Tuesday, 30 November 2010.
Arrangement of Business
Good afternoon, my Lords. It has been agreed that, should any of the Questions for Short Debate not run for their allotted hour this afternoon, the Committee will adjourn during pleasure until the end of the allotted hour. Therefore, each of the Questions for Short Debate will start at half past the hour. If there is a Division in the House, the Committee will adjourn for 10 minutes and, if necessary, time can be added on to the time for the Question for Short Debate.
Question for Short Debate
My Lords, the fact that so many Members of your Lordships' House have put their names down to speak is testament to the importance of this topic. Iran's human rights record is among the worst in the world. It has been condemned 57 times by the United Nations. It is among the worst, and is worsening. Foreign Secretary Hague noted in June last year, on the anniversary of the stolen presidential election that he was,
“gravely disturbed by the deterioration in the human rights situation in Iran”,
since the presidential election, adding:
“The Government of Iran has further restricted freedom of expression and assembly, and protesters, journalists, students and human rights activists routinely face harassment and intimidation”,
with protesters denied due process in their trials.
The Islamic Republic of Iran, whose rulers pervert the true meaning and message of Islam, hangs more men, women and children than the rest of the world put together, bar China—savagery on an industrial scale. Women are stoned to death, amputations are carried out without anaesthetics and eyes are gouged out. This is a regime that is almost literally at war with its citizens. While the economy stagnates, millions of young well-educated Iranians are denied employment. The mullahs use the money from oil on missiles, on nuclear weapons development and on sponsoring terrorism abroad rather than on investing in the future of their citizens.
Our Government and others know that Iran supplies weapons to the Taliban in Afghanistan and finances Hamas and Hezbollah. It has supplied and smuggled roadside bombs to Iraq—and paid the people who did it—which has killed seven out of 10 of all UK, US and coalition troops who have been killed. It has plenty of money for mischief and murder; little to meet the needs of one of the best-educated populations in the region. The people of Iran deserve and demand better. They demand the right to protest and to enjoy human rights and free elections. That is why millions cry freedom, despite the brutality of the regime's response.
Iran’s meddling is at its height in Iraq. It pressures the compliant and fledgling al-Maliki Government to lay siege to 3,400 Iranian dissidents at Camp Ashraf, 60 miles north-east of Baghdad. These are members of the dissident PMOI. They were individually interviewed by US security agencies in 2004, renounced participation in or support for terrorism, rejected violence and undertook to obey the laws of Iraq and relevant UN mandates. In return, they were given indefinite protected persons status—I have here a photostat of the identity card given to one of the residents, which I shall leave with the Minister after this discussion—under the fourth Geneva convention, on behalf of the Multi-National Force—Iraq, by Major General Geoffrey Miller, its deputy-commander.
International law experts argue that that protection remains in operation all the while coalition forces are in Iraq, although I acknowledge that the Foreign and Commonwealth Office disputes that. What is unarguable is that the UK, like every other United Nations member, has a continuing responsibility to ensure that Iraq carries out its duties under international humanitarian law.
The US handed responsibility for the safety and security of Ashraf residents to Iraq last year after Iraq gave written undertakings to continue these protections. Not only has it not done so, but the Prime Minister set up a committee for the suppression of Ashraf in his office to meet agreements that he made with Iran to close Ashraf and remove its residents. In July last year, Iraqi security forces—some, strangely, speaking Farsi—attacked the unarmed residents, killing nine and wounding hundreds. Video shows troops using hand-held chains, wooden staves embedded with nails and scaffolding tubes in the attack, as well as a Humvee to run down protestors. The so-called Iraqi Ministry of Human Rights has still not released its report into these events, despite requests from the United Kingdom that it should do so. I hope that, when he comes to reply, the Minister will be able to say what the latest position is on this.
Since Iraq took over responsibility for the safety and security at Ashraf, there have been 70 recorded cases of harassment of residents by Iraqi forces, with 29 injured. Medical and other supplies are regularly refused entry to Ashraf, as are relatives and residents’ lawyers wishing to visit. Ashraf is under menacing siege in breach of international humanitarian law, let alone the fourth Geneva convention protections. However, that is not all. The latest pressure is to deny residents with terminal cancer access to the medical treatment that they need in Baghdad and elsewhere. I have a dossier here listing some of the cases and, again, I shall leave it for the Minister and his officials to study after this debate. Dozens of terminally ill cancer patients are refused the services of specialist doctors, and now, night and day, people using 120 loudspeakers around the perimeter of the camp chant threats to kill residents and destroy Camp Ashraf. This is psychological torture, in clear breach of international humanitarian law.
On 25 November, the European Parliament adopted a written declaration condemning Iraq’s failure to ensure the safety and security of Ashraf residents. It condemned the siege imposed upon the camp and urged the UN to provide urgent protection to Ashraf. For good measure, it urged the United States to follow the UK and EU lead in reviewing the continued naming of the PMOI among organisations concerned with terrorism. As your Lordships will remember, we did that in a court action in this country some years ago, and that was followed by the EU doing exactly the same.
Why is Ashraf important? It is important because its residents are a symbol of hope and inspiration to the millions across the border in their homeland who cry freedom. I believe we need to signal that we stand with those millions in their struggle for freedom against the undemocratic fundamentalists now ruling in Tehran. However, I make it immediately clear, not least in the light of WikiLeaks, that this does not imply or mean a call for military intervention. It does not. It is for the people of Iran to find their own way to freedom, and the PMOI offers a secular republic, respect for human rights and democracy, and an ending of the current nuclear weapons programme. That is what it wants to offer in free elections and it has undertaken to stand by the results of those elections, win or lose.
There is a growing and grave urgency surrounding the siege at Ashraf and words are no longer enough. Since the Americans handed over responsibility for safety and security, we know from experience that the Iraqis are not going to fulfil the undertakings which they gave the American forces or which they have given under international law. When the Minister responds to this debate, perhaps he will be kind enough to answer three questions.
As Iraq has demonstrated that its word cannot be relied upon, will he now ask British embassy staff in Baghdad to visit Ashraf and speak to terminally ill patients denied medical treatment in order better to assess the position at first hand? Secondly, will the UK encourage the UN, perhaps using US forces and help from the United Nations Assistance Mission for Iraq, to ensure the proper protection of Ashraf residents by maintaining a continued presence around the perimeter of the camp and ending the siege and psychological torture brought about by loudspeakers and interference with essential supplies? Thirdly, will he facilitate a visit by an all-party group of Peers and MPs to Camp Ashraf so that they can talk to residents there, get a first-hand picture and report on the present position when they return?
The situation at Ashraf is headed for a humanitarian catastrophe. We cannot and must not stand by and wait for this to happen and then start to condemn it. The response last July was slow and bad enough, which the then Ministers were good enough subsequently to acknowledge. We do not want that to happen again. It must be made crystal clear to the Iraqis that the international community will not tolerate breaches of international humanitarian law at Camp Ashraf. I look to the Government to say that they support that position.
