. We will consult on early repayment mechanisms, similar to those paid by people who pre-pay their mortgages. These mechanisms would need to ensure that graduates on modest incomes who strive to pay off their loans early through regular payments are not penalised. For example, a 5 per cent levy might be charged on additional repayments each year over a specified amount such as £1,000 or £3,000. Alternatively, those on higher incomes—that is, over £60,000—who made an additional repayment could be required to pay a 5 per cent levy on this sum.
Whilst participation in higher education has improved in recent years, there has not been enough progress in securing fair access to some of our best known universities. We can make progress by improving the school attainment of pupils from disadvantaged backgrounds. That is why the Government are investing in a new premium for two year-olds and in the pupil premium. But we want that focus on improving the life chances of those from disadvantaged backgrounds to continue through to university. That is why, as previously announced by the Deputy Prime Minister, we will also establish a new £150 million national scholarships programme. This will be targeted on bright potential students from poor backgrounds to encourage them to apply to university and to meet their aspirations.
All universities that want to charge a higher graduate contribution than the £6,000 threshold will be obliged to participate in the national scholarships programme. We will consult students and university organisations on the details. We will look to increase the leverage of government funding by getting matched contributions from universities. Our current preference is for universities to offer scholarships to targeted students—including the principal beneficiaries of the pupil premium. That would mean that at least their first year is free. Other attractive ideas include expanding the model of a foundation year for young people with high potential but lower qualifications.
To ensure that the universities that charge tuition contributions above the £6,000 threshold take account of their particular responsibilities to widen participation and fair access, we will introduce a tougher regime of sanctions. Each institution will draw up a new access agreement with the Office for Fair Access. This would be expected to include activities such as outreach initiatives to attract more pupils to apply from disadvantaged backgrounds, and targeted scholarships and financial support for poorer students. OFFA will agree with universities a programme of defined progress each year towards their access benchmarks as calculated by the Higher Education Funding Council. If they are not making adequate progress towards these benchmarks, a mechanism will be established to allow OFFA to redirect a proportion of the income from contributions over £6,000 to specified access activities.
Our student support system is currently one of the most generous in the world. We will make it more progressive. Lower income students, while studying, will get improved help with their living costs. Students from families with incomes up to £25,000 are currently eligible for a maintenance grant, which is not repayable, of £2,900; we will increase this to £3,250. Those from families with incomes up to £42,000 will be entitled to a partial grant. There will also be increases in maintenance loans for students from families with incomes from £42,000 to £60,000. We will retain a higher maintenance loan for those studying in London.
All parties agree that the present system gives a raw deal to part-time students. They are particularly likely to be mature or disadvantaged students. Even the great higher education reports of the past, such as Dearing and Robbins, largely ignored them. Lord Browne has confronted the challenge head on. At last, under our proposals, part-time students will be entitled to a loan for tuition on the same basis as full-timers, and this support will be available to those studying for at least a third of their time, unlike the present grants for tuition which are available only to those studying for over half of their time.
Overall, this is a good deal for universities and for students. The bulk of universities’ money will not come through the block grant but instead will follow the choices of students. It will be up to each university or college to decide what it charges, including the amounts for different courses. All universities and colleges, whatever contribution they decide to charge, will be expected to publish a standard set of information about their performance on the indicators that students and their parents value: contact hours, teaching patterns and employment outcomes. We also propose to open up higher education provision to new providers, including further education colleges.
These proposals offer a thriving future for universities, with extra freedoms and less bureaucracy, and they ensure value for money and real choice for learners. We need to act quickly so that prospective students know where they stand. We intend to implement these changes for the 2012-13 academic year. We will therefore bring to the House our proposals on changes to graduate contributions before Christmas. Both Houses will have the chance to debate the proposals before a vote is taken. I am today placing in the Libraries of both Houses additional material that explains the modelling that we have done. We will also take powers next year to set a real interest rate for graduate contributions.
We will, as usual, publish the details of the university financial settlement for 2011-12 in our annual funding letter to HEFCE next month. We will therefore publish, later this winter, a higher education White Paper covering the wide range of long-term issues that arise from Lord Browne’s report. We hope to bring forward legislation in due course. Given the timescales, we would not expect to be implementing changes before the 2013-14 academic year.
Lord Browne’s report has rightly generated much debate. When the review was established exactly a year ago, it was on a cross-party basis. I hope that the Opposition will feel able to maintain that spirit. From our side, the two parties in the coalition have accepted the report’s broad thrust and are today putting forward a single, coherent and progressive policy. It will deliver a better deal for our students, for our graduates and for our universities”.
My Lords, I thank the noble Baroness, Lady Wilcox, for repeating the Statement and for providing another opportunity to look at this matter. I hope it is also an opportunity when some of the questions that have been pressing the whole way through might be addressed.
I probably ought to also say that, unlike normal circumstances where you see the Statement about half an hour or so before—it was in the other place earlier—we had what I ought to describe as the benefit of hearing it made by a Minister not responsible for this area at all, Michael Gove, on the radio this morning. I was surprised by that because I am an avid fan of the coalition document. I have read it many times and hope that I have become more illuminated as a result. I recall that on page 26 it talked about a very much more open and transparent parliamentary process in which it would not be the case that vital statements were made first for the benefit of the “Today” programme rather than in Parliament. I regret that this announcement was, because it diminishes the authority and the importance that we ought to place on this matter in Parliament.
We have had in effect four announcements on this subject in three weeks. The first, by the Secretary of State, welcomed the Browne report unreservedly—Browne was in. Then there was the formal Statement in which a number of the issues that the noble Lord, Lord Browne, had raised were thought not to be appropriate—he was out. Then we had the debate last week in which his status was restored once again—he was in. Now we have the whole of the mechanism in which there is going to be a cap, and a number of the other proposals that he made are out again. The process strikes me as more like the hokey-cokey than the making of serious policy. It also does not surprise me that we have arrived at this position despite the very clear view that had been expressed by at least one of the coalition parties. I wish briefly to quote its manifesto to its Members, because it must be important to stick to some kind of values in this. They said that they would:
“Scrap unfair university tuition fees for all students taking their first degree, including those studying part-time, saving them over £10,000 each”.
I will not carry on with the quote but there was also a “financially responsible plan” which dealt with the alternatives.
I once watched a very bold young man from this country go down the Cresta run as fast as he could on a bicycle. He did not get the whole way down. When I said it was an act of complete madness, I was told it was just an extreme sport. We have got into the period of extreme policy-making. It is not thought through. It has none of the fundamental elements in making vital policy for higher education. I appreciate that it has been welcomed by some institutions and I am hardly surprised. Anybody stripped of 75 to 80 per cent of their unit resource for teaching will welcome the lifeboat as their ship goes down.
I do welcome parts of the Statement. I welcome what is said about part-timers. The noble Baroness is right to say that that had the support of all parts of the House and it is true. I also welcome what has been said about foundation year development. That was always an area where a good deal more work would be useful. At the heart of this, however, it is so thoroughly piecemeal that it is about as sensible as going down the Cresta as fast as you can on a bicycle. There are no decisions on any of the mitigating factors which would produce the fairness that should go alongside—it is said—these highly inflated fee figures. The fee figures are there because they have to be—we know that prospectuses are about to be written—but none of the rest is there and there are no guarantees that any of the rest ever will be. Nothing is said about the way in which decisions among some universities to push toward fully privatised status will result from this, although it is quite clear from a number of vice-chancellors that they intend to do precisely that. In that sense, as we said last week, this is not about fees. It is about the ending of the concept of the public infrastructure role of universities. There is no serious debate on what that means or where it will lead. If we debated it, we might choose that road. What I know is that we have never once debated it.
I have looked through the Statement, as many noble Lords will have done. I can see now more clearly what a number of the figures are and, for those reasons, I shall make a couple of comments because I do not think that all the things said should pass unchallenged. I will turn then to the questions which, once again, I believe must be answered. I am astonished that the idea of treating the payment system like a mortgage system should have been raised at this stage without any firm information about whether it is going to be introduced and whether it would iron out unfairness. Saying that it is an attractive idea is quite different from introducing it. I am surprised by what is said about the “generous” increase in maintenance grants for lower-income students. The generous increase is £6.70 a week. I do not know what that buys nowadays—not a great deal, I suspect.
I turn to the questions which I believe must be answered today. I ask again about middle-income families and the longer time it will take for those in the second and third quartiles of income distribution to pay than those in the top quartile, because if the figures are as we believe it is not a progressive arrangement and could never be described as such. How much longer is it? I hope that the noble Baroness will not direct me to the BIS student loan repayment ready reckoner—the most obscurely written document that I have read in many a long year. Can she just tell us whether it is right, broadly speaking, that it would take someone from those two quartiles 14 years longer to make the repayment than somebody from the top quartile and whether it is the case that, unless you had some kind of mortgage penalty system to correct that, the outcome is as I have described?
I ask another question again. Are women, with the career patterns that they have—they are for reasons that we all know—being discriminated against and is that actionable discrimination? Is the assumption that higher fees will not adversely affect participation rates evidence-based or based on the anecdotes of some of those in the higher education system? I do not believe that there is good evidence, but I may well stand corrected. What is the Government’s impact study? What is the elasticity of demand? We should know that today.
What is going to be done about the arts, humanities and social sciences, which are the heart of our culture and, indeed, of world culture? The downgrading of these subjects to non-priority status is an astounding reversal of the very idea of a university. How will they be encouraged and protected as subjects? Will the Government fund the cash-flow and balance sheet deficits that will occur because there is a gap between the cuts that they are going to impose and the first receipt of these higher-level student fees, which are timed to come in in 2013? That is a penalty which no university could reasonably have anticipated. Will the Government pay it or will a still greater cut simply have to be absorbed? What do the Government recommend to make up the shortfall in the teaching unit of resource—approximately £1,500 per year—for those universities that face the cut and charge just £6,000? Is it okay, today, in our universities to slash the unit of resource in that way?
What are the Government’s plans for the problem of Islamic finance approaches to usury, for which most of the things here suggested are abhorrent? Will the Government tell us how they will handle the growing pressure from universities, freed of any significant government expenditure on teaching, to become private—the issue which I think lies behind all these announcements? Finally, will the Government tell us their view of the rate of return on investment in university teaching with the fee at its current level, and whether the damage to investment is something that this country really ought to avoid?
This is a big subject, my Lords, and I want to answer as many of the questions of the noble Lord, Lord Triesman, as possible. I thank him for his comments and for his questions on what is a very important subject. I want to avoid turning this into a yah-boo-sucks time; I do not think that that sits well in this House. I could talk about the fact that the Leader of the Labour party and his supporters do not speak from the same hymn sheet, but I do not think it is the right moment to be doing things like that. Instead, I shall try to answer some of the questions the noble Lord has asked me.
We feel that the Government are placing universities on a more stable footing and allowing institutions to flourish. Our universities, as we know, are internationally renowned, but many of the strongest have told us that they need further investment in order to maintain their position, and so it is that we are taking this brave new stance, based, of course, upon a piece of work commissioned from the noble Lord, Lord Browne, by the noble Lord, Lord Mandelson, and the Labour party, and supported by us at the time. We are basing this upon six principles that he outlined.
The noble Lord talked about the arts, humanities and social sciences. Does ceasing their funding mean killing them and sabotaging some of the key sectors to drive us out of recession? We do not think that we are cutting the income of these departments. They are just going to have the money flow into them from a different route; it is going to be directed by the choices made by students. Those courses will still be there; they will be well promoted, and we hope that the young at school will better understand what choices are available to them, so that they bring the money with them. It will flow into those departments, as it always has; it will just be coming from a different direction.
I was asked why we are being less generous than the noble Lord, Lord Browne, for people earning over £35,000. Is this not another hit on the squeezed middle? We are committed to ensuring that higher education is affordable for everyone. This is a system that provides adequate support for students from low-income and middle-income families, but is also financially sustainable for the nation. We will give more maintenance grant to those with household incomes up to £37,000 and make available some non-repayable maintenance grants for those with household incomes between £25,000 and £42,000. This means that, compared with now, there will be more overall maintenance support to those with household incomes up to £45,000.
This is a generous package that benefits the vast majority. More than half a million students, as I have already said, will be eligible for non-repayable grants for living costs, as they are now, and almost a million students will be eligible for more overall maintenance support.
It was asked, given that over half of undergraduates are women, what the differential impact of today’s announcement would be on men and women. It is no pleasure to any of us to know that women still earn less than men do in the marketplace, and I hope that we will be able, in the time that we are the Government of this country, to help that to change. Because of that pay differential, women are less likely to be high earners. They will pay less and their repayments will be frozen when they are not earning—when they are having children and taking time off—and because of the long repayment time, the chances are that after 30 years they will not have finished paying and therefore it will just fade.
What about loans from Muslim students who believe that it is wrong to take out student loans because they attract an element of interest, and the payment of interest is against Islamic Sharia law? We want a single student loan system that can meet the needs of the majority of students, of course. The Government heavily subsidise the student support system and will continue to do so; we do not make a profit from student support. In circumstances where students feel that loans offered by the Government are against their law, students can take out a Sharia-compliant loan offered by one of the commercial banks at the moment, such as the Islamic Bank of England, Lloyds TSB and HSBC. I have spoken to my Muslim friends about this and they do not seem as exercised about this as maybe we think they are, because they do not see that there is a profit element in it to cause them great distress. I hope that I have been able to answer that question.
I shall see if we have any more answers; it is easier if we can get more answered now. I was asked if we will do what the noble Lord, Lord Browne, says and allow private providers to access public funding. We want to remove any undue barriers and make it easier for private providers to enter the market. We are committed to a level playing field for all providers. This will mean more and better choices for students and better value for money through new and potentially innovative and lower-cost approaches to teaching. We will consult further on this through a higher education White Paper this winter.
I doubt that I have answered all the noble Lord’s questions, but I will write to him with any answers that I have not been able to give now. No doubt other noble Lords in the Chamber are looking forward to asking questions that I hope I will be able to answer on my feet; if not, of course I will write.
My Lords, there is a good deal to be welcomed in the package that has been presented today. It is indeed a more progressive package than the current loan repayments scheme with its current level of fees. The extension to part-timers and the way in which the interest is being tapered off mean that, again, the cost to those earning less is going to be less. It is a very clever system, and the Government should be congratulated on what has been achieved here.
As the Minister knows, though, I continue to have considerable worries about the degree to which some of those earning at middle-income level will never repay the loan completely and will therefore be confronted for 30 years by a marginal rate of tax of approximately 40 per cent, by the time that you add on the 9 per cent. Has any thought been given to the disincentive effect of this higher marginal rate of tax on young graduates, in relation to either their not wishing to go to university or to their going abroad instead? The logical thing would be to take your loan and then dash off abroad. Given that the loans are to be paid also to EU students, what is the record to date of EU students repaying their loans? Are we likely to see many of them also absconding and not repaying their loans?
I am very grateful for my noble friend’s warm words. She has asked questions that I hope I will be able to answer for her. Middle income is obviously a worry. Yes, she is right; it will not be paid off by the end of the 30-year period. It will lapse.
As for how these changes will affect international students, the Government have made it clear that they want to continue to attract the brightest and best international students to the UK. EU students have a right to be treated equally as regards tuition costs. UK students benefit from the tuition support available in other EU countries.
Support for tuition has been available for EU students since 2006-07. This support is paid directly to the higher education institution not to the student. The overwhelming majority of overseas borrowers are honest and want to repay the loans that they have received. Generally, European Union students are young and mobile and, when they graduate, will have a significantly higher earning potential because of their UK higher education. We are obviously concerned that, if any students are due to repay and are not doing so, the SLC will be robust in tracking down the borrowers to get back the money that they owe. We will make sure that that is done.
Effective collection across the EU is underpinned by EC regulations, which allow the SLC to obtain judgments in UK courts that can be enforced by courts in other EU countries. We will use this whenever necessary. It is heartening to know that, generally speaking, the European Union students pay their bills. As to the other question, I will come back to my noble friend.
I welcome the fact that the Government have gone half way to accepting my suggestion that they should not have a fixed limit of £6,000. They have not gone to £10,000, however, as I suggested. Is it not better for the Government not to have an upper ceiling at all and to allow universities to charge differentially for different courses? This would make allocations for universities easier. It would also make the Government’s job easier because otherwise there will be far too much rationing and control of universities. That will lead to some terrible mistakes, especially in subjects such as the humanities, which could be taught for much less than the kind of fees that the Government want to charge.
I wondered whether the noble Lord, Lord Desai, would ask why we rejected uncapped tuition costs. I wondered if the noble Lord, Lord Desai, would ask this. The noble Lord, Lord Browne, made important recommendations about the structure and level of graduate contributions. We have considered them carefully. However, on balance, we have concerns that uncapped costs would put off some applicants, particularly those from lower-income families. For UK and EU undergraduates, we are proposing a threshold of £6,000 for graduate contributions, with an upper limit of £9,000. All universities and colleges will be expected to publish a standard set of information about all the courses that they provide. Universities may set whatever levels they consider best meet their individual circumstances, with £6,000 being the level above which additional requirements on access will be set. There will be an upper level of £9,000.
I imagine that most people will welcome the fact that the Government propose to follow the Browne recommendations as regards giving help to part-time and mature students. However, is the Minister aware that one of those recommendations—namely, to tie eligibility for financial help to the UCAS tariff points system—would be detrimental to part-time students who, after all, constitute something like 40 per cent of the student population, and a large number of whom fall well below the number of UCAS tariff points that would attract student support? This recommendation may be fine for traditional universities but it surely is not fine for part-time students. Do the Government have any view on that yet?
Will my honourable friend the Minister answer a very simple question? I am sorry, I should have said, “my noble friend”. I apologise for that; I am very new to this place. The Government have confirmed today that new providers will come into the higher education market. She also confirmed that universities will be able to expand their student numbers according to demand. However, she said nothing about whether there will be an overall cap on the number of students. Unless there is a balance between the overall number of students going into the system and the resources which the Government are to make available in terms of loans and grants, the whole system is likely to collapse. Will the Minister say something about the total number of students that the Government will allow to enter higher education?