In view of the limited time available, I shall come straight to the subject of Camp Ashraf. When my noble friend the Minister answered a Question on 25 October, he said that pressure had to be brought to bear on Iraq to see that it behaved properly towards the people of Ashraf. We can surely take it from that that Her Majesty's Government are less than happy about the situation there. My noble friend says that officials from the British embassy have visited the camp. Can we take it that they saw the 120 or so loudspeakers outside the camp? Did they hear them being used to blare out threats of murder to the people inside? Can we take it that our embassy had some contact with the United Nations Assistance Mission when it was still at Ashraf and knows of the catalogue of complaints to the mission about dozens of desperately ill people being prevented from going to Baghdad for treatment? I can hardly believe that our embassy was closing its eyes to what the Iraqi prime ministerial committee for the suppression of Ashraf was up to. I hope that my noble friend will state clearly today that what Iraqi forces at Ashraf have been up to is quite unacceptable.
There is little doubt that the Iraqis are dancing to the mullahs’ tune, and it would be very surprising if the mullahs were not bent on getting rid of Ashraf and the people there for the very reason that was stated by the noble Lord, Lord Corbett: namely, that it is a beacon of hope for people in Iran.
Iraq is a sovereign country, but we are where we are as a result of the US/UK invasion in 2003. That surely means that if Iraq does not behave in a civilised fashion and breaches international law, we cannot wash our hands of the matter. Surely Iraq is now in breach of international law. At the very least, it is in breach of the International Covenant on Civil and Political Rights to which it is a party when it denies the people of Ashraf freedom of movement.
The people of Ashraf are entitled to be protected from harassment and attack. How can their safety be secured without the US retaking responsibility for the protection of the residents and the UN establishing a permanent monitoring team at Ashraf? That surely is what Her Majesty’s Government should be urging.
My Lords, I thank the noble Lord, Lord Corbett of Castle Vale, for this opportunity. I shall talk about Iran’s nuclear ambitions and its relationship with its neighbours, given the limited time. Our interests in the UK are engaged with Iran on numerous fronts. It is a neighbour of Afghanistan and Iraq, countries in which UK forces are deployed, and to Pakistan, where we have ongoing security interests.
Iran’s attempts to acquire a nuclear capability have been an ongoing concern for many years now, and rightly engage the international community. Until the present time, we have pursued a twin-track strategy; successive increases of sanctions against Iran have continued alongside the E3+3 talks. There have been ebbs and flows; there was a positive atmosphere in 2003, when Iran suspended its nuclear programme, but on the whole these days the optimism is gone and we know from successive IAEA inspections and public statements from the regime that Iran’s technological know-how is moving ahead towards highly enriched uranium. Whether that leads towards nuclear weapons capability is probably undisputed; the question remains as to how long that will take.
The question that remains for us is what we are to do. Many of us suspected that Israel was being restrained from launching an attack against Iran’s nuclear sites by the US, but we now hear from reports that Saudi Arabia and other Gulf states have been actively seeking a military strike against Iran in order, supposedly, to destroy her nuclear capability. I hope the Minister can impress on Israel that this would be a most unhelpful course of action, if that is what she seeks to do. Iranian rhetoric indeed threatens Israel, and President Ahmadinejad’s recurrent statements are deeply provocative. Iran’s support for Hezbollah must be deeply worrying, not least when amply demonstrated through President Ahmadinejad’s recent visit to Lebanon. But airstrikes will not do away with any of that; indeed, they will aggravate tensions throughout the Middle East.
If we in the international community think that we can sanction strikes against Iran and expect no retaliation, we are naive at best. The Straits of Hormuz would be closed overnight, with worldwide oil prices spiking to unprecedented levels. A hard-won stability in Iraq would be immediately endangered and Iran’s significant influence in Afghanistan would be far from benign. Airstrikes would almost certainly not eradicate Iran’s programme, which is dispersed and well protected, as we understand from intelligence.
I turn to the threat that Iran supposedly poses to its neighbours in the wider Middle East. The 2010 report of the US Director of National Intelligence describes Iran foreign policy in his annual threat assessment, finding that:
“Iranian leaders undoubtedly consider Iran’s security, prestige and influence, as well as the international political and security environment, when making decisions about its nuclear program”.
That is not an unusual set of priorities for any sovereign Government.
In conclusion, while we abhor these actions, I hope the Minister will reassure us that we will continue to keep our eye on the prize of peace through dialogue and sanctions, rather than allowing the use of force, even if it is by proxy.
My Lords, I thank the noble Lord, Lord Corbett, for putting this debate on the agenda, and I particularly thank the noble Baroness, Lady Falkner, for the very sane statement that she made. In my three minutes, I shall make three points. First, you have to think what it feels like if you are Iranian and surrounded by nuclear powers, and in particular if your enemy is Israel, which has a proven track record of attacking Palestine, Lebanon and elsewhere. Iran from the 20th century onwards has a relatively clean record on attacks; it seems to be more sinned against than sinning.
I should like noble Lords to think about why Iran is influential in the neighbourhood. It was dead against the Taliban and co-operated in the West to allow the Taliban to be arrested and sent over, so why the volte face? Iran tried very hard to have amicable negotiations with the West and failed. When you find that there is no jaw-jaw, you go for war-war, which actually helps the Government. If the Government were under threat, Iranians across the board would help them. What is more, we need to think of how the Iranians treated the flood of refugees from Iraq and Afghanistan who came to Iran. They were well treated, housed in open camps and afforded education. It so happens that I know, for example, that one of the very few women MPs in Afghanistan was educated in Iran. It is hardly surprising that Iran is influential. As a matter of fact, I might tell your Lordships that Iran is working with both sides. It is helping the Taliban, just in case it wins; it is also helping the Government. We have to ask: what would Britain do in such a circumstance?
I conclude on the question of human rights. I absolutely support the 65th resolution of the General Assembly abhorring the human rights situation in Iran. If there were a statement in the name of human rights, your Lordships would have international Iranian support. On the other hand, the Mujahedin-e Khalq did not have a presence among all those who were killed and died for the cause of democracy in Iran, while Camp Ashraf was used by the mujaheddin to torture its own people. There is a long tradition of suffering there, and it has nothing to do with Iran.
My Lords, I, too, begin by thanking my noble friend Lord Corbett of Castle Vale for securing and introducing this debate. I am sure he will forgive me if I disagree with many of the things that he said. The Iranian regime has been guilty of violating human rights but it is not the only one in the neighbourhood or in the world. It has been guilty of ignoring basic democratic norms but, again, it is not the only one in the area or in the world. It has been interfering in the affairs of other countries; well, we have a long record of doing that for the past 70 years, so we are in no position to point the finger at the Iranians. We obviously have a duty to criticise and bring pressure to bear on Iran, but we should not engage in any kind of precipitate action that aborts its natural evolution into a secular, democratic society in the years to come.
Nuclear weapons are certainly a serious matter, but I am not sure how serious Iran’s interest is in developing those weapons. It could be a game of bluff or a negotiating counter, but let us assume that it is serious and embarks upon the programme of developing nuclear weapons. Why would it want to do that and what would it do with those nuclear weapons? It would annihilate Israel. It knows that is suicide because Israel has developed perhaps 200 nuclear warheads. It also knows that Israel would be supported by the United States. Is it a fear of its neighbours? It knows that if it were to embark upon nuclear weapons, Saudi Arabia would do the same thing, followed in due course by Egypt and eventually by Turkey. By turning to nuclear weapons for its own national security, it would be defeated by its own actions.
There are two basic concerns with Iran wanting to develop nuclear weapons. There is a sense of national pride. For all kinds of reasons, having nuclear weapons has become a badge of having arrived on the international scene and being taken seriously. In part, there is also the fear that the United States will interfere, as it has during the past 50-odd years, in the internal affairs of Iran. Therefore, we need to ask ourselves how we can normalise relations with Iran and allow its own internal dynamics to develop in a healthy direction when any kind of external pressure or interference will simply abort the process and create more problems for us.
We ought to reassure the Iranians that no one is going to interfere in their internal affairs, apply diplomatic pressure, and provide a carrot in the form of giving it a greater regional and global role and drawing it into global deliberations on a new kind of world order. More importantly, we ought to put pressure on its neighbours because we have been concentrating too much on Iran. We ought to make it clear to them that they ought to engage in establishing cordial relations with Iran, rather than turning to Uncle Sam every time there is trouble—in the hope that Uncle Sam will come down heavily on the Iranians—when no good relations are going to be created that way.
My final point is that Iran is going through a deep internal crisis: economic, political and cultural. If we allow that process to be uninterrupted by external pressure or internal panic, we might be able to create a more sensible order than we ended up creating in Iraq.
My Lords, Iran has secured constant headlines over the past few years because it has a dismal record on human rights, the capacity to produce nuclear weapons and a fragile democracy. These are matters of serious concern to the free world. This debate gives us the opportunity to probe the coalition Government’s stance on issues identified so far by many noble Lords. It is tempting to cite some revelations that emerged from WikiLeaks. I do not condone the unauthorised release of classified information. Governments cannot operate effectively if confidentiality in matters of security is leaked, but this is not the case with Iran, and diplomats ought to exercise care in the way in which information is communicated. Let me give the Committee an example. We are shocked that it took years of legal battles in this country and in Europe to formalise the status of the PMOI. Some of the information used by the Foreign Office at that time could not stand the scrutiny of the courts. It is here that our system of justice is supreme, and the PMOI has now been removed from the list of proscribed organisations.
Why are we afraid of organisations fighting for democracy and the civilised rule of law in Iran? The civilised world cannot accept the death penalty for more than 135 child offenders now on death row in Iran. In many cases, dissent against the regime is followed by systematic public hangings; 120,000 political prisoners have been executed since the 1979 Islamic revolution. Amputation, lashing and stoning seem to be the norm. Mobile communications, particularly mobile phones, have made it possible for the world to know how fragile the state of democracy is and how power seems to fluctuate between the politicians and the mullahs.
The nervousness of neighbouring Arab states is easy to understand. So far, tact and diplomacy have not yielded positive outcomes, and the process of uranium enrichment continues. We need to know more about what role the regime is playing in Iraq, Afghanistan and Lebanon, but the priority at this stage is to protect the life and liberty of those who are in Camp Ashraf, a point well made by the noble Lord, Lord Corbett. The world cannot stand by and allow the constant persecution of the residents there. The shift of power after the Iraq war between the Sunnis and the Shias has opened up a new front in which Iran exercises considerable influence in that region. It is no surprise that the unremitting violence against Camp Ashraf residents is the direct result of Iran's influence.
There are a number of questions that I need to put, but I shall stick with two. Will the Minister ensure that Mrs Maryam Rajavi is given a visa to travel to the United Kingdom so that we can learn how best to promote democratic changes in Iran, and will he facilitate a cross-party delegation of parliamentarians to visit Camp Ashraf?
I am grateful to the noble Lord, Lord Corbett, for initiating today's debate. It comes at an opportune time, but also at a time of great danger and hardship for the people of Iran. Over the past 18 months, they have been protesting with increasing fervour inside Iran as they demand freedom and democracy from the mullahs’ regime. The Iranian regime responds to these protests through arrest, torture and execution. It targets individuals with links to Iran's largest opposition group, the People’s Mujahedin of Iran. It is now time that the PMOI leader, Mrs Rajavi, is welcomed to the United Kingdom and that the US accepts the legitimacy of the PMOI, as ruled by its own Supreme Court. I ask the Minister to address that specific issue when he replies.
The most obvious evidence of the mullahs' corrupting influence has been the persecution of the 3,400 members of the PMOI in Camp Ashraf in Iraq. The Iranian regime has demanded that Iraqi Prime Minister Nouri al-Maliki destroy the camp and disperse the residents so that they can more easily be eliminated.
The European Parliament recently adopted a declaration calling on the EU’s foreign affairs chief, the noble Baroness, Lady Ashton, to urge the UN to provide urgent protection for Ashraf residents. It was mentioned in the declaration that relatives of Ashraf residents had been sentenced to death by the Iranian regime after returning from visits to their families in Ashraf. Will the Minister condemn those death sentences in the strongest terms? If fact, he should do more. The Government should seek to send a delegation from this House to visit Camp Ashraf—the Minister can immediately put me down for the 54-inch body armour that the MoD could not supply when I wanted to go to Afghanistan.
Last summer Iraqi security forces killed 11 residents in an attack on the camp. More recently, and at the Iranian regime’s request, their tactics have been to create unbearable living conditions, as has already been explained. A disgraceful and inhuman example of that persecution was when, on 10 November, Iraq prevented 44 year-old Ms Elham Fardipour from travelling to a Baghdad hospital to undergo treatment for thyroid cancer. How can we possibly justify the suffering and the sacrifice of our nation’s sons and daughters in bringing freedom to Iraq when the end result has been the installation of Nouri al-Maliki who, at the request of Iran’s theocratic dictatorship, denies refugees suffering from cancer the right to travel to hospital? Was that what we envisioned for Iraq?
I conclude by saying that we in the United Kingdom and our allies should be isolating the regime with comprehensive sanctions over both its unlawful nuclear weapons projects and its appalling human rights abuses. We should accept that millions in Iran—a majority in democratic terms—want an end to the mullahs’ regime. Only then will Khamenei, Ahmadinejad and the rest of the Iranian regime become nothing more than a dark stain on the proud history of the Iranian people.
I draw noble Lords’ attention to my entry in the Register of Members’ Interests in that I am chairman of the British-Iranian Chamber of Commerce and director of a company with interests in Iran. I join the noble Lord, Lord Corbett, in utterly condemning human rights abuses in Iran, particularly after the elections, such as the show trials, the beatings by the Basij, the shootings of young people in the street and the mass rapes, as revealed by the cleric and presidential candidate, Mehdi Karroubi. As the late Ayatollah Montazeri said before his death, the Islamic republic is becoming neither Islamic nor a republic.
The Iranian regime at the moment is weak domestically but strong regionally. Regionally it is strong because of its militant opposition to Israel compared with the so-called moderate Arab regimes, but also because of its alliance with its proxies: Hezbollah, Hamas and the Medhi army. These alliances give Iran an asymmetric defence in depth if attacked. All the military hardware of the United States and Israel will be irrelevant compared with that lethal potential response.