I am told that we are going to consult on this in the White Paper. Browne recommends allowing student numbers to grow. The current package should enable student numbers to be broadly maintained. However, we do not believe that we should set unsustainable targets for growing HE student numbers. This risks perpetuating the idea that the only positive option for an 18 year-old is a three-year academic course at university. We think that we should be concentrating more on breaking down barriers between academic and vocational education so that an apprenticeship and various other courses are considered as valid as a degree. As I say, we will consult on this in the White Paper.
My Lords, I declare an interest as chancellor of Sheffield Hallam University. As I speak, thousands of students from both universities in Sheffield—Sheffield Hallam is Mr Nick Clegg’s constituency—are demonstrating against the Government’s plans. Will the noble Baroness be kind enough to tell us what plans she has as a Minister to engage students who would never have gone to university had they belonged to a previous generation as regards the fairness and acceptability of the Government’s plans for the funding of universities?
There is no doubt that there has been a big gap in recent times between universities and schools as regards careers advice and communication. We are committed to ensuring that students and their families know exactly what is available to them. As the noble Lord knows, I was for many years chairman of the National Consumer Council. Very often, the thing that constituted a barrier for people in this area was language. Often they did not understand exactly what was going on.
It is very important that we get universities to push back into schools—as they will—to ensure that schools well understand their requirements. We will get the business community to explain what qualifications it requires students to gain at university, or whatever other form of further education they are hoping to take part in. We are already starting to determine how we can best communicate what this change means and how empowering it will be for students. They will be able to ensure that they get the courses they want.
Universities will start to improve not just their academic performance but what they offer students to prepare them for life after higher education. After all, some students will be older, some will be younger and the way that all this is explained, and the way that we get it out there to the students, really requires a new look. We are excited about having the opportunity to do that.
My Lords, the foundation years that were mentioned are one of the few ways that have been shown to work in dealing with the gaps in school education that sometimes afflict our young people. That being so, who will pay for these? Will there be a Government grant, or will there be an additional year’s burden on the student who has to contribute towards the costs?
I am sorry, but I may not have understood that carefully. If we are talking about fees, students will not pay any fees, of course, while they are students. Is that what the noble Lord is asking? They will not pay any fees at all until they are graduates.
My Lords, as we need to save money in our higher education system, may I suggest that the Government take a close look at the humanities departments of the former polytechnics? I ask the question against the background of my 10 years on the Council for National Academic Awards, which validated all the courses in the polytechnics until those were miraculously changed into universities in 1992. That experience led me to see that, although the former technical colleges continued to provide excellent quality after they were subsumed into the polytechnics, many of the new humanities departments—that is, the “poly” bit of the polytechnic experiment—did not. As far as I am aware, there is no quality control in this area. There is quality assurance, but that is a very different thing. I welcome the fact that the Statement says that all universities will be expected to publish standard information on employment outcomes. Will the Government ensure that this information reveals any weaknesses in the areas that I have mentioned, so that the huge sums of money that currently support such departments could be released for better departments and better institutions in the system?
I think that I agree with all of that. All universities and colleges, whatever contribution they decide to make, will be expected to publish a standard set of information about their performance against the indicators that students and their parents value. Listening to how the noble Lord described the matter from a polytechnics background—which is where I am from—I think that that will drive through very well, and I can only agree with him.
The Statement refers to the present system giving a raw deal to part-time students, and I think there will be general agreement around the House that this is correct. Clearly, what is needed is not just better part-time provision but much greater flexibility and much better contacts with universities and with industry. To what extent will the proposals deliver that?
The proposals are a good deal for part-time students. Institutions with large numbers of part-time students, such as Birkbeck and the Open University, have been poorly treated in recent years because of, for example, the previous Government’s block on second-chance education. We share the conclusion of Lord Browne’s report that the exemption from up-front charges should be extended to part-time students, who have been unfairly discriminated against hitherto. We will therefore implement his recommendations.
This is very good news for part-time students. I was a part-time student once, and you had to pay everything up front. I was able to do that, but for several people with me it became too much. It was a shame because we lost such talented people at that time. We are looking forward to implementing the proposals.
You empower a student by allowing him or her to go through the whole of their university time without fear or worry for money. Only after they have started to earn more than £21,000 a year will they even start to pay back anything.
In fairness, we are looking at a very different way of thinking. The money will be returned as the people earn a great deal more. As we all know, anybody who has been to university will earn a lot more during their working life than if they had not. Very often, the money that has enabled students to go to and enjoy university has come from people doing jobs that do not pay a great deal, but those people are paying tax that feeds through to students. I refer to people who work in any one of a million jobs but who have not benefited from a university education. The money comes back eventually—slowly—through the system, and the next set of students go to university. It is important to look at this in the round.
In relation to the capping of tuition fees, have Her Majesty's Government conducted any study of the possible and likely deleterious and injurious effect that this would have on higher education in Wales? If so, what conclusions were arrived at and what discussions were conducted with the Welsh Assembly and the Higher Education Funding Council for Wales?
I am afraid that I do not know. The devolved assemblies will carry on doing things in the way that they wish, and we will consult them. However, today I am speaking for universities in England. Of course, as time goes on and we go forward, we will debate and consult with all the devolved assemblies in Wales, Scotland and Northern Ireland to see how we can best work together and learn from best practice.
My Lords, the noble Baroness has done her best to answer the questions, but it might be helpful if she gets a rather fuller briefing before dealing with a Statement of such enormous importance.
I return to the point raised by my noble friend Lord Triesman. I am sure that she heard her colleague, Michael Gove, on the radio this morning. He announced the main points in his interview on “Today”. The Front Bench opposite has said all sorts of things about election promises, but one thing that is certain is that Ministers must abide by the Ministerial Code. Has the noble Baroness read the code? If she has, she will remember that Section 9.1 states:
“When Parliament is in session, the most important announcements of Government policy should be made in the first instance, in Parliament”.
That is an unequivocal statement that all Ministers must abide by. Will she tell us what in that unequivocal statement the Government do not understand?
I do not know the circumstances of the interview and I do not know whether it was leaked. Michael Gove made a very good statement. It has been a very busy day, we have a lot to do and the noble Baroness has been, as she always is, very gracious. However, I have read the Ministerial Code, so I do not think that she can find me wanting on that point. She may feel that my knowledge of the breadth of the brief that I have is not as great as that of others. In this House—as the noble Baroness knows from the debate that we had last week—we have some wonderful minds and noble Lords who represent some of the finest universities not only in this country but in the world. I have tried my best today to do what I could—it is a very big brief—and, if I did not answer as well as the noble Baroness hoped, I am very sorry. However, if anyone wishes to write to me with other questions, I will happily answer them.
The Browne report, which was commissioned by the then Labour Government and which we have supported, is ground-breaking stuff. We are only too pleased that the previous Administration commissioned the noble Lord to do this work. We have taken on board the six principles that he outlines. This is a very exciting way to take our country forward. The report talks about building the greatness of our nation for tomorrow's world and I do not think that I could end on any better line than that. We as the Government of this country will do our best to achieve that.
Subsidiarity Assessment: Food Distribution (EUC Report)
Motion to Take Note
To move that this House takes note of the Report of the European Union Committee on the amended Commission proposal for a Regulation of the European Parliament and of the Council amending Council Regulations (EC) No 1290/2005 and (EC) No 1234/2007, as regards distribution of food products to the most deprived persons in the Union (COM (2010) 486, Council Document 13435/10) (2nd Report, Session 2010-11, HL Paper 44).
My Lords, with your Lordships’ leave I shall also speak to the second Motion in my name.
Your Lordships will recall that two weeks ago on 20 October the House was first asked to consider a report from the European Union committee with a reasoned opinion to the effect that in its view a European Union legislative proposal did not comply with the principle of subsidiarity. Our second report of this Session, which is the subject of these Motions, relates to a proposal concerning the distribution of food products to deprived persons in the European Union and contains the recommendation that the House should issue a reasoned opinion on it and on its subsidiarity. Our sub-committee on agriculture, fisheries and environment initially considered the proposal before it came to the Select Committee. The noble Lord, Lord Carter of Coles, the chairman of that sub-committee, is present today, but we have agreed that I should move these Motions.
I do not need to set out again today at length the legislative background, but I stress that through the second Motion today this House is again being asked to exercise new powers under the treaty of Lisbon that became available only on 1 December 2009. The deadline for submitting such a reasoned opinion to the authorities in Brussels is on this occasion 15 November, so we are in plenty of time to get it in.
I turn to the proposal assessed in our report. There is some history which I shall deal with briefly. The food distribution programme, to which the proposal relates, was introduced in 1987, and at that time its primary purpose was to help reduce stockpiles of basic commodities that had been purchased and brought into public intervention stores under the common agricultural policy in order to support prices on the European Union market. Stocks of butter, milk powder, beef, sugar, rice and cereals were released to charitable organisations in participating member states on an annual basis to distribute to the poorer sections of the community.
As your Lordships will know, successive reforms of the common agricultural policy in the 20 or more years since then have greatly reduced the level of intervention stocks, combined of course with the improvement in world commodity markets. As a result, the nature of the scheme has altered, with an increasing focus on purchasing products on the open market.
The current proposal, amending the regulations previously agreed for the scheme, has several objectives. These include formalising the provision for common agricultural policy funds to be used to purchase goods not just from intervention stocks but also on the open market: widening the range of goods that can be purchased in order to take into account nutritional balance; allowing member states also to give preference to food products of union origin; establishing three-year programmes instead of the current annual rounds in order to allow longer-term planning by member states and charities; introducing co-financing by participating member states, generally at a minimum of 25 per cent of eligible costs, with an annual ceiling of €500 million for co-financing from the European Union budget; and enhancing reporting obligations, both for participating countries and for the Commission.
In putting the proposal forward, the Commission has offered a number of justifications for it. They include addressing the problems of hunger, deprivation, poverty and social exclusion in the spirit of the treaty, which states that the Union’s aim is to promote,
“the well-being of its peoples”,
“solidarity among Member States”,
and to contribute to meeting the CAP’s objectives of stabilising markets and ensuring that supplies reach consumers at reasonable prices.
The participation by individual member states in the scheme has always been on a voluntary basis and it will remain so under this proposal. The United Kingdom has not participated in the scheme since the mid-1990s and, in their Explanatory Memorandum to us, the Government have said that this has been because of dwindling UK intervention stocks and the bureaucratic overhead associated with ensuring compliance with the scheme rules in order to prevent fraud. They have also said that they are unconvinced of the merits or appropriateness of the revised proposal. In the Government’s view, the European Union should act only where there are clear additional benefits from collective efforts.
As regards the Commission's justification that addressing problems of hunger, deprivation, poverty and social exclusion can be considered to be in the spirit of the treaties, we comment that the spirit of the treaties can be perfectly well respected without European Union action and can, in any case, be promoted by the Union without following this legislative route. Member states are capable of acting individually to address the issues highlighted.
As regards the Commission's assertion that purchases from the market contribute to the objectives of the common agricultural policy, we see this as questionable, as the extent of such a contribution must depend on numerous factors, including the quantity of food purchased from the market, any reduction in purchases by deprived persons who become eligible for the scheme and the price paid. We see no reason at all why the Union is better placed to organise the purchase of products from the market than member states. We comment as well that the failure of member states to act is not in itself a reason for the Union to act. In any case, the voluntary nature of the scheme suggests that there is no demonstrable need for action, particularly at the Union level. We conclude that there appears to be no compelling argument to suggest that the Union is better placed than member states to ensure a food supply to its most deprived citizens.
We have ensured that the assessment that has been set out in our report has been communicated to national parliaments in other European Union member states. At present, we have heard that only the Swedish parliament may be considering the proposal from a standpoint that is close to ours. Unless several other chambers make similar moves in the next two weeks, the threshold for reaching the formal yellow card is, unfortunately, unlikely to be reached. In my view, that will not prevent the opinion of this House from having a political impact. I am glad to see the Minister nodding at that remark.
Let us be clear; the burden of our report is not to stand against measures to help the neediest members of our society, if appropriate, by providing them with food. We recognise that there may well be a need for such action, but we consider that any such action is best taken by national, regional or local governments, who can best assess the needs of their own populations and can also best design measures to meet those needs. The European Union scheme, which is the subject of this proposal, was devised more than 20 years ago in a very different environment, primarily as a channel for siphoning off surpluses from the common agricultural policy. Now it has largely lost that rationale, and the justifications which the Commission is advancing for its continuation seem to us to be ill founded and unconvincing. We see no necessary role for European Union action in this area and, accordingly, we see this proposal as incompatible with the principle of subsidiarity. I beg to move.
My Lords, I declare my interest as a member of Sub-Committee D. The noble Lord, Lord Roper, has given a very extensive introduction to this rather erudite matter. That is certainly going to shorten what I was going to say quite a lot and I am grateful to him. He is right to take us back to the history of the CAP, and it was perhaps right in the late 1980s and 1990s to utilise the surpluses that we had under the inadequate CAP policy of the time. But as he so rightly said, times have changed and reform of the CAP has taken place. I draw your Lordships’ attention to the committee’s report in 2008 on the future of the CAP, which states in paragraph 6:
“The mid-term review of the Agenda 2000 agreement resulted in the 2003 CAP reform, which marks the culmination of a gradual shift in farm support from product support to direct income support”.
So the CAP has changed, but that has not stopped some in the Commission trying to perpetuate the bad old ways.
A similar proposal to what we are looking at today was presented in the 2008-09 Session and the scrutiny reserve was lifted then. But the committee supported the then Labour Government in their opposition to the proposals and there was a blocking minority in the Council. Following discussions with the European Parliament, the Commission has tweaked its proposal and sent it back to us, and this is what we are discussing today. I would summarise the Commission’s proposal as grandiose empire-building by a few who wish to preserve their jobs in view of the 2013 spending review, which is coming up. I can see them all shuffling papers on their desks, looking to preserve their jobs.
There is no question in my mind that the justification put forward by the Commission is weak and very unconvincing. It fails on two grounds. It goes against the recent trend of CAP reforms, and there is the budget reform in 2013 that I have alluded to. It is quite wrong for the EU to be buying food on the marketplace rather than using intervention stocks. If the intervention stocks have dwindled, and rightly so, then the policy ought to be discontinued from the CAP point of view. If it is felt that this policy ought to continue, then—as the noble Lord, Lord Roper, said—it ought to be down to member states and Governments, but it is a social policy and not a common agricultural policy. It also fails on the grounds of subsidiarity because there is no justification that the Union can do this job better than member states. The fact that it is voluntary and that Britain has not been participating since the mid-1990s shows that it is not something the Union ought to take up.
I have two questions for the Minister. When we held this matter up for scrutiny a couple of weeks ago, we were informed that the Council had yet to adopt a position. I would be grateful if he could tell us what the position is in the Council and whether there is still a blocking minority for this, and whether the Government are still of the view that this is a social policy measure rather than a CAP measure.
My Lords, I am grateful to the noble Lord, Lord Roper, for moving today's Motion. The EU Sub-Committee on Agriculture, Fisheries and Environment, which I chair, gave detailed consideration to the proposal in relation to the scheme for food for the deprived, which is the subject of the report now before the House. However, I am sure that your Lordships will share my appreciation of the knowledge and insight into the wider political and institutional context which the noble Lord, Lord Roper, has brought to this debate, not least in his role as chairman of the EU Select Committee.
It may be of interest if I quote from the website of the European Commission. The Commission's agriculture and rural development directorate-general states that the scheme was:
“Originally designed to provide surplus stocks of farm produce (‘intervention stocks’) to needy people, the scheme was amended in the mid-1990s to make it possible to supplement intervention stocks with market purchases in certain circumstances”.
In looking forwards, the Commission goes on to say, and this is very apposite:
“Now that surplus stocks are extremely low and unlikely to increase in the foreseeable future, the scheme should allow market purchases on a permanent basis, to complement remaining intervention stocks”.
I need hardly remind your Lordships of the consequences of the common agricultural policy 20 years ago when, as the noble Lord, Lord Roper, said, we had mountains of butter, milk, sugar, cereals and so on. At that time, it was a practical solution to let charitable organisations in participating member states distribute those goods to the poorest sections of the Community. For all that the process of reforming the CAP still has further to go—my sub-committee expects to look closely at reform options from the Commission at the end of the year—it is fair to say that the changes made since the 1990s have been constructive and far reaching. As the Commission has said, surplus stocks are now very low, and they are expected to remain low.
For the proposed EU scheme to work in future, food needs to be purchased on the market and then put into the distribution system. Twenty years ago, the scheme was based on the availability of surplus stocks; now, with no stocks, it looks as if we will just go out and purchase it. This transformation begs questions about the scheme's efficiency and about its relationship with the CAP. The Commission claims that the scheme helps to meet the CAP's objectives of stabilising markets and ensuring that supplies reach consumers at reasonable prices. We could discuss those claims, but they are not the issues on which this report turns. The central issue is our subsidiarity assessment.
Why should the European Union be considered to be in a better position to determine the nutritional needs of deprived members of member states' communities, and to respond to those needs, than national, regional or local governments? For example, here the Government have introduced the Healthy Start scheme, and I hope the Minister will say more about it. I mention it only because it seems to me to exemplify the role of a member-state Government in looking at the need in the population for which they are responsible and designing an appropriate scheme to meet those needs.
As we acknowledge in the report, member states' participation in the scheme is voluntary and, although the UK has not participated since the mid-1990s, the Commission states that 19 member states currently do. I am tempted to repeat the saying that there is no such thing as a free lunch, not because the scheme rests on cofinancing between member states and the Commission, but because, if we fail to flag up what we see as a failure to comply with the principle of subsidiarity, we risk paying a longer-term price in terms of blurring the lines between actions appropriate for EU involvement and actions which should rightly stay with member states at national, regional or local level.