I recently read the opinion of Peter Jenkins, our former ambassador to the IAEA, who somewhat unusually doubted whether Iran was developing nuclear weapons as opposed to reaching the technological capability that gave it the option of developing them further. He argued that Iran was not in breach of its legal obligations but that we could do nothing to stop it reaching the threshold. I am not saying that he was right on the former, but he might be right on the latter. I hope that sanctions will change Iran’s attitude, but we must recognise that there will be a greater source of illegal trade and more income for the military security conglomerate of the revolutionary guards. Sanctions are also an opportunity for the regime to blame its own economic failings on the enemy abroad. Lastly, sanctions provide the Government with a perfect alibi to crack down on opposition within the country.
There are obviously some out there who do not believe that sanctions will work. I refer to those behind the targeted assassination of Iranian scientists working on the nuclear programme. The day before yesterday, one scientist was murdered in Tehran and another wounded in car bomb attacks. Earlier this year, another nuclear scientist was murdered. I do not expect the Minister to comment on this, but I do not believe that these attacks are inspired by either of the two King Abdullahs. They are completely counterproductive and will not encourage Iranian public opinion to support a flexible approach.
The present carrot and stick approach has been tried many times before and I doubt that it will succeed again. There are three things that might put pressure on Iran and encourage it to stop trying to reach a nuclear threshold. First, as has already been mentioned, Iran has its own nuclear concerns. Regional nuclear disarmament, beginning with Israel, is important. Secondly, there is a need to settle the Palestinian issue and create a state that is acceptable to the Palestinians. This will undermine Iran’s regional position. I also believe that the BBC Persian service, Murdoch’s new Farsi channel, Facebook and Radio Liberty are very important in encouraging change in Iran. There is a rising tide of discontent within the country. Demography and the cosmopolitanism of the young people of Iran make it impossible for the present political framework to survive in the long run. We must make sure that our actions support rather than delay change.
My Lords, I, too, thank my noble friend Lord Corbett for initiating this debate. I do not suppose that any of us are wildly happy about the WikiLeak revelations, but in some ways they throw into sharp relief the true views of the Arab states on Iran. Like many other noble Lords, I have always been surprised by what I have heard Arab diplomats and politicians say in private behind closed doors compared with what they say in public. When talking about the dangers to their countries, they look to the threat from the East—in other words, Iran—rather than to that from the West—that is, Israel. They have one language for the street and another for diplomacy. On Iran, the leaks quote the King of Saudi Arabia as saying that the head must be cut off the snake; the King of Bahrain as saying:
“The danger of letting it go on is greater than the danger of stopping it”;
and about Ahmadinejad that he is “unbalanced, even crazy”.
The Iranians, of course, deny that they are building a nuclear weapons capability; they say that they are building nuclear power plants. Iran is a poor country. Could someone please explain to me why, as one of the world’s largest producers of gas and oil, it should need to build nuclear generators? It is laughable. I see the Iranian situation as a car crash waiting to happen, and it is all in tortuous slow motion. For years, we have known that the Iranian regime is wholly bad. Ever since the revolution, it has been a force for evil in this world. It destabilises Iraq and Afghanistan, and it is our soldiers who pay the price. It set up a state within a state in southern Lebanon, such that Hezbollah today is a major threat to Israel, armed to the teeth with more rocketry than it had in 2006, despite the United Nations trying to prevent it. It finances and arms many organisations that we deem to be terrorists and which are threats to our security. Now it is in bed with the North Koreans, who it seems are to supply it with medium-range missiles capable of hitting western Europe: talk about a marriage made in hell.
I am a firm supporter of the state of Israel. To Israelis, a nuclear-armed Iran is an existential threat. It sees Tel Aviv as target number one. Ahmadinejad has stated on many occasions—and who are we to disbelieve him?—that the Holocaust never happened and that Israel must be wiped off the face of the earth. So the man both denies the Holocaust and, at the same time, plans for the next one. He plays for time, stringing us all along while he zigzags from side to side. We threaten him but we always back off. We indulge him, hoping that he and his state will change their tune, but they do not. We apply sanctions, which are soft and meaningless, but he ignores them. All the time, the centrifuges keep spinning—at least, they would were it not for the Stuxnet virus.
My conclusion is that nothing will stop Iran in its pursuit of nuclear weapons, except crippling sanctions, and these should be implemented before it is too late.
My Lords, I hope that next week’s Geneva meeting will cover Iran’s refusal to co-operate with the UN’s official human rights mechanisms and its rejection of the specific recommendations under Iran’s UPR, to which attention was drawn by a consortium of NGOs led by Human Rights Watch, as well as by the UN Secretary-General in his September report to the General Assembly. In turn, it expressed deep concern at,
“serious ongoing and recurring human rights violations”,
including torture, the persecution of human rights defenders,
“pervasive gender inequality and violence against women”,
discrimination against minorities and a dramatic increase in executions. Many were in public, ignoring international standards, still used stoning and suspension strangulation, and included victims under 18. The human rights high commissioner added her voice to the chorus last week, concentrating on the vicious treatment of the human rights defender, Nasrin Sotoudeh, and everyone associated with Nobel laureate Shirin Ebadi’s centre for human rights.
The NGO consortium under Human Rights Watch wants the UN’s thematic special procedures, such as the rapporteur on executions, to report periodically to the UN Human Rights Council on matters that fall within its mandate. Iran has escaped detailed scrutiny by the SPs simply by ignoring requests for an invitation. Philip Alston, the retiring executions rapporteur, merely records that a request to visit remains outstanding, without even saying when it was originally made. Again, that has been the practice for all the SPs.
Iran holds the world record, as has been said, for the number of communications on executions. During the year under review, Mr Alston sent 63 letters to Iran, which failed to respond to 37 of them. He suggests that when a country has persistently poor levels of co-operation or engagement with the communications process, the Human Rights Council should demand an explanation. I hope that the Government support that. Otherwise, he suggests, the procedure, despite its significant cost, is not being taken seriously as a means of responding to violations.
I shall return to the other proposals made by the special rapporteur in Thursday’s human rights debate, when I shall also comment on the Secretary-General’s comments on Iran’s treatment of its Baha’i, Sufi, Baluch and Kurdish communities. For today, what ideas do the Government have for improving the means of dealing with the particular case of Iran at the United Nations? Does he agree that at least the rapporteur should produce country reports on the most egregious human rights violators without waiting for an invitation to visit, as has been the practice hereto?
My Lords, I, too, thank my noble friend Lord Corbett of Castle Vale for initiating this debate. Like so many of your Lordships, I begin by saying something about human rights in Iran.
The punishments of political prisoners and those found guilty of criminal offences are truly appalling, from the 74 lashes received only a couple of weeks ago by a political prisoner in Gohardasht prison to the amputation of the hand of a 32 year-old man in front of other prisoners in the central city of Yazd. But what has outraged public opinion more than these harsh and terrible punishments is the treatment of child offenders and women. Amnesty International’s report of August this year says that 135 children are on death row in Iran. The country has signed the treaty on the rights of the child, which explicitly prohibits the execution of children under the age of 18, but I am sure that many of us have read the sickening accounts of the hanging of girls under the age of 18 for alleged sexual crimes and the attempts at public execution of underage boys.