The sub-committee was clear in its view that this proposal does not comply with the principle of subsidiarity, and I hope that your Lordships will share that view.
My Lords, I remember when the UK last participated in this scheme because I benefited from it. Before I receive commiserations from noble Lords, it was not because I was a poor member of the public who received the unfrozen butter that came out of cold stores in the south-west, but because I was a Member of the European Parliament representing Cornwall and Plymouth and it was a fantastic photo opportunity around Christmas time, when these schemes, whether at European or UK level, strangely came out. I was able to do a press release, and I was reported in the press as securing the south-west’s share of this bounty from the European Union. Unfortunately, I was not pictured distributing our share as Father Christmas, but it was a good wheeze then.
Things were very different at that time. There were surpluses within the common agricultural policy, and rather than export them and destroy the third world’s farming populations, we instead decided to try to save some of our own populations from poverty and starvation at Christmas, which I suppose was not a bad objective. Despite being one of the most pro-European Members of this House, I would say that one of the most important things about Europe is that it knows its limits. Certainly, even when I was a Member of the European Parliament, I voted against things like the working time directive and the drinking water directive, not necessarily because I was against them but because they were things that the European Union should not have been involved in. They should have been left to the member states, which were best placed to decide what was right for them. There is no better example of that than this regulation which is being discussed at European level. I should be very interested to hear from the Minister as to where those negotiations have got to.
I raise one other question, which perhaps is more to do with the administration of the House. Perhaps the noble Lord, Lord Roper, can inform me as to whether he believes that we now have procedures in the House suitable to ensure that whenever an issue such as this comes up again—exercising our judgment in terms of the yellow card procedure—we can do this quickly enough so that we can raise support among other national Parliaments within the European Union to make sure that our message is heard. I am disappointed that it is just the Swedes who are following our example—that is not a good sign—but I do not commiserate at all with the Members of the European Parliament in the UK this Christmas who will not have the opportunity that I had back in 1994.
My Lords, I declare an interest as new girl on Sub-Committee D, although I have spent a number of years on Sub-Committee G and on the Select Committee. One of the other things I have done in my life is to look at institutions and large organisations. One of the cultural problems of institutions is the difficulty they have in moving forward when times change. That is particularly so when there is no check on personnel or financial commitment. It is even more difficult to make organisations change when the issue looks like “a good thing”, such as this one; the distribution of food products to the most deprived persons in the Union. For someone like me from a social care background, that looks like a good thing. However, as we have heard, the programme began at a time when the excess of food stocks was purchased into public stores under the old common agricultural policy scheme and the temptation to continue the intervention into the affairs of member states by purchasing food from markets for distribution through the EU food programme is almost irresistible, certainly for those committed to work within the Commission.
However, as I said, having spent some years as chair of Sub-Committee G, and now as a member of this committee, I am more than aware of the danger of the Commission moving into areas best served by member states themselves. In Sub-Committee G, we were constantly on the alert for encroachments into health and consumer issues. I spent more than one afternoon thinking about the working time directive. Not to be misunderstood, I am a committed European. There is much we can do as a community to further the lives and interests of our citizens. Food safety and security are clearly such areas close to this debate, where the wider community can and does add value, but some things are not only the right and responsibility of member states, but are local within that state. The distribution of food to poor citizens is one of these.
Tim Lang, professor of food policy at the City University, defines food poverty in the UK as follows:
“Food poverty is worse diet, worse access, worse health, higher percentage of income on food and less choice from a restricted range of foods. Above all food poverty is about less or almost no consumption of fruit & vegetables”.
Other factors include access to a range of healthy foods in local shops, transport, fear of crime, knowledge about what constitutes a healthy diet and the skills to create healthy meals. Is that really an issue for Brussels?
For many years, I was a member of the board of the Food Standards Agency, the independent department set up to protect public health and consumer interests in relation to food. The FSA runs the annual Dame Sheila McKechnie awards for community food groups. I have seen at first hand what local action on food can achieve. Community food projects work to tackle food poverty in their local areas, giving the power of choice and change back to local communities. Projects include food co-ops, community cafes, cooking and nutrition programmes, and courses, markets, breakfast or lunch clubs, school tuck shops, peer training and any project which improves people’s access to healthy, affordable and sustainable food. It is about as local as local action gets.
Community food mapping can identify where food poverty exists. The technique uses local people’s knowledge to map food availability in a specific area. The results can be combined with data from other organisations, such as local authorities, the NHS and business—again, all local. The results can then be used to implement solutions to food poverty by designing initiatives tailored to those local needs.
One example is the North East Food Access Network, which is,
“a network of organisations and individuals promoting access to fresh, affordable, sustainable and culturally appropriate food in the North East region. It is a forum for the exchange of information and advice between projects and networks in the region. It aims to have an influential regional ‘voice’ on addressing the issues of ‘good food’ access for all in the North East and seeks to develop a co-ordinated regional approach to work around food and health”.
At times of austerity, such projects as these are vital to the life of local communities. Certainly, they could use more funding. One of my questions to the Minister is about how local community groups are going to be supported in the future. That would be of great value if it came direct without the added expense that must be involved in the Commission buying goods on the open market for redistribution, which, in addition, can easily distort the markets.
If we are to convince our citizens of the benefits of Europe, rather than it being seen just as an additional drain on the nation’s purse, we should focus EU efforts where they bring best value and doing those things that sovereign states cannot achieve alone. Food networks are local, direct and know their communities. They are not overbureaucratic and, consequently, are flexible in responding to need. Above all, they are transparent. We should leave them uncluttered by intervention by the Commission, however well intended. After all, we know that this kind of centralisation by any institution leads to more money being spent on staff to make assessments to decide on criteria, more forms, applications to be vetted, assurance schemes to prevent fraud and so on.
I would conclude that not only does there appear to be no compelling argument to suggest that the Union is better placed than member states to ensure a food supply to its most deprived citizens, it appears to me that to do so would divert resources from those in non-governmental bodies who do it so well. I support the Motion to issue a reasoned opinion.
My Lords, I have very often criticised the European Union Select Committee as being an expensive white elephant, but I am not going to do that today because it seems to me that it should have praise for the action that it has taken in this instance. Certainly, I shall support the Motion. I am also very pleased to hear so many people, including the noble Lord, Lord Teverson, and members of the committee, standing up for the nation state. In particular, the noble Baroness, Lady Howarth, criticised centralism and is in favour of localism. That is altogether good, but I am not at all sure that that is achieved through the European Union.
It is interesting that the committee is using the subsidiarity clauses. Of course, we have to go back to 1992, when the clauses were introduced into the treaty on European Union. Indeed, the treaty was sold by Mr Major to his own Back-Benchers by introducing the clause. We were assured at that time that that would put a brake on the European Union gaining more and more powers. I think that eight members of the Conservative Party were sacrificed—or at least given the sack—because they refused to support the Government, and the Bill only just made it through the House of Commons.
There have been far too few challenges. There should have been many more challenges to attempts—successful attempts—by the European Union to accrue more power to itself. There has undoubtedly been an insidious grab for power by the institutions of the European Union to achieve their aim of ever closer union—do not forget that the achievement of “ever closer union” is still in the Lisbon treaty; I do not know how close it is going to get, but the aim is there—and the emasculation of nation states.
The latest paper from the House of Commons Library shows just how much of our legislation, particularly in regulations, is coming from Europe. It gives the figure of 53 per cent. Some people think that the percentage is greater than that. Now, virtually no area of policy is untouched by the European Union leviathan, and the power grab has been given new impetus by the implementation of the Lisbon treaty, which significantly enhances the power of the European Union and its institutions. So it is indeed encouraging that the Select Committee is increasing its watchfulness to ensure that the subsidiarity provisions are respected.
I have concerns about the seemingly lax attitude of the Cabinet and the departmental Ministers in their surveillance of the extension of EU powers. I can only wonder how much influence they have on decisions that are taken. We do not often hear about COREPER—the Committee of Permanent Representatives—which, as I understand it, meets in secret and whose decisions are simply rubber-stamped by Ministers. I have heard that from the mouths of former Cabinet Ministers. Perhaps the new Administration will take a tougher line, but the activities of that very powerful committee should be transparent, and I do not believe that they are at all transparent at the moment. It should publish minutes setting out the positions taken by its members and how they voted. In the interests of parliamentary democracy, the United Kingdom members of COREPER should be seen to be accountable and subject to parliamentary scrutiny at Westminster.
Having said that, once again, I congratulate the committee, and I shall take pleasure in supporting the Motion.
My Lords, I, too, support the Motions of the noble Lord, Lord Roper, on the issue of subsidiarity arising on the amended Commission proposal on the distribution of food products to the most deprived persons in the Union. As in a similar case that we debated on 20 October, I consider that our EU committee has done well to examine the question of subsidiarity and to bring it to the attention of the House. It is worth recalling that subsidiarity did not feature in the original Treaty of Rome, but as the role of the Union developed, the member states decided that in cases of shared competence, a treaty provision was needed to police the division between legislative action by the Union and action by member states themselves. It is now a treaty requirement that in matters of shared competence, the EU can act only if and in so far as the objectives of the proposal cannot be sufficiently achieved by the member states. In the current state of public opinion, not only in the UK but also across the Union as a whole, it is important that the EU institutions should strictly respect this treaty requirement.
In addition, as a result of the Lisbon treaty this Parliament—under Article 5(3) of the Treaty on European Union and under Article 6 of the protocol, which has treaty force, on the application of the principles of subsidiarity and proportionality—can submit a reasoned opinion on Commission proposals to the European Parliament, the Council and the Commission. We are recommended to do so in this case and I agree that we should now make use of this provision.
There has been perhaps some exaggeration about the volume of our secondary legislation deriving from the EU. The figures that I looked at recently in the Library of this House show that the great majority of statutory instruments are of UK origin and that only a small number directly implement EU law. However, every EU legislative proposal which in our view does not comply with subsidiarity should be challenged. In the case before us today, the history, as other noble Lords have already said, is that from 1987 some excess intervention stocks of food were made available to deprived persons in the Union. In the circumstances of 23 years ago, that was sensible, and I am strengthened in my opinion by the fact that I was in the Commission at the time. That gives me a further reason for thinking that it was a good idea, as well as the advantages given to the noble Lord, Lord Teverson, in his role as Father Christmas at some stage.
However, radical reform of the common agricultural policy, which now bears little resemblance to the policy of the past, has removed almost all intervention stocks, and the welfare programme has turned to the market to buy food. The EU committee sees no compelling argument to conclude that the Union is better placed than member states to ensure a food supply to its most deprived citizens, if that is necessary, and accordingly considers that the proposal does not comply with the treaty requirement on subsidiarity. I support the view of the committee and, consequently, the two Motions tabled by the noble Lord, Lord Roper.
My Lords, like others, I begin by thanking the noble Lord, Lord Roper, and my noble friend Lord Carter of Coles for the work of the European Union Committee on this issue, and for the way that the subject has been introduced to the House. The noble Lord, Lord Roper, reminded us of some of the background considerations to the procedure that we will be adopting today, which are very much in line with the debate held last week on subsidiarity issues as a result of the committee’s report. It was the first time that this kind of procedure had been presented to the House. Furthermore, while the noble Lord, Lord Stoddart, and I often do not agree on European issues, I agree strongly that these provisions in the treaty are ones that should be used by national Parliaments. They were included to strengthen the role of national Parliaments in European scrutiny, so it is right that when either House of our Parliament feels that these issues are important, they should be fully aired and voted upon. Certainly, our own House of Lords committee has a very good reputation among national Parliaments throughout the EU for its scrutiny work. That is of long standing, as those of us who in the past were Members in another place or Ministers can testify.
Some of the considerations surrounding subsidiarity have been aired. It is felt it should come into play where legislation at EU level is unnecessary—although obviously the word “unnecessary” can be subject to different interpretations—where such activity can be promoted without following a legislative route and where it is better done by member states. As the Government put it in their Explanatory Memorandum,
“the EU should only act where there are clear additional benefits from collective efforts, or ‘EU added-value’, compared with action by individual Member States either individually or in co-operation”.
I believe therefore that the report makes a strong case. It is right to stress, as the noble Lord, Lord Roper, did, that the scheme is voluntary and that the United Kingdom has not participated in it since the mid-1990s. None the less, although we have not participated, as EU members we are fully entitled to make use of the provisions that are available today in making our views loudly heard about this.
I also accept the case in the report that confusion can arise from the parallel operation in a member state of a national scheme and an EU scheme. I also agree strongly that the extent to which purchasers from the market contribute to the objectives of the common agricultural policy in the way that is pursued at present is questionable.
When I first saw the committee’s report I was quite startled because, like others, I remember the circumstances in which this measure came into being. Like the noble Lord, Lord Teverson, I was also a Member of the European Parliament—indeed I was a member of the agriculture committee in 1987 when this issue first arose. I remember the senior role that the noble Lord, Lord Williamson of Horton, had in the European Commission at that time. As many noble Lords have pointed out, the circumstances then were very different from those of today. It was basically a measure to distribute high intervention stocks rather than purchasing food from the open market in the way that it has increasingly operated in recent years and seems likely to operate in the future.
I also accept the Government’s point that there are a lot of bureaucratic procedures involved in this process. It might be interesting if the Minister can say a little more about the costs of the scheme to those who choose to operate it and why that can be a disincentive to countries adopting the scheme in the way that it is currently provided.
I am glad that this debate is much more timely than last week’s debate. Because of the parliamentary Recess, the previous measure relied on the good will of the Commission to accept our view on subsidiarity. That is not a problem with this case, where we are in good time. I understand that, according to the Government, a final decision may not be taken until towards the end of next year. Perhaps the Minister can confirm that.
I agree that national Governments and also local and regional authorities are far more appropriate to deal with this kind of issue. I was glad that the noble Baroness, Lady Howarth, mentioned the north-east network in my own part of the country.
I hope that from what I have said so far it is clear that we support the work of the European Committee and support the Motions in front of us. The committee’s work is in line with the previous Government’s approach to this issue; there has been quite a history of consistency about this in the consideration in both Houses of Parliament in recent years. However, the House of Commons European Scrutiny Committee, which has also recently considered this subject, has injected one slightly different element into the discussion. This is perhaps worth raising here and asking the Minister to comment.
The European Scrutiny Committee in the other place comments that in its view the argument is more about competence than subsidiarity. The committee accepted that where intervention stocks are relied on for food aid the Commission is competent to act, because of the workings of the common agricultural policy, but where the food is sourced from the open market—as we have heard, that is increasingly the case—the link with the common agricultural policy is much more tenuous. Therefore there does not seem to be an appropriate legal base which would confer competence to act. This is an important point and it would be useful to get the Minister to comment on it. As I understand it, the Government have so far said that there may be an issue of competence, but that even if it was then ruled that it came within the Commission’s competence under the rules, there would still be an issue of subsidiarity. In that case, of course, the Government would strongly endorse the view of the European Union Committee in this House.
Could the Minister also say a little more, as other Members have encouraged him to do, about the support that we might receive from other countries in this area? In the letter that the Minister recently sent to the chairman of the European Scrutiny Committee, he talked about a small number of countries but certainly more than one—even though only one country has been mentioned here today. It would be useful for the House to be able to consider any further details that the Minister has about that. It would also be useful to know when the opinions of the European Economic and Social Committee and the Committee of the Regions of the European Union will be received and considered.
I noted that the noble Earl, Lord Caithness, saw at least part of the problem in a kind of grab for power and territory by the Commission. That might well be the case; however, the Commission makes the point in its Explanatory Memorandum that, as recently as 2008, 13 million people in the European Union apparently benefited from this scheme. Perhaps it would be interesting for the House to know where the majority of those people are. Is it in the new countries—the cohesion countries? Certainly, it seems that certain organisations and populations in the European Union were putting pressure on the Commission to continue this scheme, so perhaps it is slightly unfair to say, “It is just the Commission wanting to extend its territory”, although that may be an element in the equation. Also, has there been any pressure from charities in this country to participate, despite the consensus that seems to prevail that it is actually better to deliver such programmes nationally or even sub-nationally?
Finally, the Government make a strong case about this being a social measure and therefore not appropriate to the European Union. While I accept that argument on this occasion, I am sure that the Minister will not be surprised that I do not accept that all social measures are inappropriate at EU level. Indeed, to go back to the European Coal and Steel Community treaty of 1954, social measures were quite an important element in the help to the coal and steel community and to coal and steel-producing areas, so that actually has a long history within the European Union.
I note that, later on, the House will be looking at the European Social Fund after an excellent report that was also from the European Union Committee, so although our support for the Government’s stance on this occasion is genuine I hope that the Liberal Democrats in the coalition, despite the reservations about particular directives from the noble Lord, Lord Teverson, will none the less keep the pressure on the Government not to have such total hostility toward anything with a “social label” in the European Union. However, on this occasion, as happened last week, it is obvious that there is widespread consensus in the House and we are therefore happy to support both the work of the European Union Committee and its conclusions on this matter.
My Lords, I join other noble Lords in saying how grateful I am to both the noble Lord, Lord Roper, as chairman of the EU Committee and to the noble Lord, Lord Carter of Coles, as chairman of Sub-Committee D, for this report. I make it quite clear at once, as I think our Explanatory Memorandum made it clear, that the Government share the committee’s concern that the regulation concerned is not consistent with the subsidiarity principle. That means that much of what I say may repeat what other noble Lords have said this afternoon, because there has been general agreement around the Chamber. Still, it is important that it is on the record that these are the views of Her Majesty’s Government.
As the noble Lord, Lord Roper, made clear, the then European Community’s food distribution programme was introduced back in 1987 and its main aim was to help run down the stockpiles of basic commodities that had been purchased into intervention stores under the common agricultural policy. The noble Lord, Lord Roper, went on to stress that it was the stocks of butter, milk powder, beef, sugar, rice, all those mountains and lakes that we remember—I cannot remember whether it covered wine lakes, but it did cover a whole variety of mountains and lakes—that were released to charitable organisations in participating member states annually to distribute to poorer sections of the community.
As has been made clear by a number of noble Lords, we in the United Kingdom last participated in the scheme in 1998—everyone referred just to the mid-1990s, but I can give the precise date. We withdrew both because of the sharp decline in intervention stocks in this country and because of the high administrative overheads, for government and charitable organisations alike, which made participation unattractive. I assure the noble Baroness, Lady Quin, that we still believe that, under the scheme that is being looked at at the moment, there would still be high administrative burdens, which would make it unattractive. I also assure her that we are not aware of any charitable organisations having asked us to participate in this scheme, or, for that matter, to go back into the scheme after the withdrawal by the previous Administration back in 1998.
The main purpose of intervention systems, as my noble friend Lord Caithness and other noble Lords made clear, is to support market prices. However, a side-effect—in practice, it turns out to be the dominant effect—is to encourage overproduction and distract farmers from making market-based production decisions. Successive reforms of the CAP have reduced the role of intervention and, together with improvements in world commodity markets, have resulted in significantly reduced EU intervention stocks. Consequently, the Commission proposes to adapt the scheme.
The main stated purposes of the Commission’s proposals are to align the legislation to the Lisbon treaty and to modernise the scheme. The CAP is now more market-orientated and price support will play less of a role in future, so, as I have said, the accumulation of large intervention stocks is less likely. The proposal therefore provides for CAP funds to be used to purchase goods on the open market and for a wider range of goods to be purchased by participating member states on the basis of nutritional criteria rather than limiting them to the products for which intervention applies. The other major change is the proposed introduction to the scheme of cofinancing by participating member states. Under current proposals, this will be a minimum of 25 per cent of the eligible costs, with lower ranges of cofinancing, such as 10 per cent, applying to more disadvantaged areas of the European Community.
As before, participation in the new scheme—I think the noble Lord, Lord Roper, made this clear—will remain voluntary, so that, even if it goes ahead, the United Kingdom will not be obliged to participate. Providing effective help to disadvantaged people is clearly an important objective, but, as the Explanatory Memorandum explains, we remain unconvinced of the merits or the appropriateness of the proposal. In particular, we believe that the expansion of the scheme to procuring goods on the open market will mean that the new scheme is essentially a social measure—that is an assurance I can give to my noble friend Lord Caithness—which, by its design, would make it a matter for member states to decide rather than for the EU itself.
In accordance with the principle of subsidiarity, a longstanding element of European treaties that is currently enshrined in Article 5 of the treaty on the European Union, the Government consider that the EU should act collectively only where there are clear additional benefits, or EU added value, compared with action by member states either individually or in co-operation.
We consider that social matters are a matter for individual member states, and that measures to assist the neediest members of society are more properly and efficiently delivered through domestic social programmes that take account of the prevailing situation and available funding in individual countries. The noble Lord, Lord Carter of Coles, for example, mentioned a scheme, Healthy Start, which is run by the Department of Health. I assure him that that scheme is still there; it is under review by the department and subject to a consultation about various changes in it.
I would like to mention national charitable organisations, such as FairShare. I visited one example of its outlets in the north-east, not far from the former constituency of the noble Baroness, Lady Quin. Many noble Lords will know of the valuable work that bodies such as FairShare can do in distributing food to the less advantaged. To return to the north-east, I was grateful for what the noble Baroness, Lady Howarth, said about the north-east food action programme. It is those kinds of measures—national from the Government, from local government and from charities—that we believe we should be looking to work. I commend those bodies to those who do not know about the sort of work that they do.
The proposal itself was discussed in the Agriculture and Fisheries Council on 27 September. That was followed, as I understand it, by technical consideration by officials. A number of policy and technical issues have been identified. At present—I give this assurance to my noble friend Lord Caithness—there is no qualified majority in favour of it. There might be a blocking minority against, but certainly I assure him that no member state at the moment actually supports the scheme; some oppose it for one reason, some for another. Also, as I understand it, the European Parliament has not yet given its opinion on the proposal.
The noble Baroness, Lady Quin, asked about the timescale. I assure her that we still have quite a long way to go before we get to any final decision, what with the European Parliament having to consider it and some sort of qualified majority having to be found on the Council, which does not seem likely.
In addition to subsidiarity, there are two main concerns among those member states. First there is the legal base.
As I understand it, the European Parliament has not yet considered the stage that we are currently at. It might be that it considered earlier examples of it. At the moment we are at the stage where it has been through the Agriculture and Fisheries Council, which talked in September about co-financing at the 25 per cent or 10 per cent level, but that has not yet gone on to the European Parliament. If I am wrong, I will write to the noble Baroness to correct it. My point is that we still have quite a way to go before any of this gets through, which is why it is important that the views of this House and another place—and those of 26 other parliaments and all the Houses in them, should they wish, although we understand that only Sweden is likely to do this at the moment—should come forward so that we can reach various red lights, green lights or whatever, as appropriate.
I return to the concerns of the member states. First, I was talking about the legal basis. The new proposal is made under Articles 42 and 43(2) of the treaty on the functioning of the EU. This is similar to the existing scheme. These articles would be appropriate if the predominant purpose of the scheme was the supply of food from intervention. However, given the expected focus of the revised scheme on the purchase of goods on the open market, it is very difficult to argue that its predominant purpose is in line with the use of these articles as the legal base. A number of member states share our concern about that.
Secondly, the concept of cofinancing, which I referred to earlier, is strongly opposed by a number of currently participating member states that believe that the scheme, quite naturally, should be wholly community-financed. The Government believe that, were the revised scheme to go ahead, cofinancing would be very important to ensure that each participating member state reaches an informed judgment on how best to support its deprived communities, and because it would likely improve the governance of the scheme.
In conclusion, I emphasise that Her Majesty’s Government have not taken part in the existing voluntary scheme for many years and have no intention of taking part in the revised scheme if it were adopted. Given that there is presently no qualified majority on paper in the Council, there seems little immediate prospect of the proposal—at least in its current form—progressing that far. The effect would be that the existing scheme would continue to operate. I understand that there is a challenge before the European Court of Justice on whether the legal base for the operation of the 2009 programme is appropriate. That has yet to be heard. The point remains that it is not an activity that is best undertaken at EU level or, in our view, an appropriate use of common agricultural policy funds. Therefore, I stress that I welcome the committee’s report and support the Motion on the reasoned opinion.
My Lords, I can be rather brief in replying because all those who have taken part in this debate have supported the report and the Motion that I have moved. I was particularly glad to hear from the three members of the sub-committee, their chairman the noble Earl, Lord Caithness, and the noble Baroness, Lady Howarth, who were able to add on the general question. In the case of the noble Baroness, Lady Howarth, we were reinforced with her knowledge of local social projects. We were also very much helped by the fact that three Members of this House had been involved in the scheme at earlier stages. Therefore, the contribution of the noble Lord, Lord Teverson, with his fascinating aperçu of acting as Father Christmas, and of the noble Lord, Lord Williamson, and the noble Baroness, Lady Quin, were particularly useful in giving us the background to the scheme. I was glad to have the support on this occasion of the noble Lord, Lord Stoddart of Swindon. I hope he notes that this is one of the benefits of the Lisbon treaty that, as well as other sections, should be taken into account.
I was asked a couple of questions. Before coming to them, one thing that has not been stressed sufficiently is that, although we do not participate in the scheme, the UK contributes to the €500 million that comes from the European Community’s budget. Therefore, that should not be overlooked when we consider this matter.
The noble Lord, Lord Teverson, asked me whether the arrangements were satisfactory. The procedure in this House has been satisfactory. We have been found a date relatively promptly so that it can be debated in good time. I will say one thing that I did not mention initially. On this occasion, we consulted our colleagues in the committees of the devolved Assemblies and asked them whether they had any comments, because some of this is the responsibility of the devolved Governments. We have not had a response on this occasion, perhaps because of a shortage of time, but it shows that we feel that we have that responsibility in matters that are not a reserved responsibility for the UK Parliament.
On the consideration in other parliaments, we have communicated with them. In the 19 countries that are participating, people may not wish to upset a continuing Father Christmas role for their countries and might consider themselves rather unpopular if they were to raise issues of subsidiarity on something that might be seen locally as beneficial. I do not know. However, I believe that we were right—as has been shown by this debate—to put forward our reasoned opinion on this particular measure. I beg to move.
Subsidiarity Assessment: Food Distribution (Reasoned Opinion)
Motion to Resolve
To move to resolve that this House considers that the amended Commission proposal for a regulation of the European Parliament and of the Council amending Council Regulations (EC) No. 1290/2005 and (EC) No. 1234/2007, as regards the distribution of food products to the most deprived persons in the Union (COM (2010) 486, Council Document 13435/10) does not comply with the principle of subsidiarity, for the reasons set out in the 2nd Report of the European Union Committee, Session 2010-11 (HL Paper 44); and, in accordance with Article 6 of the protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the Parliaments to forward this reasoned opinion to the Presidents of the European institutions.
Private Finance Projects (EAC Report)
Motion to Take Note
My Lords, although I am no longer a member of the Economic Affairs Committee, I am pleased to introduce its report, Private Finance Projects and off-balance sheet debt, which was published in March while I was still chairman. Before I do so, I should declare an interest as a member of the supervisory board of Siemens AG, one of whose divisions has been party to a private finance project.
I am grateful to all the witnesses who made the report possible and especially to the National Audit Office for its valuable contribution. I should also like to thank Professor Paul Grout of the University of Bristol whose knowledge and experience were essential to our report. The topic is important and affects all of us, but the terminology is pretty turgid: neither private finance initiative, PFI, nor public private partnership, PPP, exactly fire the imagination. “Private finance projects”, or PFPs—the umbrella term that we adopted in our report—is scarcely more compelling, but it has the virtue of embracing both the PFI concept introduced by a Conservative Government and its PPP rollout, largely under a Labour Government. The term “private finance projects” also says what it means: doing public projects with private finance. I will use “PFPs” as a catch-all term today.
PFPs use private sector capital and skills to provide public infrastructure for a lengthy fixed period. Schools, roads and hospitals are typical examples. The public sector client pays the contractors fixed sums over about 30 years for design, build, maintenance and some services. This whole-life bundling of costs into one package sounds straightforward enough but PFPs are still controversial. Their defenders say that risk-taking private contractors bring to public procurement the rigour, efficiency and skills needed to get the most out of scarce resources and that they mostly deliver to time and to budget. Detractors say that PFPs are expensive, inflexible and do not really transfer risk from the public sector. It is not easy to show where the truth lies, since lack of data on the whole-life costs of traditional procurement hampers objective comparison. This sometimes encourages heated assertion rather than cool analysis. In our report we tried to take a balanced view of PFPs, but it can be only an interim assessment; no final verdict will be possible until the bulk of the PFP deals signed in the last decade or so have run their course. Even then, the success or failure of PFPs is likely to be judged on a case-by-case basis, with type of project and local factors helping determine how each is finally evaluated.
PFPs grew from a combination of circumstances arising in the post-war decades. Broadly, growth in publicly funded services and rising expectations meant that far more public infrastructure was needed, but over time the perception grew that traditional public procurement was inefficient. The public sector specified a project, private contractors built it and the public sector was then left holding the baby. There were delays, cost overruns, contractual disputes and chronic neglect of maintenance. At the same time, Governments trying to find resources to meet ever-rising demand were looking for better value for money. It was clearly in the public interest for them to look for a new and efficient approach to public procurement.
The beginnings of what became PFPs were in the 1980s, when use of private finance in public procurement was still hedged about with restrictions. Those restrictions were largely removed in the early 1990s as the Government set out to attract private capital. Typical PFPs bring together private contractors holding shares in a consortium—a special purpose vehicle, in the jargon—formed to carry out a specific public project. The contract bundles together construction and maintenance over a long period and is financed by the contractors, mainly through debt, in return for fixed payments over the years by the public authority. Although the PFP model emerged under a Conservative Government, its use became widespread under a Labour Government such that by 2009 there were about £64 billion-worth of PFP contracts in force. This rapid growth of private finance projects is striking. It is clear that PFPs have played a significant role in the expansion and renewal of the nation’s infrastructure. Most schools and hospitals are now procured through PFPs. It will be interesting to see whether this pattern of procurement continues under the coalition Government.
It is clear that PFPs have built much in a short time, changed the urban landscape and renewed much public infrastructure. It is also clear that PFPs are best suited to certain types of projects, such as roads, schools and hospitals, since they can be clearly specified and are of a size that the private contractor can readily finance. It was striking that very few of our witnesses wanted to go back to traditional procurement in areas where PFPs had become the norm. The PFP model has also been enthusiastically adopted by other countries. On the other side of the ledger, experience already seems to show that PFPs are not the right approach for very large, complex and uncertain projects, such as the renovation of the London Underground. However, even successful PFPs, built to budget and on time, are still at an early stage in their life cycle. Few have been running as long as a decade, whereas many of the contracts are for 30 years. It will be for our successors in the 2030s to draw up a final balance.
Meanwhile our report drew conclusions and made recommendations on the basis of experience so far. Here are some of them. Public authorities should be free to choose the procurement method that offers the best value for money. There should be no institutional bias for or against traditional or innovative approaches. There should be greater clarity about financial liabilities arising from PFPs, which should be published alongside the national accounts. Data should be collected on whole-life costs of projects procured by traditional methods, including maintenance and services over the years, so that there can be meaningful comparison with the value for money of PFPs. The pros and cons of establishing a national infrastructure bank, as a means of combining financing at government rates of borrowing with the rigor and efficiency of private-sector delivery, should be kept under review. The operation of the secondary market in PFPs—the buying and selling of PFP contracts—should be monitored for any signs of a drop in build quality where contractors are able to sell completed projects that they would otherwise have to maintain. The public sector should enjoy a fair share of the benefits from any refinancing of PFPs. We also recommended that the Government should monitor the risk of jeopardising the delivery of essential services where public authorities’ budgets were constrained and where the obligatory nature of payments under PFP contractual commitments might squeeze out other critical but discretionary expenditure.
I am glad to say that the then Government were commendably swift in producing their response to our report. They were positive about many of our recommendations, including the quantification and publication of the country’s PFP liabilities and the collection of comparable data on the costs of traditionally procured projects. The previous Government also declared their intention to establish a green investment bank, which would operate on a commercial basis and involve both public and private sector capital. However, that Government dismissed our concerns about the potential effect on the ability of public authorities to deliver essential services as inflexible PFP payments took a higher share of reduced budgets. We were told that PFP payments represented very little threat to the flexibility of the Government’s budgets.
There is now a new Government. We note the commitment by the Chancellor of the Exchequer to go ahead with a green investment bank, but we have heard little of the coalition Government’s approach to PFPs. Will they still have an important role in public procurement? How far will new private finance projects be constrained by the spending review? What will be the role of the green investment bank with respect to PFPs? Does the coalition agree that public authorities should be free to adopt whatever procurement method offer best value for money? Will the Government ensure that overall PFP liabilities are clearly quantified alongside national accounts? Do the coalition Government share the view of the previous Government that inflexible financial obligations under PFPs will not constrain the ability of public authorities to deliver essential services, even as the comprehensive spending review bites?
We will perhaps not hear all the answers today. That said, it is already clear that PFPs have been a bold innovation and that their impact will remain with us for many years, although, as I have indicated, it is too early for a definitive assessment. Meanwhile, it will remain important for Governments, including the current one, to keep looking for best value for money in public procurement and to keep trying out new methods. These might include: new combinations of private sector rigour and financial accountability with the public sector's ability to borrow cheaply; the extension of PFPs beyond construction, maintenance and ancillary services to include some of the core functions in health, education or even defence; and embracing a flexible approach that allows the choice of the procurement path best suited to each project. The guiding principle of procurement should always be to get the best value for the taxpayer, especially while money is tight. I beg to move.
My Lords, this was a most interesting inquiry and I was very glad to be involved in it. PFI, or PPP, has come a long way since its initial steps, and it was an appropriate moment to judge its successes and failings and to highlight lessons for the future. It was the first parliamentary inquiry since 2000, and the first comprehensive study outside government. We received a massive amount of evidence and I hope that our report will be a valuable source of information on the issues for national and local government, practitioners and academics. I thank our chairman, my noble friend Lord Vallance, for the excellence with which he chaired some complex hearings. I thank also our excellent special adviser, Professor Paul Grout, our committee clerk and the team.
My noble friend Lord Vallance gave a very clear introduction to the background, and covered some of our main recommendations. I agree with almost everything he said and will try not to go over the same ground, except where I have a particular point to make.
The response of the then Government was somewhat cursory and dismissive in places, with very brief responses to some important recommendations. It bore all the marks of being got out in haste before the election. I admit that they did it pretty rapidly. As my noble friend Lord Vallance indicated, we produced our report on 10 March and they responded on 7 April, so it was perhaps understandable that the response was cursory in places. For example, at the outset they said that PFI remains a “small” but crucial part of government investment in UK infrastructure. It is hardly small, given that by 2009 there were approximately 800 PFI/PPP schemes with a capital value of approximately £64 billion. The then Economic Secretary to the Treasury told us that 70 per cent of hospital schemes and 60 per cent of new schools were being delivered through PFI. However, I concede that the response of the then Government accepted a number of our recommendations.
We now have a new Government and I hope that the debate is a timely opportunity to set out the Government's approach to these issues, particularly bearing in mind something that we were very much aware of in our hearings and that we acknowledged in our report. I refer to the fiscally constrained environment in which we now live, the pressures on public expenditure and the impact of the credit crunch on the willingness of the banks to finance PPP/PFI deals, 85 to 90 per cent of the costs of which are usually met by borrowing.