The outcry about the 99 lashes received by a woman convicted of adultery, together with the initial sentence of death by stoning—now death by hanging—has outraged all parts of the world. Unabashed by this outcry of horror which those sentences have stirred up, the supreme court in Iran has now ordered a verdict of death by stoning of two further women in the past two months. Punishments of that nature are simply not acceptable, not in any country at any time or for any crime. What do Her Majesty’s Government say about the 135 young people on death row in Iran at the moment and what action are they taking to talk to the Iranians about the hanging or stoning sentences imposed on women for adultery?
On Iran’s nuclear ambitions and the possibility of its having some ability to produce a nuclear weapon through enriched uranium, and the warheads that it is believed to be developing, we have heard from WikiLeaks, which has already been referred to, that Israel believes that Iran will be equipped with a nuclear weapon within one to two years. Do the Government believe that that is a realistic assessment? If they do not, what can the Minister do about any timelines that he may be aware of?
Over the past 10 to 12 years, I have been sent on a number of visits to the Middle East for various purposes and for very confidential discussions. I must say that although the language of some of the leaks that we have been reading in the past couple of days is florid and undiplomatic, the content of the exchanges came as no surprise; nor do I believe that it came as any surprise to anyone who is acquainted with the region. The countries of the Gulf and the wider Middle East are genuinely concerned—more than concerned—about Iran’s nuclear ambitions. They and we need to think through the consequences of the use of these weapons in the region and the sheer enormity of what would follow. I do not expect the Minister to tell us in detail about the Government’s thinking on this—indeed, I hope he will not do so—but I would like an assurance from the Government that our allies within Europe, NATO and the Middle East and further afield in Australia, New Zealand and elsewhere are all thinking about this issue, are planning and are doing everything possible to ensure that our friends and allies have a clear and well understood strategy to deal with this unimaginable catastrophe, were it to happen in the region.
My Lords, in the brief time left after this series of brilliant vignettes and short speeches about the situation in Iran, it will not be open to me to do full justice to all the questions, and I shall try to contact noble Lords whose questions I do not answer adequately.
I shall begin at the end because the noble Baroness, Lady Symons, spoke with great strength about matters about which we all feel: the gross abuse of human rights in Iran and its appalling practices. She mentioned, in particular, the practice of executing juvenile offenders, which revolts the entire world, and I can tell her that the European Union continues to raise this again and again, with other death penalties, and my honourable friend Alistair Burt, the Parliamentary Under-Secretary of State, discussed this with the Iranian ambassador when they met a few weeks ago, but those are words and our disgust must be expressed in much stronger words than that, and will continue to be.
The challenges posed to the international community by Iran’s behaviour in all its aspects are stark. I commend particularly the opening comments by the noble Lord, Lord Corbett, who not only feels strongly but conveys the strength of his feeling about the behaviour of this grim regime. We have no doubt at all that a nuclear-armed Iran would be a disaster for the Middle East region and deeply damaging to the integrity of the international system for preventing nuclear proliferation. Several noble Lords referred to that, and I take the point made by the noble Lord, Lord Mitchell, about the dangers and about how the habit of extending existential threats to other nations merely reinforces the whole atmosphere and makes the danger all the greater.
Iran’s treatment of its own people, its appalling record, to which I referred, and its support for terrorist groups in the Middle East demonstrate the true nature of the Iranian state. We have no doubt about that. It is confirmed by everything that has been said and there is, indeed, the malign shadow of Iran over the Middle East and over prospects for peace. Those prospects would be enhanced if Iran were no longer able to use, for instance, the Israeli-Palestine argument, debate, quarrel, differences and conflict somehow to champion every kind of hostile and difficult element in the region.
The international community has demonstrated unity and resolve. We have adopted a twin-track approach to Iran, referred to by your Lordships, of pressure and engagement. The aim is peaceful pressure, through sanctions, designed to persuade Iran to come to the negotiating table. In the past six months, we have secured tough new sanctions at the UN and at the European Union. The noble Baroness rightly asked whether we were bringing the allies along. Sanctions must be comprehensive. If they are undermined or weakened by various loopholes, the entire process becomes more difficult to conduct. I assure the noble Lord, Lord Maginnis, that the sanctions will be tough. We are in high-level discussions with China on the need for it to support them. If trade routes are being undermined and investment in Iran continues from other quarters, our sanctions, particularly financial, are weakened.
We are running those sanctions in parallel with serious efforts to talk. The noble Baroness, Lady Ashton, speaking on behalf of the E3+3, has offered talks for next week, at the beginning of December. That is the latest in a long series of good-faith offers to talk. We do not know how Iran will respond, but we hope that it will do so quickly—the location is yet to be finally settled.
Many noble Lords referred to human rights. Iran’s record poses a direct challenge to the international community. Last year, the world witnessed via TV and YouTube brutal state suppression of the post-election protests in June. That rightly caused international outrage, which we fully shared. We have lobbied the Government of Iran to improve their human rights record and continue to do so. My colleagues and our team of Ministers in other departments regularly raise cases and issues of concern directly with the Iranian authorities. We have regularly lobbied the Iranian Government on the case, for instance—I am not sure whether it was mentioned in our discussion—of Mohammadi Ashtiani since her case came to light in June 2010. We were all revolted by the proposed method of her execution; it was a hideous case.
We are working all the time to get stronger international condemnation of Iran’s very bad human rights record. Last week, 80 countries from every continent voted in favour of a UN resolution—I think that it was raised by one of your Lordships— condemning Iran’s human rights record and calling on its Government to take urgent action. The resolution passed with the largest positive vote for eight years, indicating the breadth of international concern.
We will continue to push for the full implementation of UN resolutions calling for the disarmament of all armed groups supported by Iran and to give our full support to the UN sanctions committees that are pursuing and investigating sanctions violations. I do not want any doubt to be left about that.
I turn to the crucial questions about Camp Ashraf that were raised with such telling conviction by the noble Lord, Lord Corbett, my noble friend Lord Waddington, and others. I am not sure that anything I say will meet their full concern, because I can understand their strength of feeling. However, I have to say to them that, although we must act with as much power as we can, there are bound to be some limits to what we can do. Officials have visited Camp Ashraf four times in the past year, most recently in August. Noble Lords will know that Camp Ashraf is in a sovereign and democratic Iraq. We stress the need for the Iraqi authorities to deal with the residents of the camp in a way that meets international standards, and we will do so again and again.
Several noble Lords asked about seeking to facilitate a visit by noble Lords and Members of Parliament to Camp Ashraf. We would certainly try to do that. Whether one can guarantee that the Iranian authorities will provide the necessary facilities is another matter, but I am quite happy to say here and now that we would consider that possibility and see whether it could make a positive contribution to the situation.
I want to say one or two other things about Camp Ashraf, because I know that the feeling is so very strong and I ought to answer it absolutely fully in the last two minutes I have available—I can see the red light in front of me. On October 25—that is, just a month ago—the chargé d'affaires at our embassy in Baghdad went once again to the Iraqi Human Rights Minister and raised the matters there. Our embassy officials regularly discuss the situation with the Camp Ashraf special adviser in the United Nations Assistance Mission for Iraq, most recently on 21 October, and with EU colleagues and the Iraqi Government’s Ashraf committee. On 24 October, officials also spoke with the US about the latest developments at the camp. In addition, as I have already reiterated, officials have visited it four times in the past year. That is the situation now. It is not satisfactory. One’s heart as well as one’s head says that to see this continuing situation is a grim possibility that somehow must be headed off.