My early involvement with PFI came with the Dartford Crossing in the mid-1980s. I was then Chief Secretary to the Treasury. That was an early example of a private finance project—not a PFI in the current sense—in what would traditionally have been a purely public sector and taxpayer-financed infrastructure scheme. I recall there was some discussion of whether it breached the Ryrie rules that any privately financed solution must be shown to be more cost-effective than a publicly financed alternative. In my view, going ahead with it meant that it was clearly built earlier than it would have been had it taken its place in the priority pecking order in the traditional way, and that was a real benefit. Of course, it was different from subsequent PFIs in that it was financed by tolls not taxation, and it has been very successful.
Subsequently, as Secretary of State for Transport from 1992 to 1994, I was much struck when I first arrived in the department by the average cost overrun on all road schemes of 28 per cent on the original contract. We introduced design and build, which brought the contractor much more into the development, design and construction of the project and helped to bring those cost overruns down. Subsequently, there was design, build and operate and I would very much have liked to have gone further to design, build, finance and operate—finance not through taxation but in schemes that were for motorways or motorway expansion by motorway charging. That was then a step too far for some of my colleagues despite the fact that I produced what I thought was a very good Green Paper, which I still stand by, and I hope that some day it will be done, not least when the infrastructure need on the one hand and the public expenditure constraints on the other make it more desirable.
From the early days, I was a strong supporter of the PFI concept and the report shows that PFI has gone a long way to improving this overrun problem. However, inevitably with a major new innovation one learns lessons as one proceeds and some of the critics of the early PFI projects gave evidence to our committee. Broadly, I think that on the key points that they and others made, lessons have indeed been learnt and implemented and I illustrate this with three examples from our report.
The first is on refinancing. In the early days substantial gains were made by the financial partners by refinancing at lower costs once the building project had been completed and some of the attendant risks had been removed. We drew attention to this in paragraphs 84 and 85 of our report. The National Audit Office particularly criticised the Norfolk and Norwich Hospital project and its refinancing. That was one of the very early ones. Refinancing by PFI partners after the building had been completed resulted in the public sector securing about only 29 per cent of the refinancing gain while increasing the contract’s termination costs. In the report, we welcomed the Government’s action to secure for the public sector a substantial share of refinancing gains. We believe that that has now been recommended and recognised and accepted.
Secondly, there is the question of lack of skills in government departments—inevitably in project management and contract negotiations in the early stages. Again we made a recommendation on this. We recommended that public authorities should do more to maintain and improve commercial skills of staff dealing with private finance projects, with emphasis on long-term contract management as well as contract negotiation. Again, I think the Treasury has recognised and acted on the importance of this point.
Perhaps the third and most important of all the lessons is the failure of the London Underground Metronet PFP, which as we say in our report gave private finance projects in general a bad name. It was of course an exceptional project because of the huge debt guarantees the Government gave—95 per cent of the banks’ loans being guaranteed—which meant that the transfer of risk to the private sector did not happen and the loss to the taxpayer was estimated by the National Audit Office to be between £170 million and £410 million. Unfortunately, the government response does not really deal with our recommendation that PFP should not be used where the state is guaranteeing large amounts and a high proportion of debt as a means to make highly geared PFP happen. The then Government’s response simply noted our views. I hope that the Minister will look at this one again.
Before I turn to what I may describe as the big issue, there is one other detailed recommendation to which I wish to refer. In recommendation 145 we suggested, as Sir John Bourn told us, that the credit crunch, through its limitation on access to funds, thus making them more expensive and available for a shorter period, has tended to reduce competition. We drew attention to one of the problems about the lack of competition related to the high bidding expenses involved in bidding for PFIs. Of course, reducing the competition for private finance projects would increase the cost to taxpayers. We recommended that the Government should examine possible mechanisms for encouraging competition, such as returning an element of bid costs. The then Government in their reply said that the Treasury was reviewing that and that it would publish its findings shortly. I may have missed it, so I ask the Minister whether that has happened and, if so, could he comment on it?
I turn from the detailed recommendations to what I might describe as the big issue. I was an early supporter of PFI, not least for the better project management it involves and the effect it has on maintenance. Quite clearly, one of the other benefits of PFI is that maintenance is contracted for a long period ahead—and all of us who in the past have been involved in public expenditure issues know very well that if the pressures on public finance are very high, maintenance is often the thing that is cut. One of the benefits of PFI is, of course, to be able to do that.
I became somewhat alarmed at the scale and speed with which the Labour Government over the years embraced PFI and appeared to run away with it. It looked like a big wheeze, getting the credit for substantially increasing capital expenditure but without regard to the implications for many years ahead. Also, many witnesses told us that when they approached local authority projects and other projects, the Government implied that there was no game in town other than PFI. It looked like typical off-balance sheet financing, particularly when so little information was available about the level and future consequences of that PFI expenditure. Just as in the private sector, where off-balance sheet financing led to so many consequences for companies and banks, were we building up equal problems in the public sector? The problem was that, in the early stages, we could not get at the figures. Much progress in the accounting for PFI has now been made. In the earlier years, when many of us were in Opposition, we were already expressing concern about increasing public expenditure, and we knew at that stage that this did not even include all the off-balance sheet financing expenditure. At least we know about it now.
Is my noble friend confident that we now have a clear picture of current and future liabilities, and is he satisfied that the response of the previous Government to recommendations 59 and 60 on this matter have been sufficient? Above all, will he look again at our recommendation in paragraph 24? In that recommendation we draw attention to the problem of the build-up of contractual commitments over the years. We advocated that the Government should monitor and control, year by year, the impact of PFI commitments on the budgets of departments and public authorities with a view to ensuring that delivery of essential public services in future years is not unduly constrained or jeopardised by such commitments. As we move into a period of public expenditure constraint, which looks as though it will be here for some years ahead, that becomes more important. The then Government tended to respond by saying that everything was very satisfactory, that there has been full publication of all the details and, after all, that these annual payments under PFI unit charges make up a very small proportion. I do not think that is fully satisfactory. We need to know, and I hope that this Government will look again at our recommendation in paragraph 24. We need to be sure that the crowding-out effect of these future liabilities will not have a major impact on future public expenditure projects. The government response was that if a project had been financed in the traditional way, then of course there would be maintenance requirements in future years. These maintenance requirements were sometimes cut and they will not now be.
Finally, I have one last question on our recommendation on a national infrastructure bank. We recommended that the pros and cons should be kept under review and the previous Government agreed with our recommendation. Can I ask my noble friend to what extent the green investment bank, now proposed by the Government, will meet our recommendation?
In conclusion, there is no doubt that the PFI/PPP project and the whole concept has been a welcome and successful development for all the reasons our report outlines. It has been for many up to now a somewhat esoteric area, perhaps accountancy-led and with, as my noble friend Lord Vallance said, pretty turgid terminology, but it is critical. It needs greater public debate and I am glad that our report has contributed to that. I look forward to my noble friend’s speech, not only responding to some of the questions I have raised, but also giving us some idea of how our new Government see the scope and scale of PFI/PPP in future years.
My Lords, I was not on the Economic Affairs Committee for the whole of the period of this inquiry, but I was there long enough to appreciate greatly the qualities which the then chairman, the noble Lord, Lord Vallance, brought to its proceedings and which he again demonstrated in his admirably concise speech this afternoon. Our report is clear and I do not want to attempt another summary. Rather, I want to draw the attention of the House briefly to two things that it does not conclude—the two dogs, as it were, that did not bark in the night.
The first concerns the view put to us by a minority of witnesses that PFI and PFPs are taxpayer-unfriendly rip-offs. This was put to us—not, of course, quite in those terms—by, for example, the trade union UNISON and by Professor Allyson Pollock of Edinburgh University who writes a column to this effect in the Guardian every month or two which I always look forward to. As the chairman of the committee said, it is too early to be sure on a lot of these matters, but the gap between those who advance these arguments and the majority of our witnesses is a Grand Canyon. It would be to go too far to say that we refuted the arguments of the opponents and it is fair to note that many of the witnesses who gave evidence as to what a wonderful thing PFP was were at the same time lining their pockets from the proceeds of it. However, the evidence we received from the NAO, which I think can be taken as objective in this matter, seems to get it about right. The NAO said:
“Having examined many PPPs, we have concluded that private finance can deliver benefits, but is not suitable at any price or in every circumstance. It is one of many routes of delivery, which, when used for the right reasons and managed effectively, can work well. When it is used for the wrong reasons or is managed badly, it does not deliver projects well”.
That seems good judgment and it contains the view as to why the critics, in my view, are getting it wrong. What they tend to do is take the odd project that has gone wrong and present that as if it were typical. As every speaker has mentioned so far, the project that most obviously went wrong was the ludicrous London Underground project, which was far too complex to be done through this kind of contractual obligation. I do not expect to say this very often in my life, but Ken Livingstone was right and Gordon Brown was wrong. We need to balance those failures against the many successes and the general feeling that our public infrastructure is a great deal better at less expense and to greater benefit to the public as a result of these schemes.
The second dog that did not bark—the noble Lord, Lord MacGregor, just referred to it—is the case for a national infrastructure bank, often referred to as a national investment bank. Fortunately, they have the same initials so it does not matter—NIB. I noted that the noble Lord, Lord Myners, called for such an institution when he spoke in the debate on the comprehensive spending review on Monday. On this matter, the committee sat firmly on the fence. We resoundingly concluded that the pros and cons should be kept under review and, the nature of that recommendation being what it was, the Government cheerfully agreed with us. I do not think, however, that the recommendation quite captured the general tone of the group’s discussion. Some of us, at any rate, find it hard to see what it is, precisely, that such a bank would do. Is it going to lend at rates keener than private sector banks? If so, that distorts the market. If the rates are the same, why bother? Despite the failings of the banking sector over the past three years, not all of us are convinced that more publicly owned banking is the long-term answer to Britain’s economic problems. After all, the crash itself, to a great extent, owed its origins to the misdoings of two American public institutions—Fannie Mae and Freddie Mac.
The committee believes that this report represents a reasonable and balanced contribution to the ongoing debate about an evolution of a public finance initiative and so we commend it to the House.
My Lords, I commend the committee on this extremely interesting and timely report and my noble colleague Lord Vallance for his clear introduction to today’s debate. I was amazed, in reading the report, to see that, despite the amount of political discussion there has been on the subject, there has been no comprehensive review of PFPs by any parliamentary body for a decade. This report certainly helps fill that gap. I was also surprised, as the NAO pointed out, that there is no apparent robust and systematic evaluation of the use of private finance at either a project or programme level across government. So it is no wonder that it has proved so difficult to form a definitive view of the effectiveness of PFPs and no wonder that so much of the political debate on the subject has been so ill informed.
However, the report points out that PFPs have a better record of being produced on time and to budget than traditionally procured projects. For the period ahead, as we look to radically update our infrastructure, private finance is clearly going to play an even greater role. One has to accept at the start, as the noble Lord, Lord Lipsey, pointed out, quoting the NAO, that this model does not work for everything. In some areas where it has been tried—London Underground being one example—it has failed pretty spectacularly. In other areas, such as defence and IT projects, the basic underpinning concept does not work very well because you cannot, at the end of the day, transfer the risk so the Government end up bearing the risk. So there are clear limits to where this approach is the most appropriate.
However, in many areas it clearly has worked relatively effectively and, given that the estimate of the infrastructure expenditure we need over the next decade in the UK is £400 billion, we are clearly going to need to look to sources of funding beyond general taxation to meet the majority of that. I wanted this afternoon to concentrate on looking at the funding of future infrastructure projects in the UK. In some respects the UK should be relatively well placed to attract the funds. In a report produced and published yesterday by Berwin Leighton Paisner, 85 per cent of the experts on infrastructure it surveyed believed that the climate for global investment in infrastructure would improve over the years ahead, and that the UK was considered the most attractive location for delivering infrastructure projects anywhere in the world, but that the availability of funds would be a major constraint. Fifty-nine per cent of the respondents to that survey saw PFP as being important or very important in stimulating demand for infrastructure investment.
In the report, the committee looks at potential sources of funding for infrastructure investments and specifically refers to pension funds as an area of potential. It is interesting that at the moment UK pension funds lag behind in the proportion of their funds that go into infrastructure investment. In the UK, only 0.5 per cent of pension fund investment goes into infrastructure compared with 2 per cent in the Netherlands, between 4 and 5 per cent in Australia and as much as 10 per cent in Canada, so there is clearly considerable scope if the structures are right for greater pension fund involvement in this sector.
There are clearly significant amounts of overseas funding looking for a home in UK infrastructure. I understand that the Mayor of London’s office is regularly approached by potential investors, including sovereign wealth funds, that are looking to invest in infrastructure in London because they see it potentially as an extremely safe, long-term bet. Does the Minister believe that at present there is an effective way of capturing approaches that are coming in to the UK, to the mayor’s office, to central Government or elsewhere, from sovereign wealth funds and others that are looking to invest in infrastructure? At the moment, I am not sure who I would tell any such person to approach in government, and I do not know how successful we have been in converting such approaches into the hard cash that we need.
A further area that is cut out for infrastructure expenditure is the sukuk model of Islamic finance. An asset-based approach to finance could be developed very significantly here. Given that that sector is increasing by 20 per cent a year globally and that there are already very strong links and a very strong Islamic finance sector in the UK, that is a specific area that we could look at further.
The noble Lord, Lord Lipsey, referred to the national infrastructure bank. The report refers to the European Investment Bank, which is committing €1 billion a year to the UK. There is a wonderful quote in the report from Mr Simon Brooks who said that it would be ridiculous to introduce an investment bank in the UK. He said,
“nobody in Europe needs to introduce a NIB because they have got us!”.
We may have the European Investment Bank, but if the sum total of its potential in terms of the UK is €1 billion a year, it is clearly not going to fill the gap. I am a lot less sceptical than the noble Lord, Lord Lipsey, about the potential of the green investment bank because, as the Wigley report pointed out, there are a number of areas of market failure in the area of infrastructure investment which can be met only by new mechanisms of financing, and the green investment bank is potentially one of them.
The big question about a lot of this kind of expenditure is that it will take place only with some sort of government guarantee: underwriting, a cap of risk or some sharing of risk. The obvious example is that if we are going to build the high-speed rail link with private finance, investors are almost certainly going to need to be guaranteed a baseline level of revenue if they are to invest the billions of pounds that will be required. I welcome the Minister’s view on this. The role of government is hugely significant here, not just because many projects will not go ahead at all unless there is an element of government underwriting, but because the cost of financing the projects will fall to the extent that government accepts some of the risk. I was interested and intrigued by paragraph 3.16 of the National Infrastructure Plan, which came out last week:
“Reducing the cost of capital by reducing the level of risk transfer to the private sector has the potential to achieve considerable cost savings. A one per cent reduction in the cost of capital on a total infrastructure investment programme of £500 billion is worth £5 billion per annum”.
That is significant money, and the attitude of government towards accepting risk will therefore be crucial. Unfortunately, having made that immensely interesting comment, the National Infrastructure Plan gives no indication of whether the Government are therefore going to take their own advice, but risk is central to infrastructure expenditure more generally and to PFPs in particular.
There is great potential in infrastructure expenditure and investment in future using the model that is described in the report if the Government and the private sector can build on experience to date and look to more flexible and innovative ways of developing it in future.
My Lords, it is the lot of a Whip, whether a government Whip or an opposition Whip, that by the time a topic has cascaded down to one’s level, one usually finds oneself talking about a subject that one had not heard about 48 hours before. It is therefore a refreshing change, although it is perhaps going to be a painful one, to find myself talking about a subject in which I have had very considerable personal involvement. I shall declare my interests in PFI; I was managing director of London Underground and subsequently its chairman between 1988 and 2000, a period in which it was a leading player in PFIs. London Underground bought a fleet of Northern Line trains on PFI, handed over management of its power and communications systems, both telephone and radio, to the private sector, had a very successful ticketing programme, to which I shall return, and had the infamous London Underground PPP, of which I will admit to being the architect. I say that because it has been explained to me that success has many parents, whereas failure is an orphan, so there will be little contention of my claim to be the architect of the London Underground PPP.
I shall touch on the contributions of other Peers before I start. I thank the members of the committee for the work they have done on this report, and the noble Lord, Lord Vallance, for his presentation of it. I am very respectful of the report and greatly welcome its contribution. I thank the committee for finding the new term—PFP—which I shall try to use in future in this confusing terminology. I shall touch on a number of the points made by the noble Lord, Lord MacGregor, but we have a joint confession to make that during that period he was at one point my boss, so there is some coresponsibility in this Chamber. I thank the noble Lord, Lord Lipsey, for his quote from the NAO. It is probably a good summary of where we are on what we now call PFP. It is like the curate’s egg, but there is a lot of good in this egg as well as some problems. On banking issues, I would be trespassing on areas where I have no in-depth knowledge. The noble Lord, Lord Newby, brought up risk. I shall spend a little time on it. It is ill understood in the realm where PFPs happen.
The Opposition’s position on the report is in many ways the Government’s, in so much as it is contained in HL 114. I am sorry that the noble Lord, Lord MacGregor, found the Government’s response dismissive. I will concede that on some issues there should have been more reflection and more depth, but one is between a rock and a hard place in trying to get the response out quickly—we are grateful for the commendation—and responding in depth. Tonight is only the beginning of what will be a continuing debate on how the new Government will respond to the issues brought out in the report.
The first area that I would like to touch on, which is touched on gently in the report, is what I will call government pressure on public sector managers to use the private road for procurement. In the 1990s—I will limit myself to that time because I have no direct personal experience—the pressure at official level was not gentle, it was brutal. You were flatly faced with the fact that if you wanted your project, it had to be done the private way. I tried all I could to make sure that our submissions were honest and fair and balanced, but when you think of that pervasive pressure right the way through the system, it is not surprising that questions are asked as to whether the right public sector comparator was used, et cetera.
Treasury pressure is touched on in the report, but possibly the strongest paragraph is paragraph 61 in which the Government are asked to commit to not bringing institutional pressure on parts of the public sector to use private procurement. So, the first assurance I seek from the Minister is that best value for money will be the principal consideration when deciding whether to use a PFP procurement road. In responding to that question, I would like him to reflect upon the need for there to be practical public alternatives if that evaluation is to be made in an even-handed way.
All Governments fail to see—they say the words but they do not enact them—that investment in infrastructure is investment in what makes our country work. That is quite different from present consumption. The actuality of finding the money for investments from public sources is extremely difficult for a public sector manager; he is driven in this private direction. It was seen as almost the only way for investment to be brought into the business one was responsible for.
It is extremely easy to talk about risk at a theoretical level, but in the real world it is not like that. When you have big projects and you are in the public sector, you do not say “you take the risk” and that is the end of it. In practice, with a big project you are in what I describe as a deadly embrace. Yes, the survival of your supplier depends on your behaviour towards them, how you push risk and how you prosecute the route, but your ability to trade tomorrow depends on that supplier. The worst example in my professional career was not in private sector procurement; it was in the acquisition of 85 trains for the Central Line. That company threatened to go broke about a year and a half into the project. Our problems were so extreme and our options so few that we seriously considered buying the factory off the receiver and going into train manufacture. In the end we did a deal with one of the co-parents and paid the money for a parent company guarantee to see the project through.
It is a fact of life that in these big projects risk migrates to the party of substance, and that is the public sector. The real risk transfer is extremely modest. The value of private sector initiatives is the way in which small behaviours are incentivised to the public good. I will touch more on that later. For this reason I question the value of the off-balance sheet charades that we have played in this area. The report very much gets to the nub of this. I confess that my Government did not perhaps answer these questions in the required depth. This is brought out particularly in paragraphs 59 and 60. I would like the Minister to answer the challenges in those paragraphs with much greater clarity and much greater depth. Public/private finance capital is, frankly, part of the real balance sheet, and at least it must be exposed in a clear way so that we can see what has happened.
The rest of the report shows guarded support for PFI. I share that view. We have had good experiences. One of the worst things about having Her Majesty’s Government as your banker is that they are stunningly unreliable. They will promise you money one year—sometimes just before an election—and suddenly it is withdrawn the next year. The ability through the PPP to assure a partnership and funding is very much demonstrated by today’s Oyster card. That development is possible because of a long- term relationship. That programme started 25 years ago. It was translated into the private sector in the late 1990s and flourishes because the private sector has money to develop it and because the partnership works relatively well.
Whole-life costings work. When we acquired the Northern Line trains we discovered, largely because it took them a year and a half extra to build the damn things, that for the first time in all the time we bought electric trains—and we have been buying them for 100 years—the manufacturer suddenly discovered that he could make them more reliable and easier to maintain, which was not exactly surprising because the manufacturer was going to make all the money out of the deal by repairing them and maintaining them. It was a complete re-design. The concentration of whole-life costing was absolutely invaluable.
Finally, I come to my experience, in a sense. The Underground PPP was a ludicrous failure and so on and forth, but its failure was more complex than the report suggests. I put that down to two things. First, the special purpose vehicle—Metronet in particular—was a very unsatisfactory business structure. We really should have seen that. We were trading with an enterprise that was owned by its suppliers, and its suppliers were making their profits between them and the enterprise, not through a share of the profits of the enterprise. Whenever you bring a consortium together, you must make sure that the owners make their profits in the consortium, not in the supply arrangements. Secondly, the Treasury guarantees were probably reasonable in the circumstances, but the Treasury did not have the right tools of transparency so that it could monitor the risk of those guarantees being called in. The conclusion I draw from this is not that we should not do big complex private deals—they may, in fact, be the right vehicle—but that public sector teams of extremely high quality are necessary to do such deals.
I would like an assurance—the noble Lord, Lord MacGregor, touched on this—that if the Government contemplate such a deal in the future, they will first make sure that they have a team of the weight, the intellectual horsepower, the experience and the breadth necessary not just to look at the lines of the deal, as lawyers do, but to see behind the deal and address how people are going to behave with the various incentives. I ask the Government not necessarily to be deterred by the LU experience but to learn from it. I hope that the Minister will take account of that.
The one area in which, from my experience, I thought the report was weak—I have a slight difficulty with this, because I have nothing to add to it—is the problem of the preferred bidder. The complexity of PFP deals means that they take a long time to put together and are quite costly. The private sector has this device of saying, “You have to come to a preferred bidder status with someone, otherwise we cannot afford to continue”.
It is a real dilemma. The case for having a preferred bidder makes sense, but the problem is that the reality of having an alternative goes out the window. I do not know how, in future, the public sector will be able to establish value during the preferred bidder stage, but be able to find an escape route. But the report lets the process off lightly by not going more into the trap of the preferred bidder. I hope that the Government will think more on that whole issue.
In conclusion, I welcome the report, which gives valuable input to the debate. I would ask the Minister to respond to the report and to the emphasis that I have made. I encourage him to use the report—I think that the noble Lord, Lord MacGregor, touched on this—as source material in the training of public sector teams involved in this work. This very good document, which covers the past, can help people to learn the skills necessary to ensure that the public sector will get best value out of these schemes.
My Lords, I thank the then members of the Economic Affairs Committee for preparing such a thorough report on the use of private finance to deliver public projects. I extend my gratitude to all those noble Lords, whose contributions to today’s debate I have found invaluable. I spend a lot of my time here answering for things that are not in my direct area of policy responsibility, but I am pleased that on this occasion there were not 50 Members of this House talking about such areas, many of which I know little about, but half a dozen valuable contributions on something on which I know a little. I was a director of Partnerships UK between 1992 and 1996. It is also a pleasure and a daunting challenge to follow one of the world’s great experts on PFI—the noble Lord, Lord Tunnicliffe—and to have this debate kicked off by my noble friend Lord Vallance of Tummel, with whom I worked in a small capacity a number of years back when he was taking one of our biggest pieces of national infrastructure, British Telecom, into the private sector.
At the outset, I should stress that it is clear that public/private partnerships will continue to play an important role in underpinning our country’s future infrastructure. The noble Lord, Lord Lipsey, reminded us how much has been done. A number of times we have been reminded that this effort has gone through several Administrations, which have now been led by the three main parties in this country. We share a commitment to learning the lessons and making such projects better but also to continuing with them, which is what the committee’s report suggests. The report highlights where private finance has brought valuable disciplines to infrastructure planning and implementation.
Many of the questions and comments today have reminded me that there are quite a number of challenges to improve the model going forward. I will do my best to answer a number of those questions now, but I will write on points that I fail to pick up or where, on reflection, I could have given a fuller answer.
I turn first to some of the balance sheet questions—I ask noble Lords to forgive me if I do not refer to them by name each time on points that they have raised—which were brought up by my noble friend Lord MacGregor of Pulham Market and the noble Lord, Lord Tunnicliffe. We are constrained here because we are bound by European accounting requirements that set the framework for how each project is recorded in the national accounts. However, I recognise that these requirements can make it difficult to get a clear picture of the public sector’s commitments, which is something that we must remedy. It is the Government’s policy to ensure that future liabilities are made obvious to the public and that complex financial instruments, such as PFI, should not hide the true cost of investments that the Government have made. Such practices are completely out of step with our strong transparency agenda but also risk the endorsement of projects that do not represent good value to the taxpayer.
For that reason, we have already taken action to bring greater transparency to PPPs. It has been a long time coming, but I can confidently say that next year we will publish, for the first time, whole of government accounts, which will be prepared according to international accounting standards. This will ensure that the vast majority of PFI transactions will appear on balance sheet. In future, we will also publish details of all new government contracts valued at more than £25,000, including PPP agreements. This will enable members of the public to assess the ongoing costs of long-term commitments, and will complement the existing reporting of PFI commitments disclosed on the Treasury’s website.
A second area of concern to us and to speakers in this debate has been funding for local government and government departments. There were questions around ring-fencing, bias and so on. Ring-fencing, in particular, meant that government departments and local authorities could use PFI as a means to increase their budgets, with potential for diverting funds away from more beneficial areas—those which offered greater value for money. In answer to the question asked by the noble Lord, Lord Tunnicliffe, I stress that, in this regard as well as in other dimensions, the Government absolutely want to do whatever they can to remove any bias over alternative ways of public procurement, including over public versus private financing. We have already taken action to address the particular problem of ring-fencing by removing the existing ring-fence and transferring financial responsibility for the grants back to the relevant government department. This will place all procurement options on a level playing field and ensure that merit rather than increased budgets determine which projects should go ahead.
That leads me on to the impact of PFPs on departments. In answer to my noble friend Lord MacGregor’s concern, we will continue to monitor all PFI contracts and information on the flow of payments under those contracts. Of course it is the case that, following the spending review, the budgets for departments will be constrained. Our initial analysis, which we did in conjunction with the spending review, suggests that this should not cause any department a significant problem. However, we will continue to monitor the level of commitments that are being made.
Some speakers have stressed the need for a national infrastructure bank, while others have questioned it and I think that my noble friend Lord Newby offered some mixed messages. My noble friend reminded us of the strong private sector appetite for investment in infrastructure and drew particular attention to sovereign wealth funds. Certainly, my discussions with sovereign wealth funds—both here and on a recent trip to the Gulf—and my discussions with long-term investors, insurance companies and others suggest that there is a strong, latent demand. I can assure my noble friend that we are taking new steps across government to make sure that we co-ordinate our contacts with sovereign wealth funds and with a range of the largest actual or prospective inward investors into the UK. His point is well taken. He challenged me to say whether this has translated into action yet. Of course, it is early days, but we are certainly starting with the co-ordination so that we can understand what investors want and channel their appetite—in so far as it is in the Government’s gift to do that—appropriately. When I was in the Gulf, I had a couple of discussions with Islamic finance specialist houses, particularly in Kuwait, so I am well aware of their possible involvement in this area.
Against that background, we have to be careful—the noble Lord, Lord Lipsey, drew attention to this—that Government-backed loans, if and when they are necessary, which is still open to question, do not increase the incentives for the private sector to deliver value for money by transferring risk away from the private provider to the public sector. We must ensure that there is no crowding out of private investors by the Government reducing competition and stepping in where there is not a market failure. For that reason, it is our policy for the Government to make loans only where they do not risk undermining the wider market, or where such loan or construction of a particular financial instrument helps to address a specific market failure. In that spirit, we will look to target the green investment bank—which will initially have £1 billion of government capital and the possibility of proceeds from government asset sales but will not have a mega balance sheet—on helping to relieve particularly challenging areas of risk on projects, particularly at the front end or where new technology is involved. We will come forward with the design of the green investment bank by spring 2011.
I turn briefly to the question of project failures and guarantees, which was raised several times. It is important to note that PPP, including PFI, critically allows us to transfer substantially more risks to our partners than conventional procurement. As has been said, we should not shy away from taking on challenging and complex projects. However, I absolutely take the point made by the noble Lord, Lord Tunnicliffe, that we need appropriate expertise in government when we come to such projects. At the moment, there is nothing on the scale and complexity of Metronet in the pipeline, but when we contemplate such projects, yes, we absolutely need the expertise. That is why it was absolutely right of the previous Government to centralise the expertise in Infrastructure UK as an infrastructure financing unit within the Treasury, especially given the particular circumstances of the past couple of years. My right honourable friend the Chancellor confirmed at the time of the Budget that Infrastructure UK remains central to how we take our efforts forward. That is the best answer that I can give to the question about expertise, which we recognise.
My noble friend Lord Newby picked up on a point in the national infrastructure plan about risk transfer and the possibility of reducing costs. I point him to one area discussed in the report, which is whether we can expand the use of the regulated asset-based model as a way of attributing risk in a different way and bringing down the cost of capital. That is very much work in hand.
On the question of preferred bidders, PPPs are now sufficiently complex contracts that they have to be procured under the so-called competitive dialogue procedure. This prohibits any discussion of the scope or cost of the contract with the preferred bidder and was designed to stop the so-called deal creep that has been seen in the past. The Treasury will publish a review of the competitive dialogue procedure—that addresses part of the point made by the noble Lord—later this month.
The committee's report also highlighted the value that private sector expertise and due diligence bring to PPP. In that context, one specific point that was drawn to our attention was bid costs. That issue has arisen again, particularly in the re-review of projects that we conducted following the election and ahead of the spending review. Although government policy remains that bid costs should not be paid unless in exceptional circumstances, the Treasury review of competitive dialogue—which, as I said, is scheduled for publication in November—will set out details of our review of policy in that area.
To wrap up, I emphasise that public/private partnerships, including PFI, will continue to make a valuable and important contribution to our future infrastructure needs. There are more than 670 signed PFI contracts, and the spending review confirmed further new projects, including three maintenance projects and the Nottingham tram extension. However, I think that we all agree that PPP should be used only where it offers real value for money. In pursuit of that objective, we have taken steps, as I have described, to improve how we assess those partnerships. We have removed the financial incentives that unfairly encouraged the use of PFI over other delivery structures. I mentioned the steps that we have taken to drive forward transparency. We have set out the broader challenges facing our infrastructure in the first national infrastructure plan, to which my noble friend Lord Newby drew attention.
In conclusion, the Government absolutely acknowledge the points raised in the Economic Affairs Committee report about both the benefits that private finance projects bring and the drawbacks of the current system. We will continue to look at options to improve the way PPPs perform, building on the work that we are already taking forward. In the current climate, there is a particular need to get the best possible deal for the taxpayer, and we are completely committed to that. I welcome the conclusion of the committee's report. I thank my noble friend Lord Vallance of Tummel and the other members of the committee for it. I absolutely take on board the valuable suggestion of the noble Lord, Lord Tunnicliffe, that it should be used as source material for training people in government.
My Lords, PFPs clearly present a complex set of financing and procurement issues, and it is relatively easy for them to become politicised—although not, of course, in your Lordships' House. The very adjectives “public” and “private” can produce knee-jerk reactions—a point to which the noble Lord, Lord Lipsey, alluded. As someone who has spent half of his career in the public sector and half in the private, I know that neither has all the answers. What matters in public procurement is to keep learning the lessons of the past, to keep experimenting with new ideas and, critically, to build up real procurement expertise in the public sector—a point made strongly by the noble Lord, Lord Tunnicliffe, and acknowledged by the Minister.
I am very grateful to the Minister for his thoughtful and positive response to our committee's report, and trust that he will keep it high on his agenda.
European Social Fund (EUC Report)
Motion to Take Note
My Lords, I present this report as chair of the Social Policies and Consumer Protection Sub-Committee at the time when the inquiry was conducted and the evidence heard. I am grateful to my noble friend Lady Young of Hornsey, the present chair, for graciously allowing me to make this introductory speech. But then, she has inherited one of the best jobs in the House of Lords. During my time with Sub-Committee G, the staff, Kate Meanwell and Alistair Dillon, were always engaged and informative. I thank them both for that service, along with Talitha Rowland, the present Clerk to the committee. We were aided in the inquiry by our specialist adviser, John Bell, who helped to guide us through a mountain of information and complexity. I am grateful to them all.
The European Social Fund is one of the EU’s main structural funds and aims to improve employment opportunities for workers in the Union. Key to this role is the concept of developing individuals’ employability, above all through targeting the hardest to reach and the low skilled. The fund is worth €4.5 billion to the UK in the current programme, which runs from 2007 to 2013. This inquiry was conducted by the Social Policies and Consumer Protection Sub-Committee against the backdrop of the financial crisis and rising levels of unemployment, and the report was published in March. The committee undertook the inquiry with three aims: to assess the effectiveness of the fund both in terms of meeting its objectives and in responding to the financial crisis; to review its policy priorities in the context of the economic recovery and the imminent introduction of the Europe 2020 strategy; and to make recommendations on the long-term role and functioning of the fund.
The Committee heard evidence from a wide range of stakeholders, in addition to visiting ESF-funded projects. At the end of all of that, we were left in little doubt as to the worth of the ESF, which has particular benefits in terms of introducing new ideas, social inclusion and economic development. However, we concluded that there are a number of ways in which the ESF could be made more effective. Chief among these were that greater effort needs to be made to target the hardest to reach and that the achievement of soft outcomes, which help move participants towards work if not into full employment, need to be given greater value. We also drew attention to the need for flexibility, both mid-programme and regionally, to be assured. On the longer term functioning and role of the ESF, the committee considered that there should be closer alignment between the ESF and the European Regional Development Fund on the one hand and national job creation programmes on the other. This is vital to ensure that there are sufficient jobs for those helped by the ESF to take up. The committee also felt strongly that the ESF should continue to be available throughout the EU and should not be withdrawn from wealthier member states, because some of them may not remain wealthy. That was our main point of disagreement with the previous Government because there are pockets of deprivation in all countries.
We were pleased to note that the coalition Government, in their response to the report, agreed with the committee that the ESF should be focused on supporting the hardest to reach. These are the individuals who are furthest from the labour market and possess the fewest characteristics needed for participation in that market. They are also likely to be difficult to engage. There was broad agreement among our witnesses that the ESF was well placed to target these groups. We consider this to be particularly valuable work and have recommended that priority be given to safeguarding this aspect of the ESF’s role.
The committee had the opportunity to observe at first hand the hardest to help support provision when it visited a charity, Tomorrow’s People Trust, which works in the East End of London helping to tackle the cycle of unemployment. Its target groups include the over-fifties, those with disabilities or health problems, ex-offenders and the long-term unemployed. We welcome the Government’s agreement that work with the most disadvantaged and the least skilled should be the focus of the ESF, and we look forward to learning how this will be ensured in the next tendering rounds. The committee felt that the third sector is often particularly well placed to target these groups and we therefore also welcome the commitment in the Government’s response to encourage smaller voluntary organisations to participate in the programme and deliver contracts. Again, I would welcome further details as to how this will work in practice. Many small voluntary organisations felt that they had to pull out because they could not engage in the present arrangements.