I have to conclude that Iran’s policies and behaviour towards the international community and its neighbours are matters of crucial concern. We will pursue honest engagement with Iran on the basis of offers we have made in good faith. Through sanctions, we will maintain pressure on the Iranian Government to engage over their nuclear programme. We will work closely with regional countries to combat Iran’s attempts to promote regional instability and continue to put pressure on the Iranian Government to treat their own people with dignity and respect, in line with international human obligations. There is much more to say but no time to say it. I am grateful once again to the noble Lord, Lord Corbett, for initiating this very important but short debate.
Central Asia and South Caucasus
Question for Short Debate
My Lords, long before the advent of oil as a prize, mystery and a heightened realisation of its impending post-independence importance first drew me to Asia and the south Caucasus. I now count with pleasure many friends from the region. I declare at this stage that I am the chairman of five central Asian APPGs, serve on the advisory council at Asia House of the Asia and South Caucasus Association, am vice-chair of the British-Azerbaijan interaction group and am associated with a global organisation that is active in infrastructure construction projects.
Central Asia and the south Caucasus have a mystical resonance in the British imagination, whether through the writings of the orientalists or the biographers of the Great Game. The colonial withdrawal and Soviet takeover of the region led to a steady decline in what was once a glorious tradition of scholarship and trade, as access to the region became restricted. The dissolution of the Soviet Union and liberalisation in China and Mongolia removed barriers to access to central and inner Asia, but the UK business and academic community is only now turning concerted effort to a region that we all once knew well, although there are already substantial British successes.
Thus, starting anew, I intend to draw attention to and elevate the profile of a region that has been substantially neglected in UK foreign policy in recent years but which has become greatly relevant both on the global political stage and to regional stability. The prospective importance of this area, politically, economically and strategically, can scarcely be over- estimated. We must work hard to secure interests such as counterterrorism, energy security, democratisation and the rule of law. No longer landlocked thanks to a new innovative pipeline grid, a new golden triangle of trans-Caspian oil and gas resources is emerging between Kazakhstan, Turkmenistan and Azerbaijan that could transform the regional economic potential for central Asia and the south Caucasus.
These countries are characterised by predominantly moderate and secular Governments who have proved to be reliable partners and rational actors on key issues. They remain favourably inclined towards the UK and recognise that we have a social, economic and political culture which they wish to partner. Indeed, these nations look to us as trusted brokers. We have the opportunity to act now to help secure their futures, as well as our national interests, amid the powerful spheres of influence exerted by adjacent nations.
The task is incumbent on us to listen intelligently to, to welcome and to benefit from these new voices at the table of nations. The need for a balanced foreign policy that accommodates a geopolitical approach cannot be overlooked. Afghanistan is part of the central Asian nexus and has natural affinities with that area to counterbalance external influences. Regional countries understand the culture of the ethnic groups in Afghanistan, and the essential economic development of Afghanistan will filter down from the north. I envisage the region becoming the rock around which an enduring peace can be built. The region possesses abundant agricultural, mineral and energy resources, including great potential for renewable energy, including hydropower and solar. It contains all the necessary ingredients for industrial growth, and has a widely educated workforce.
The scientific potential is also enormous. Kazakhstan’s Baikonur Cosmodrome, which is shared with Russia, remains the world’s first and largest space launch facility, and services global commercial satellites and shuttles to the International Space Station. It bears witness to considerable technological sophistication. However, industry, such as the Soviet cotton monoculture, requires vision and assistance in the continued transition from a command economy to market mechanisms that create jobs, exports and opportunities for UK partnerships.
Although this year saw a period of economic stagnation, it is predicted that these countries will experience strong economic expansion in 2011, with real GDP growth of 5 to 9 per cent for a combined regional population of 77 million and a total GDP of $400 billion. Economic engines, such as Azerbaijan, which was third in global GDP growth last year, and Kazakhstan and Turkmenistan, which have new Caspian oil and gas field production in the years ahead, position the region for solid growth, development and diversification. This will be fuelled by relatively high global commodity prices and stronger domestic demand.
The hydrocarbons sector is the backbone of the largest economies, but structural challenges undermine the full development of the natural resources sector. The lack of local technical skills and limited financial capacity to develop the energy sector make the search for foreign investors a priority, while corruption remains a disincentive to foreign investors. Regional interests should not fall into the trap of a single-commodity economy, however. There are real opportunities in the form of energy co-operation beyond hydrocarbons, and the potential for sustainable partnerships for western interests is immense.
Events of global relevance are also now coming from the region. Importantly, this year, Kazakhstan has been chairman of the OSCE. The priorities of Afghanistan and Nagorno-Karabakh, together with advancing dialogue on European security through the Corfu process, and the political, military and economic dimensions, go together with a theme of promoting interethnic and religious tolerance. I wish that country well in living up to the high expectations that it is anticipated will come from the upcoming summit in Astana.
Uzbekistan's presidency of the Shanghai Cooperation Organisation, comprising most of central Asia with China and Russia, has achieved considerable results in developing international contacts and the legal framework, as well as in implementing initiatives to strengthen security and stability and to combat terrorism, extremism and separatism. Importantly, President Karimov's speech to the Oliy Majlis on 12 November on the concept of the deepening of democratic reforms and the formation of civil society in Uzbekistan was a welcome milestone and should stimulate progress in the region. However, despite periods of continuing unrest in Tajikistan and Kyrgyzstan, the Kyrgyz Government recently held their first parliamentary elections, and both countries show signs of increased stability. The militant Fergana Valley tri-state region is, however, a concern.
The countries of the southern Caucasus, anchored by Baku and its management of key pipelines, serve as a gateway to central Asia and are evolving into a dynamic Eurasian artery of economic growth and development. Azerbaijan and Georgia, as well as Armenia, sit in a region that has vast potential. Transport corridors will not only link central Asian and south Caucasus countries with wider regional continental trade and transport networks, but will strengthen the sovereignty of the regional states and facilitate the opening of their political and economic systems.
Azerbaijan's strategic location and stability are vital to the West. The United Kingdom is the largest foreign direct investor in Azerbaijan's economy, and bilateral trade has doubled in the past year alone. Besides long-term energy co-operation, over the past few years bilateral ties have broadened into new areas such as finance, infrastructure projects, education and culture. For all these reasons and more, I believe it is essential for the UK to take a leading role in Europe to push forward relationships on political, economic and strategic fronts and to seek to balance the interests of Russia, the US and China in the multivector policies of the central Asian and south Caucasus states.