The committee recognised that in many cases helping the hardest to reach will not necessarily lead to a tangible outcome such as employment during the life of the programme. Instead, there is a multitude of what I mentioned before—soft outcomes, which, although harder to measure quantitatively, are no less significant. These can include developing participants’ confidence, improving their ability to work with others—anger management was one example—and improving their timekeeping. My noble friend Lady Young talked of the young man who was just managing to get up in the mornings. These benefits were highlighted in a visit to Step Up, an ESF-funded project in Elephant and Castle which is targeted at 14 to 18 year-olds. These soft outcomes are important interim steps on an individual’s difficult journey towards employability. The committee was concerned that this should be sufficiently recognised in measuring effectiveness and that payment should not be withheld from providers unless they are successful in securing jobs for participants. This runs the danger of encouraging organisations to cherry pick participants who are closer to the labour market and easier to deal with. The committee felt that this danger could be overcome by improved measuring of soft outcomes and by placing a requirement on providers to collect such data in addition to hard outcomes.
The committee was particularly impressed with the potential of longitudinal cohort surveys to measure soft outcomes and, although the Government do not propose to make these compulsory, we were pleased to note in the Commission’s response that it intends to explore the potential of these surveys further. The Government also stated in their response to the report that soft outcomes are included in contracts “where appropriate”, with providers required to record them. Can the Minister tell us when such inclusion might be deemed appropriate and how such outcomes will be valued for the purpose of paying providers? Payment by results is a strong phrase these days, but we need to know what the results look like.
We also emphasised the need for the ESF to be sufficiently flexible in order to be able to respond to external factors such as the recent recession and to the different economic profiles of regions. The committee was pleased to note that the Government broadly accept its points, but I reiterate its recommendation that the reason for delay in the disbursement of extra funds resulting from the revaluation of the euro should be fully reviewed in order that lessons can be learnt.
I turn now to the future of the ESF. We were pleased to note that the committee, the Government and the Commission are all agreed that the ESF and other structural funds have a crucial role to play in making the Europe 2020 strategy a reality. Sustainable development is an important aspect of this, and the report places emphasis on green jobs and skills being recognised and given sufficient support. The committee’s report also recommends that job creation programmes, whether EU or member state funded, should be more closely aligned. In this context, we noted with interest the revised welfare to work programme which formed part of the coalition agreement. We would be interested to hear from the Government regarding the link between this programme and the ESF. We are particularly concerned that any uncertainty over the future work programme should not jeopardise ESF provision.
The report also recommended that the ESF and the European Regional Development Fund, the ERDF, should be strategically aligned. The Commission’s recent paper reviewing options for the EU’s post-2013 budget suggested the adoption of a common strategic framework encompassing the actions covered currently by the Cohesion Fund, the ERDF, the ESF, the European Fisheries Fund and the Rural Development Fund. Such a framework would, the Commission suggests, provide greater coordination and could,
“identify linkages and coordination mechanisms with other EU instruments such as programmes for research, innovation, lifelong learning, and networks”.
We would be interested to learn the Government’s position on this.
The committee remains convinced that the ESF has worth for all member states. Unemployment does not respect national boundaries and, as such, we believe that the ESF should continue across the EU wherever there is need. This was a point where the majority of our witnesses were in agreement, including the Welsh Assembly Government. Many of our witnesses also made the point that EU-funded projects provided a degree of security, with funding over a seven-year period, which was not available at member state level due to the unpredictability of politics and national priorities. We welcome the Government’s policy to maintain ESF provision in the UK over the next financial perspective but we are extremely concerned about their policy of advocating withdrawal of the fund from wealthier member states over time.
Our concerns here are twofold. First, we are in agreement with the Commission that the ESF is a valuable and concrete expression of solidarity among Europe’s citizens. Indeed, the committee recommended that awareness and visibility of the ESF should be improved. Secondly, it is not clear what would replace the ESF if funding were reduced or withdrawn. This is particularly vital given that ESF provision is, by definition, additional to existing national programmes. The previous Government were unable to give the committee any indication of this when questioned during the course of the inquiry and it is not covered in the coalition Government’s response to the report. I hope the Minister will be able to respond to that point today as well as providing clarity on the Government’s present position with regard to the future of the ERDF and the ESF in the UK budget review.
I look forward to hearing from other noble Lords and from the Minister how the ESF can be strengthened and improved and how the vital work it accomplishes with those who would otherwise be outside normal society can be assured for the future.
My Lords, I welcome this report and I thank the noble Baroness, Lady Howarth of Breckland, for her excellent speech in introducing it to the House. As a new boy, I have seen this afternoon two excellent examples of the work of the European Union Committee, which is, unfortunately, one of the few examples in the United Kingdom of an attempt to contribute to intelligent debate on the future of the European Union. It is a pleasure to participate in this debate.
I would like to make three points: first, to support the plea of the noble Baroness, Lady Howarth, for the Social Fund to be retained; secondly, to argue that its objectives should be aligned more closely with the Europe 2020 strategy; and, thirdly, to make the case that its delivery in the United Kingdom should be more flexible. I would like to tackle those points in reverse order.
First, on delivery, I read in the report the representations of the third sector, which feels that it is difficult to access Social Fund money for projects. I also read the views of the Local Government Association, which points out that current ESF management and delivery is far from perfect. The fact that ESF money is managed by a range of different government agencies means that local authorities find it hard to help prioritise the fund towards local need. The LGA goes on to give its view that councils, groups of councils or local enterprise partnerships should set the ESF strategic direction and ensure that it delivers outcomes that are relevant to that need. I would like to support that.
However, the local economic partnerships were but a gleam in the eye of the right honourable Eric Pickles when this report was prepared so it could not have considered that point. It seems to me that there is a strong case for the use of the Social Fund to be devolved to local level so that we get away from this silo delivery mechanism through the Department for Work and Pensions. That would fit in with the efforts of the Government to take forward the principle of Total Place so that all the various bodies that have something to do with helping the disadvantaged to gain skills—Jobcentre Plus, the Skills Funding Agency, the FE colleges, the police, probation, social work and all those sorts of groups—can combine their efforts in programmes on the ground. I ask the Minister what his view is of delivery and whether he sees a radical change away from the kind of centralisation that is pursued under the present arrangements.
Secondly, on objectives, the Social Fund is perhaps a case of not too little subsidiarity—which we debated earlier this afternoon—but too much, in the sense that member states throughout the Union basically use the money available under the Social Fund to supplement what are essentially national programmes. There is not real EU value added additionality. A big problem for the EU is that our national leaders put a lot of effort into devising things such as the Lisbon strategy, which is now the Europe 2020 strategy, which sets a comprehensive set of objectives for the European Union, but they do not ensure that there is a link between those EU objectives and processes—the guidelines, the monitoring mechanisms, the reports on member state actions that are produced in Brussels, the open method of co-ordination—and the way that the EU budget is spent. If there is to be more purchase over what happens in member states, there has to be that link between the EU budget and EU-agreed policies. When we look at the Europe 2020 strategy, we see that there are several items—youth on the move, new skills for new jobs and the platform against poverty—for which the Social Fund could be used.
I would like to draw particular attention to the platform against poverty. The Prime Minister signed up to this at the June European Council. For the first time, EU poverty targets will involve help to get the hardest-to-reach people into work as one of the methods of addressing poverty. If we sign up at EU level to these targets, surely we can also sign up for the proposition that the Social Fund should be retained and should be used in order to take forward those targets. What is the Government’s policy on that?
That brings me to the future of the Social Fund. I am a strong supporter of the existence of the structural funds and I do not agree with the view that HM Treasury had under the previous Government that we ought to try to get rid of them. I remember getting quite upset about that when the proposition was initially put forward. Just as I was about to send off some intemperate memo to the Prime Minister to say how wrong I thought that was, one wise official told me, “Oh, don’t worry, Roger, let them go and argue it. They’ll get nowhere because the Germans will never agree to it”. The Treasury thought that it had found some friend in the German finance ministry who thought that the structural funds should not be applied to the richer member states. Then they came up against the reality of German politics—remember that Mrs Merkel represents a constituency in the former East Germany, where these funds are important in demonstrating to the German taxpayer that they are getting some value from their contribution to the EU. I doubt that there is much real prospect of getting rid of the structural funds, but I would like to hear that from the Minister.
I would also like to hear a recognition from the Government that there is a real UK national interest in supporting the structural funds, in particular the Social Fund. That national interest is that we very strongly want to see a better functioning single market in Europe. However, the only way that we will win political consent for that objective is if there are accompanying social policies that deal with the problems of winners and losers in that enhanced single market.
These are my views: we should retain the Social Fund; it should be more closely aligned with EU policies; at local level, its delivery should be more flexible; and, we should also get away from the centralisation that characterises what now happens. With that, I commend this report.
My Lords, I, too, thank the noble Baroness, Lady Howarth, for opening this debate so well. I will do my best to follow on as a member of her committee that was. We are living through difficult times when social issues and the provision of jobs are more important than ever, so it is valuable and timely to be addressing the examination that has been conducted of the European Social Fund. Every possible initiative has to be sustained and encouraged; that is to say, in my view, to help in particular people into work.
There are many views and outlooks when it comes to this. For example, in evidence given to the committee in 2009, Off the Streets and into Work—one organisation among many that came to talk to us—said:
“As unemployment rates rise, there has been increased investment at national and regional level targeting support at those at risk of redundancy or who have recently lost their jobs. Whilst this is wholly reasonable and appropriate, there is a risk ESF resources will be diverted away for the long-term unemployed, many of whom face multiple and complex barriers to employment. We”—
that is, the organisation—
“firmly believe ESF resources should be used to address the needs of participants not well served by mainstream programmes. Without it, we will see a growing ‘underclass’ of the unemployed who are consistently overlooked by successive welfare to work initiatives.”
That is just a bit of the evidence that we had. We had much evidence that was of great interest.
I shall now raise a point that the noble Baroness, Lady Howarth, has already raised, since it needs emphasising: to look ahead. We in the committee and many witnesses were very concerned at the previous Government’s view that there should be an end to the availability of structural funds directed towards more prosperous states, including the UK, after 2013. It is great to see the then Minister in his place. I thought that he gave us very good responses on many points and I congratulate him, as I congratulate many people, on the contributions that they made to our deliberations. However, there is that concern. At the time, it was stated that there was no plan for how the ESF should be replaced, so I am not alone in wondering what approach the new Government will be taking, up to and beyond 2013, towards the Social Fund itself. We need to take advantage of every possible opportunity to create and encourage jobs. I hope that the Government will be taking this on board. That is why it is important for them to clarify their long-term objective on the continuation of ESF funding.
There is an immediate risk that the new Government’s welfare to work programme—now called the work programme—will be delayed next year. I may be wrong, but if it is it will leave a hiatus during which the role of the ESF may tail off and get lost. Will the Minister assure the House that any delay involved in introducing the work programme next year, were it to happen, will take proper account of the importance of the contribution being made by ESF funding to local programmes? The real value of ESF projects in the past has been their small-scale, bespoke nature, working with the hardest-to-reach clients in neighbourhood developments. There is therefore a risk or concern that smaller-scale projects could be put to one side and may not be concentrated upon as they should be. I have one more point for the Minister. Can he assure the House that ESF-type projects will not fall by the wayside because they are less able to produce clients who are able to get and sustain work?
Those are a few points to consider, but here I want to refer to a point that came up in the evidence to the committee. I know that the coalition Government are very committed to addressing the issue of bureaucracy. A number of people who came to the committee said that we must get the balance right between the need to ensure that projects will be delivering what is required, and so on, and keeping bureaucracy to the minimum. This debate has become more important than ever. A programme of necessary cutbacks is in hand but there can always be unseen, unanticipated and, indeed, unwanted consequences.
Recently, I saw for myself the great benefit obtained by small, local projects. In this case, it was a small wood recycling project in Weston-super-Mare, near where I live. It gets financial support, without which it would not be able to deliver what it is delivering: assistance in getting young people who have been unemployed for six months into work and in giving people with mental health problems an opportunity to get into work. It also assists people on probation who are having difficulty getting into work. That did not have ESF funding, but it is an example of the small projects that we need to keep our eyes on while ensuring that we keep them in mind. I hope that the debate today will help to stimulate and encourage schemes—in this case, obviously, those which are ESF-funded—and encourage the very necessary approach that we need in this country: to keep giving people the opportunity to get into work and to enable this country to offer employment to those many, many people who need it.
My Lords, it is with a mixture of pleasure and sadness that I rise to speak in this debate. It is a pleasure to be once again participating in a debate on an EU Select Committee scrutiny report, led so ably by my noble friend Lady Howarth of Breckland, and it is sad because this is the last occasion on which the work of Sub-Committee G will have the benefit of her wisdom and leadership. I express my heartfelt thanks for all the support and guidance she has given me and other members of the EU Sub-Committee on Social Policies and Consumer Protection. She is right; it is a great job, but she has made it quite a hard act to follow, as experienced and diligent as she continues to be. We hope, although we are sad at losing her, that she is enjoying her move to Sub-Committee D on Agriculture, Fisheries and Environment.
I want to elaborate on some of the key points raised by my noble friend regarding so-called hard and soft outcomes. I should say here that although it is widely used, and although I use it myself, it is not terminology that I find particularly helpful. I also want to look in a bit more detail at the role of the third sector and sustainability.
Sub-Committee G recognises the value of the contribution of the ESF in its support of a variety of projects in different parts of the country. Based on the evidence, we concluded that it is an important component of the EU’s broader social and economic cohesion policy. As my noble friend Lady Howarth and others have stated, it is clear that we are facing huge economic challenges and such a backdrop must inevitably inform how we think across all categories of expenditure. Clearly, in such circumstances, it is all the more important that we gain maximum value for money.
I think it is worth mentioning here how useful it was to go and talk to participants in an ESF project. We visited Step Up at the Elephant and Castle, a project working with 14 to 18 year-olds, helping them to gain new skills and prepare for employment. The majority of the participants, when asked what they valued about the project, responded that the mentoring was very important. They very much enjoyed learning new skills and saw getting the educational qualifications needed for work—or for FE or HE—as really important to equip them for work, but they also saw it as important that they were helped to build up the confidence to aspire to something other than the route mapped out for those considered to be troublesome, difficult young people. This attitudinal change was crucial for them and very much a part of the work carried out at the centre.
The aim of working with those hardest to reach—those with the most difficulty in securing employment—is an aim that most of your Lordships would see as laudable and indeed essential, I am sure. Different agencies have different strengths, and this is an area where a multiagency approach, involving the Government, further and higher education, the third sector and the private sector, can have real benefits if appropriately organised. In particular, the third sector is well placed to make a substantial contribution to such programmes, as we heard from a range of witnesses and written submissions, as well as from noble Lords this evening.
Many witnesses pointed out that it is necessary to have a certain amount of bureaucracy in any programme of this sort, and we agree. Efficient bureaucratic processes serve as democratic checks on public spending. However, it is essential that these processes are proportionate to the size of the programme and help the programme to achieve its objectives, not hinder them. We recommended that the Government continue to press for the reduction in the 10-year record retention requirement for smaller organisations, whose valuable role should not be hampered by disproportionate audit requirements. We are pleased to note that the Government have assured the committee that they will continue to work for the rules on document retention to be simplified and proportionate when the structural fund regulations are renegotiated prior to coming into force in 2014.
One of our concerns is that the system of competitive tendering under cofinancing in England, while it has several merits, could lead to providers recruiting those participants who are easiest to place in the labour market; my noble friend Lady Howarth referred to that. This issue is linked to that of how the success and effectiveness of programmes is assessed. If the sole measurement of the success of a programme, and thus the basis on which providers are paid, is how many people end up in employment, it could lead to cherry picking. Of course, we understand that it is crucial that a funding programme seeking to get more people into a position where they can secure paid work delivers on that objective, and the number of people getting work as a result of participating in the programme is an objective measure of that.
However, as important as that is, by definition, many of the people who constitute what is called “hard to reach” will face a variety of enormous challenges in their quest for work. For example, someone for whom depression has meant that getting up, washing, cleaning their teeth, getting on a bus, communicating with people face to face, et cetera, whose problems are seemingly insurmountable, may take some while to reach the stage of employability. This does not mean that they will not benefit from an appropriate ESF programme. If at the end of a programme, that person is able to complete what seem to most of us to be ordinary, everyday tasks, it would represent a substantial step forwards—a step towards employability—but the person is not quite there yet.
How can we best capture the distance travelled by that individual? How can we appropriately recognise the work of a programme that enables such progress to be made? We accept that such questions are not easy ones and that it is crucial that providers are able to give a clear account, one as objective as possible, of what they think they have achieved. There are methodological evaluation models that can capture and measure this kind of progress, and these should be deployed where possible.
Our investigation led us to conclude that there is an excessive reliance on measuring hard outcomes, almost to the exclusion of soft outcomes. As we have said, we recognise that outcomes in terms of jobs secured are the ultimate and legitimate aim of ESF interventions but, particularly with the hard to reach, it is necessary to undertake intensive, intermediate work to improve employability.
Our report also recommended the use of longitudinal cohort studies, which would be useful in terms of capturing hard and soft outcomes from programmes but also, crucially, facilitate us in the assessment of the sustainability of hard outcomes, such as job retention and progression. The Government do not wish to introduce any new ESF data collection requirements for administrative and, I would imagine, financial reasons. Nonetheless, this is an important point, because so much is being invested in participants gaining work. If this work is short-lived—there would need to be a control study to check against average length of employment—and the participant is thrown back into low self-esteem, lack of confidence, et cetera, we would need to assess the success and value of that programme rather differently. In its response to this concern, the EC thinks longitudinal cohort surveys “highly relevant” to assessing the sustainability of hard outcomes. The Commission notes that some member states have been including this as an element of their evaluations since 2007, and that we could gain something from exploration of this issue. We await developments on this front with interest.