What ideas do we have for regional policy? The fragile nascent political systems should be encouraged to progress towards the growth of democratic and anti-authoritarian regimes. However, we will be more successful if we take a long-term view of reform. Our own democracy is an evolutionary process, and we should be seen as a partner, not a preacher. However, given the United Kingdom's professionalism and experience, I think we should mould a regional policy around strengthening the sovereignty of those states and facilitating the development of their political and economic systems. The democratisation of state power and governance, ensuring freedom of choice and the development of electoral legislation, reforming the judicial and legal systems and developing civil society are all areas in which we could usefully engage in the spirit of partnership and co-operation. This would strengthen the parallel-to-trade objectives in advocating the benefits of good governance, transparency and accountability, freedom of the press and human rights standards. In conclusion, engagement is essential. The central Asian and south Caucasus states have now completed their transition stage from independence. Twenty years on it is now a new game and a positive one in a region that should be one of our priority strategic areas. I thank the Minister and all those who are contributing today. In addition, through the Minister if he will allow me, I pay a special tribute to all the excellent London-based officials, together with his ambassadors in post.
My Lords, I thank the noble Viscount, Lord Waverley, for securing this debate. The fall of communism, and thus the Soviet Union, has provided opportunities for the former Soviet republics to gain access to the free market and to begin the journey towards becoming fully-fledged democracies. However, it has also left unresolved territorial disputes that have the potential to spread instability to the wider region. The central Asia and south Caucasus areas are vulnerable to a multitude of threats including terrorism, repression and separatist extremism. I register an interest as the vice-chairman of the All-Party Group on Central Asia.
The Asia House has launched a regional trade association to develop business interests, trade relations and cultural connections with countries in the central Asia and south Caucasus regions. The association was launched last week in the House of Lords, which I attended, and I commend my noble friend Lord Howell on his excellent speech at the launch. I am in favour of sending trade delegations to the region as there are a number of commercial opportunities for British companies. These delegations, however, need to be very high level, with captains of industry meeting their opposite numbers accompanied by senior politicians. As a freeman of the City of London, I am keen to promote investment from Britain to a diverse audience, including the emerging nations of central Asia and the southern Caucasus.
I feel that we need to do more to encourage and facilitate UK companies to transact business overseas and also encourage overseas countries to come to the United Kingdom. We have a structural deficit that we can rectify by applying cuts and increasing taxation. We need to create wealth and generate jobs by augmenting our trade not just with our European neighbours but with the wider world. There are many opportunities in the regions that we are discussing today for trade, financial services, advisory work, skills transfer, renewable energy sector development and other sectors, which we need to explore further. I also feel that our embassies and high commissions overseas should be more involved in helping us to trade, and we ought to engage business persons with the right acumen and experience at these missions.
I referred to this point when I spoke recently in your Lordships’ House on diplomacy. I visited Russia earlier this year where I spoke at a conference on Islamic finance in Kazan, the capital of the Russian Republic of Tatarstan. That may not appear to be an obvious destination for investment or Islamic finance, but it is important to look at all destinations where there are opportunities for successful trade and building new relationships. This year I also visited Turkey, Qatar, Kuwait, Brussels and the United Arab Emirates, where I spoke at international conferences on boosting trade and achieving sustainable development. We should also look at opportunities for future trade and active dialogue with developing nations in central Asia and the southern Caucasus that are making great strides to reach their potential. Azerbaijan was one of the first newly independent Soviet nations to recognise the importance of building new relationships with the West and swiftly welcomed foreign investment after gaining independence. Azerbaijan is a member state of the Council of Europe and is an active member of NATO's Partnership for Peace programme.
I know the Azeri ambassador to Britain and would strongly welcome any plans by Her Majesty's Government to strengthen our diplomatic relations with relevant counterparts in the wider Caucasus. The United Kingdom is the largest investor in Azerbaijan, and more than 175 UK companies are involved in commercial activities in the country. There are already more than 5,000 expatriates working in the country, and it hosts one of BP's biggest facilities in the world. However, more can be done by us in business and commercial activities.
The Caspian region is reported to contain one of the largest reserves of petroleum in the world. Efforts to promote the economic potential of the Caspian basin will lead to greater prosperity for the communities that inhabit the area. I welcome the agreement on security co-operation between the Caspian littoral states. This agreement commits the nations to general co-operation in fighting terrorism, organised crime, poaching and closer dialogue in rescue operations. The Government of Turkmenistan have initiated efforts to create a trans-Caspian gas pipeline between Azerbaijan and Turkmenistan, which has the fifth largest gas reserves in the world but has a fractious relationship with its neighbours.
The Governments of Azerbaijan and Kazakhstan are also forging closer ties in these areas. Azerbaijan has cemented its strategic importance to the war on terror by opening its territory for NATO military equipment transfers to Afghanistan. The tensions between Azerbaijan and Armenia over the disputed territory of Nagorno-Karabakh threaten to jeopardise the safe transport of strategic mineral resources to western Europe. A lasting resolution to this dispute is in the best interests of Britain and our European allies. I hope that the Minister will be able to share any plans that Her Majesty's Government have, along with our European partners, to encourage dialogue between these two nations in reaching a peaceful settlement. There is potential for future conflict involving Turkmenistan, Tajikistan, Kazakhstan and Uzbekistan, as these countries are all fighting for the same distribution of limited water resources. We in the United Kingdom should use our good offices through the EU, the United Nations Security Council and our diplomatic offices in resolving any difficulties relating to water. Its vast mineral wealth has made this region vulnerable to local and international terrorism.
My Lords, I am sure that we are all grateful to the noble Viscount, Lord Waverley, for initiating this debate. In fact, I have been much impressed by the way in which over the years he has concentrated on this area and on the need for us in the United Kingdom to devote more time and energy to being involved in this way in the various different countries that he mentioned. There is a lot to be done; it is a complicated area for western powers. The remote history of the Great Game has no connection with modern-day events for the United Kingdom, which, despite rumours, is still an enthusiastic European country as well. That enlarges to the notion that the European Union as a collective body, and in its individual member states, should take a much greater interest in this area for good and the promotion of peace. For example, using the external action service in these zones would be a very good idea. It takes time to create those new structures, but a lot can be done.
I have to declare an interest. With all-party groups you have to be very careful; if your attention strays or you doze off—I am not criticising anyone who speaks—you are liable to wake up and hear that you have been made treasurer and vice-chairman. I am a vice-chairman of one of the clusters—or at least a sub-segment—of groups of the noble Viscount, Lord Waverley, which I think is connected with Kyrgyzstan. I was appointed on the dubious proposition that I went there on an official IPU visit a couple of years ago led by Wayne David, who is now the opposition Europe spokesman in the House of Commons. That is why I am instantly dubbed an expert on Kyrgyzstan. Sadly I am not, but I had the pleasure of going to that fascinating country, which until only recently was a closed Soviet province. It has a lot of potential to offer, but it has a disgruntled youth who feel that the democratic weaknesses there are depriving them of the ability to be fully involved in civic and political life. The economic opportunities are scarce indeed, and that is a particularly serious problem in that country. My visit to Kyrgyzstan, which I think the noble Viscount, Lord Waverley, also knows—at least, to some extent—took place before the recent very unpleasant political unrest. One only wishes the Kyrgyzstan population well in the future.
I am sure that Azerbaijan will be mentioned by the noble Lord, Lord Laird, later in this debate, as he is an expert. He is basking in the glory of the recent launch of his book, not on that subject but on his background in Northern Ireland. I am half way through the book, so I thank the noble Lord.