I also reiterate the strong view of the committee regarding the withdrawal of funds from richer states. Other noble Lords have spoken comprehensively about that and given a rationale, and I support those views.
Finally, focusing on sustainable development and the development of green jobs and low-carbon economies is vital globally, not just in Europe. This will be a crucial element when the priorities for the ESF in 2014-20 are being fleshed out and I agree with the noble Lord, Lord Liddle, that the alignment of the EU 2020 strategy with the ESF objectives is desirable. The issue of green skills and whether some regions in the UK are better suited than others to adapting to this agenda was one that arose. Given that the Government agree in principle that, within a reduced ESF budget for 2014-20, the most disadvantaged groups should be targeted for getting into work, what strategies will be put in place for ensuring that we have the right infrastructure to facilitate people in these priority groups to participate fully in and maximise the benefits of ESF programmes with a focus on green skills and jobs?
As the new chairman of Sub-Committee G on Social Policies and Consumer Protection, I look forward to working with colleagues following up on the issues raised in the report and the Government’s response to it.
My Lords, it is a real pleasure to be able to speak in this debate about this useful and interesting report from your Lordships’ European Union Committee on the excellent work done by the European Social Fund. I join others in paying tribute to the work of the members of the sub-committee, led so ably by the noble Baroness, Lady Howarth of Breckland, who summarised her report so well earlier in the debate.
I confess to your Lordships that I find myself yet again in a slightly odd position in leading for the Opposition on a report that scrutinises my work when in government; indeed, I was the Minister who gave evidence to the committee back in February and approved the evidence given to the committee by the Government. In the circumstances, it is tempting to oppose by adopting what some would unkindly term the Liberal Democrat principle, by which I mean a graceful three-point turn under the excuse that the outcome of the election has changed everything. However, I have reread the evidence that I gave in the light of the committee’s conclusions, and was pleased to find that not only does it appear that at the time I might have understood these issues but I mostly agree with what I said back in February.
For the interest of the noble Baroness, Lady Young of Hornsey, I say that the area where I am most likely to reassess my position is around soft outcomes. As I have reflected back on my time as Schools Minister, I have also been taking more interest in assessment—what it is possible to assess and measure. I am now more persuaded that it is possible to assess some of these soft outcomes in a more objective way and show the progression that people are taking to get closer to the labour market, which is clearly an area of additionality that the European Social Fund is addressing. I also find myself in agreement with the Government’s response to the committee’s report. I am pleased that the transfer of functions from the Learning and Skills Council to the Skills Funding Agency, which was one of my main worries, seems to be working well.
On that basis, I could just sit down and leave it all to the Minister, but reading it all through again raised a series of questions about how the European Social Fund will operate alongside the changes that the Government are taking through. I gave the Minister advance sight of my speech this morning to give him time to assemble some pithy answers to my questions. These fall broadly into three areas: additionality under the work programme; how regional priorities will be set; and the integration of employment and skills programmes.
As the Minister knows, I support the principle behind the work programme. I hope that some of the work that I did as a Minister is helping him as he tries to implement it against a very tight timeframe in a difficult labour market, but I will not dwell on those concerns now. I would be fascinated, though, to hear his response to the worries of the noble Lord, Lord Cotter, around delays to the work programme. If he could clarify for the sake of all those who are concerned about the programme whether there is a delay, that would be exceptionally helpful.
What is relevant to this debate is that the European Social Fund funds must be additional to government spending plans. How will that work under the work programme? As I understand it, the work programme will be a single programme for all who can work. It will be designed so that contractors have significant incentives not to park customers who are particularly difficult or cream off profit by just focusing on those who are easier to help into work—the committee used the word “cherrypick”. If that were to happen, the programme would not be a success.
Those are the very issues that the committee asked me about in the context of ESF. Is my understanding of the work programme correct? If so, how will the Minister achieve additionality with the continuation of ESF under the work programme? If the work programme is to be for every sort of claimant, be they on jobseeker’s allowance or employment support allowance, and the contractor is paid on outcomes not inputs, how can the ESF work be additional? How does the Minister respond to the committee concerns around soft skills in the context of black box contracting?
I also noted the ending of the working neighbourhoods fund in the comprehensive spending review. As the Minister’s noble friend Lord Shipley said in Monday’s debate, this was not an easy cut to spot. He went on to say:
“The fund has been used across the country to tackle worklessness by investing in voluntary sector partnerships, thus securing additional leverage and ERDF matched funding. It has helped to address community health and community safety issues. It has tackled economic deprivation and has targeted resources to those young people not in education, employment or training. The fund, worth £0.5 billion, has vanished”.—[Official Report, 1/11/10; col. 1541.]
Like him, I too must declare that I am a vice-president of the Local Government Association. Given that the fund has “vanished”, how will the Minister deal with the likelihood that the ESF will be used to fund the same sort of work that was funded by the working neighbourhood fund? Will he not be highly vulnerable to the charge that the Government have cut this spending knowing that they can backfill with ESF programmes? Is that not counter to the additionality rules?
The second issue is about regional priority-setting. As the Minister knows, ESF is currently subject to regional priorities set in England by regional committees made up of the Skills Funding Agency, the regional development agencies, trade unions, government departments, local authorities and third sector representatives, and chaired by the government office of the region. As I made clear in my evidence to the committee, I think that this could be rationalised by merging it with the regional employment and skills boards, if the Commission were to agree that this met its audit requirements, which it may not. What I had not envisaged was a rationalisation as a result of the abolition of the RDAs, subject to the Public Bodies Bill going through—a dreadful piece of legislation that we will be debating fairly soon in this House—and the abolition of the government offices themselves. How, therefore, does the Minister see the regional priorities being set in the future? Who will sit on the regional committees? Does he agree with the LGA in its briefing for this debate when, as my noble friend Lord Liddle, mentioned, it says:
“Councils, groups of councils or Local Enterprise Partnerships should set ESF’s strategic direction to ensure it delivers outcomes relevant to local need”.
In its recent report, EU Funds and Place-based Budgets, the LGA argues that, first, the delivery of the main EU funds—the ESF, the European Regional Development Fund and the Rural Development Programme for England—should be joined up into a set of single programmes at the subnational level; and, secondly, within this framework, we should offer local partners the opportunity to manage local packages of EU funds, should they want to. Does the Minister agree? If so, again, how will it be additional to the previous working neighbourhood fund work carried out by local authorities but now cancelled? My argument for a long-term future without the ESF—which was trashed by the committee—centred on regional structures being in place. It is necessary to be close enough to the ground to identify pockets of need, but with enough of an aerial view to join up programmes strategically.
In the new Government’s response to the committee, they say:
“Over time, wealthier Member States should be phased out of the Structural Funds and funding focused on the poorest, enabling them to catch up with the average”.
We note the opposition to that position of the committee and everyone else who has spoken in this debate. In the absence of regional policy from the government office and the RDA, I cannot see how this renewal of the policy that I had to justify to the committee works. What are the Minister’s justifications for this long-term policy?
I want to ask about employment and skills integration. The Minister cannot be criticised for a lack of ambition or a drive to join things up. If he manages to pull off the work programme and the universal credit, it will be as a result of the most monumental effort and ambition. Is employment and skills integration also on his radar? Of course, the ESF does both. Can he see a way of commissioning them together from contractors in this programme and more widely as part of the work programme? Is that not vital in giving the contractors the tools that they really need to do the job?
This was a useful and authoritative report by the committee. It has allowed us to focus on the European Social Fund, which has done much to help those in our country who most need help from an active Government. The debate has also allowed us to ask the Government questions about its future, and I look forward to the Minister's considered response.
My Lords, I thank the noble Baroness, Lady Howarth, for leading this evening’s debate on the European Social Fund. I also thank the other noble Lords who have contributed to this debate. The report and this debate are well timed. They come at the midpoint of the current 2007-13 programme, just at the time when negotiations are about to begin on the future of the EU budget and on the structural funds after the end of this particular programme.
Our approach to the European Social Fund is shaped by the coalition Government’s programme for welfare reform. We are transforming the welfare system—as the noble Lord, Lord Knight, mentioned just now—to encourage responsibility, to make work pay and to end the cycle of benefit dependency. The work programme within that ambition is a central pillar of our approach, aiming to move people back into the labour market where it will replace a series of programmes that have been built in the past. One of the elements of the work programme that is novel is its emphasis on sustaining people in the world of work for a much longer period than has been the practice in the past. It pulls in a unified structure that forces providers in practice to treat people as individuals and also gives providers the freedom to tailor the right support for the specific needs of those individuals.
So the question—and it is the question that the noble Lord, Lord Knight, put with his customary elegance—is what role the European Social Fund can play in that context. It is clear that competence for employment and skills policies rests at the national level, as does the primary responsibility for funding. The role of the ESF—as all noble Lords in this debate have pointed out—is to add value to the core offer that the member state provides. This poses what we will call the “Lord Knight challenge”. The ESF must fit the integrated approach that we are developing. It must not fund alternative programmes just for the sake of additionality.
The methodology with which we are introducing the work programme is through a framework for employment-related service. In practice, this is a pretty effective structure for integrating the European Social Fund with our national employment provision, while ensuring that the ESF remains additional. Let me spend one minute on the attraction of, and the opportunities provided by, the framework. Once you have a framework set up, and providers set up within the framework, it is permissible for any government or local authority organisation to use that same framework. It does not take a lot of imagination to see that one can start to channel different sets of funding to provide an holistic approach for particular individuals.
I pick up on the point that the noble Baroness, Lady Howarth, made so eloquently with her concern about cherry picking and that the most disadvantaged will not be looked after properly. One of the key tenets of the work programme is that we will have price differentiation to encourage providers who will see just as much profitability, ideally, out of helping the harder to help as the easier to help. That is the concept behind it. On top of that, when you have a framework construct, you can see other funding coming into the same place to help the even harder to help. It is potentially a most powerful tool for getting rid of silos and putting in money and extra resources to help the hardest to help. We will write to the noble Baroness with further details. Actually, we will write to the noble Baroness, Lady Young, with further details of the department’s next procurement round in due course.
Several noble Lords have referred to the role of the voluntary sector in the European Social Fund. We recognise that localised, specialised voluntary services are often well placed to address the complex barriers that prevent disadvantaged people returning to work. Again, the framework will allow smaller voluntary organisations to participate in consortia, to form partnerships or to act as subcontractors to deliver the work that the core work programme and the ESF contracts. This deals with the concern that my noble friend Lord Cotter raised about the position of voluntary groups.
Several noble Lords asked how the effectiveness of the social fund is measured. We agree with what several noble Lords have said: that there is substantial room for improvement, especially at the EU level. We will judge the success of the ESF by job outcomes. After all, the ESF is primarily a labour market and skills fund. Our objective is to help more people back to work and with the right skills. We make no apology for measuring performance primarily on hard outcomes, particularly hard outcomes around jobs. In this way we are closer to the noble Lord, Lord Knight, of February than the noble Lord, Lord Knight, of November. Having said that, we recognise that people will achieve soft outcomes on their journey to employment. I agree entirely with the noble Baroness, Lady Young, when she says that she has problems with this terminology of soft and hard. We are using it this evening, so let us stick with it.
The work programme that the ESF contracts will encourage sustainable employment. That is the Government’s stated objective. In practice, it will not be possible for providers to achieve that hard outcome unless they build the intermediate soft outcomes, so soft outcomes should not be an end in themselves. We need to see through the process where people go through the soft outcomes into the hard, measurable outcome. One of the keys in developing the work programme is to make sure that there is a financial structure that allows the provider to see the whole process through to the end, rather than chopping it up and looking at intermediate steps. It is much easier to lead the responsibility through the whole programme.
As the noble Lord, Lord Knight, of February would have said—or maybe even did say—the problem is that, unless one has an extraordinarily effective measurement tool, it is very easy to fall from soft outcomes into spraying money around ineffectively. We have just launched a longitudinal study to capture the status of leavers 18 months after their ESF provision to measure the sustained jobbed outcomes. We are also developing a quantitative impact analysis of ESF.
Several noble Lords referred to the administrative burdens on providers of the programme. We will continue to use the co-financing system to relieve providers of the burden of finding match funding and we will work with the Commission and other member states to seek to simplify EU rules. However, we must also ensure that there is rigorous financial management and control across all member states and that there is value for money for the taxpayer. We also believe that there should be greater flexibility within the overall focus of the European Social Fund on employment and skills. The fund needs to be more responsive to new policy developments, changes in the economy and local needs.
Concerning the future of the European Social Fund—I think that this issue was raised by all noble Lords who took part in the debate—I will respond first to points raised about the budget and then to the policy focus. The Commission published its communication on the EU budget review on 19 October. The Government welcome the Commission’s focus on the need for reform of the budget to support the EU’s priorities, in particular economic growth. However, the review does not go anywhere near far enough on recognising the economic and fiscal context. We need to see a much stronger focus on prioritisation and where savings can be made. The EU budget cannot be immune from the huge budgetary challenges facing EU member states. This will have implications for the structural and cohesion funds, including the European Social Fund. The funds should focus on stimulating economic development in member states where income per capita is far below the EU average, where there are clear economies of scale with respect to financial and institutional capacity, and where EU spending can significantly add value. Receipts in richer regions, particularly in wealthier member states, should fall significantly in the next financial period after 2013. The share of receipts going to the poorer countries should continue to rise, albeit within a smaller overall structural and cohesion fund budget envelope.
The committee’s report criticised the previous Government for seeking to withdraw ESF funding from member states. Under the coalition Government’s approach, a reduced ESF budget would continue to fund some activities in the UK in the next financial perspective. However, in the longer run we aim to phase out structural funds from the richest member states entirely, and end the recycling of funds between member states that have the capacity and ability to finance their own development.
A smaller budget will make decisions on the targeting of ESF even more important. The Government believe that in the next financial perspective member states should target ESF on the most disadvantaged groups, focusing on employment and skills. For us, this will mean ensuring that the ESF continues to complement the work programme. We will expect the European Social Fund to be consistent and coherent with our policies to help individuals make the most of their lives and to get Britain working again.
The noble Baroness, Lady Howarth, and my noble friend Lord Liddle referred to the strategic alignment of funds. We want better strategic alignment of the ESF with Europe 2020 and national policies, and especially so on challenges such as climate change. My noble friend Lord Cotter and the noble Lord, Lord Knight, pressed me on the timing of the work programme. I will not use the word “delay”, as they did. I assure them both that the work programme is on track to be delivered in the first half of next year, starting in the spring. They will be delighted to know that the Treasury, the DWP and the Prime Minister all vigorously support this programme.
The noble Lord, Lord Knight, made a pointed query about additionality and the working neighbourhoods fund. I assure him that we will not use the European Social Fund to backfill that fund. As he will understand, we are ending the piecemeal approach to employment programmes and integrating in an entirely different way. As regards his point on regional priorities, our focus is on local communities and individuals, not on regions, which we regard as artificial and bureaucratic. In our White Paper on local growth, published last week, the noble Lord may have noted our view that labour markets do not exist in the main at regional level, with the exception of London. Therefore, we will want to see the ESF responding to local needs, not to regional priorities.
I close by thanking noble Lords once again for a series of most constructive and thoughtful comments, including some pretty nifty and interesting ones from the noble Lord, Lord Knight, which I enjoyed answering. This evening’s debate has reinforced how complex some of the EU rules and principles can be. I can certainly think of better things to do than debate concepts such as EU additionality at this time of the evening—or at any time of the day for that matter. However, we need to make sure that the European Social Fund is integrated with our welfare reforms and is made to work for the most vulnerable. This may raise the question of whether the European Social Fund can be additional if it is also integrated, but then I suspect that additionality is in the eye of the beholder.
My Lords, I thank the Minister for that reply and all noble Lords who have taken part in the debate. I intend to be brief as, like the Minister, I am not sure that debating additionality at this time of night is what I prefer to be doing. However, as I am no longer responsible for this area of work, I want to speak for a couple of minutes and indulge myself on behalf of the noble Baroness, Lady Young, who will, I hope, get a further reply from the Minister on the issue.
The most difficult aspect of this rich debate is its complexity. If it is complex for us, it is even more difficult for all those organisations on the ground such as probation officers and others in local authorities and the voluntary sector—the noble Lord, Lord Liddle, mentioned those—to comprehend and to determine how the projects to which they are committed on behalf of some of the most needy people in our communities will continue. While we debate conceptual ideas of frameworks, longitudinal surveys and cohorts, which many of us have worked on and understand, it is crucial that those wonderful, ordinary folk—we met some of them—delivering programmes are helped to see how they can continue to do the work that they are doing. That is probably the most essential point.
I love the fact that the noble Lord, Lord Knight, has done a U-turn. I never thought that he was really convinced about this issue, so that is not a surprise. However, if a belief is growing that this ESF funding will not continue in the long term—and funds are very difficult for local authority organisations—it is crucial that we have some understanding of what will replace it if it comes to an end. If not, the projects will come to an end.
One of the other interesting moments we are in is that, because we do not have any picture of the welfare to work programme, or how the new employment frameworks will fit together, we cannot see into that future, just as all the people on the ground cannot. The sooner those things are in place, the sooner great anxiety among those ordinary folks will be relieved. At the moment, people in projects are asking me whether they will have to make their staff redundant—to issue redundancy programmes—in the next few weeks, because they do not know if they will receive grants and they do not know about their future. Those sorts of anxieties need to be removed when people are dealing with aggressive, mentally ill, depressed and deprived clients. It is enough to deal with that without the worries that we add to them.
I do not want to say more in terms of the intellectual debate we might have on additionality. I think it is far more important that we concentrate on the delivery to the folk who need it through the folk who are delivering.
House adjourned at 8.01 pm.