I have a couple of points to make in this brief debate which I hope the Minister will have time to answer. Indeed, I shall deliberately emphasise one thing that he might find congenial because he mentions it frequently himself: that is, the Commonwealth. The subject of this debate is not an area immediately close to the Commonwealth, except for India, but there may be reasons for the Commonwealth as a body to take more interest in it, although it does not have the resources that other bodies have. NATO is gradually increasing its interest in the area, although it is really beyond it in terms of theatre. However, as we know, Kyrgyzstan has both a United States and a Russian military base—an interesting example of duality that is not repeated in many other places, but we will see how that develops.
As the noble Viscount, Lord Waverley, said, this is a cluster of very interesting countries with 80 million people. Although the near East crisis of Israel and Palestine and the failure to achieve a settlement and create a Palestinian state is a long way, geographically speaking, from these countries, it is amazing how people in these Muslim states watch closely to see what will happen with the attempt to achieve a solution there. Mahmoud Abbas has already exceeded his democratically elected mandate by a year and a half, which is something that the British press does not seem to mention very much. The groups that are accused of being violent—Hezbollah and Hamas—somehow have to be involved in these matters as well, and there is still a huge question mark over the future of Gaza. Unless those things happen, Muslim countries will feel very uneasy and believe that the political settlement in those wider areas is fundamentally unjust. That situation must be dealt with by the western powers, led by the United States, rather than just offering 20 Stealth bombers to the first-third country. That is an amazing offer from an American President, unless the press got it wrong. I have never heard of such a proposition. I hope that the United States will think again about these matters and return to realistic negotiations, including on the West Bank.
I conclude by asking the Minister to refer to the animadversion of the noble Viscount, Lord Waverley, to energy co-operation and the key pipelines. I hope very much that British companies will be more involved there in the future, as I do not think that we are involved enough. If the Minister has time, perhaps he could refer to the gradualist process of democratisation in a number of these countries. It would be interesting to hear how the UK Government regard these matters, although we would not wish to enter into indelicate criticism of countries that are emerging from difficult circumstances and are feeling their way forward.
I led a delegation on a visit to Turkey a couple of weeks ago. It is a very impressive country and is extremely interested in this whole area, as is India, which I also visited recently. Turkey is very interested in the development of all the “stans” and in the future of Afghanistan. It was very concerned to say to the West, “Don’t wag your finger or give us lectures. Just give us help and advice. We are developing ourselves. India particularly is a spectacularly successful democracy, despite the poverty. We will find our own solutions but we would welcome co-operation in the international field and far greater hands-on involvement from the United Nations”.
I, too, congratulate the noble Viscount, Lord Waverley, on getting this debate. It is an area in which he has taken a lot of interest, and we all appreciate that. I also thank the noble Lord, Lord Dykes, for his very kind reference to my book. It would be totally inappropriate to mention it here. It happens to be called A Struggle to be Heard, so I will not mention it here.
I declare my interest as chairman of the advisory board of the European Azerbaijan Society and a member of the All-Party Group on Azerbaijan. I have been to Azerbaijan a number of times and find it a fascinating and interesting country that compels people like me to take an interest in it. The United Kingdom has been a dominant player in the country since the fall of the Soviet Union and, as other noble Lords have pointed out, there is a lot of United Kingdom investment in Azerbaijan. The UK is already responsible for more than half the direct foreign investment.
However, I am interested in the Baku pipeline, which needs to be built if the West is to benefit fully from the vast oil and gas reserves in the Caspian area. Azerbaijan is important not just for energy security. I find that one of the good qualities that these areas have, particularly the young ones, is well educated, articulate, thoughtful people who are determined to make their voice heard in the modern world. I am of the opinion that we should always be on the lookout for ways to allow thinking from one of the great crossroads of the world—Baku and Azerbaijan—to be made available to us in the old West. We can add it to our thinking and perhaps solve some of the problems of today.
Azerbaijan is a strong partner of NATO and has sent troops to Iraq and Afghanistan. It also allows material for NATO’s ISAF to reach Afghanistan by road and permits overflights. However, as other noble Lords have pointed out, one of the big problems that besets that country is the occupation of Nagorno-Karabakh and seven surrounding regions. This is the cause of much instability throughout the area. As a result of this dispute, Armenia missed out on the existing BTC pipeline and will miss out on the proposed Nabucco pipeline, which could also bypass Armenian territory. We have seen in Georgia what happens when a territorial dispute goes unresolved for too long; there can be full-scale conflict.
I join other noble Lords in asking Her Majesty’s Government to ensure that there is as much British investment in the country as possible, not just in energy but in financial services and civil engineering. I also ask Her Majesty’s Government to help to find a resolution of the Nagorno-Karabakh dispute and, most importantly, to join the United Nations, NATO, the European Parliament and the European Commission in unequivocally supporting Azerbaijan’s right to reassert control over its sovereign territory. I look into the future and hope that there will be a not-too-distant day when we can welcome Azerbaijan into the European Union.
My Lords, I, too, thank the noble Viscount, Lord Waverley, for initiating this debate and express my appreciation to the Minister for his stamina in tackling so many world problems in one day. I, too, am a vice-chair and one of the members of the All-Party Group on Central Asia, which takes responsibility for human rights, good governance and the rule of law. Next week, I shall go to Tajikistan in that capacity for meetings with parliamentarians and civil society on a visit organised by the British embassy and the OSCE.
I shall concentrate on good governance and the rule of law in the central Asian countries. I have been involved with some of the countries of central Asia since 1993, when I made the first of my many visits to Kazakhstan. That visit related to legal and prison reform—I declare an interest as a trustee of the International Centre for Prison Studies. The visit was the beginning of a long and productive relationship.
In deciding one’s priorities in central Asia, it is always helpful to remind oneself of the origins of its countries. On a hill outside Astana, the capital of Kazakhstan, is a huge monument put up by the Kazakh Government that has engraved on it all the names of the labour camps that under the Soviet regime were located in Kazakhstan. Millions of people lived and died in them. The monument is a reminder of a not-very-distant past. It is important to remember, first, how recent the transformation of central Asia into independent states has been and, secondly, some of their enormous achievements.
The transformation of the gulag system in Kazakhstan into a prison system more consonant with human rights standards was a huge undertaking that required enormous dedication and commitment. At the same time, the public health system there broke down and prison authorities had to battle with an epidemic of tuberculosis, some of which was multi-drug resistant and deadly. Considerable law reform was undertaken, moving the country towards a system that humanised the penal code. It was an impressive achievement by some very impressive people. I also visited Kyrgyzstan in 1993, on the second anniversary of the country’s independence, as part of a Council of Europe delegation to discuss legal and penal reform. Much progress was made there, too.
We should also remember that the death penalty is either abolished or subject to a moratorium in all five central Asian states. I declare my interest as the chair of the All-Party Group for the Abolition of the Death Penalty. There is a wide range of civil society organisations in Kazakhstan. I declare one further interest as a member of the advisory board of the Legal Policy Research Centre in Kazakhstan. Both Kazakhstan and Kyrgyzstan have signed the optional protocol to the convention against torture. These are all substantial developments towards the rule of law. When we consider the current situation in the central Asian states today, it is perhaps helpful to do so against the background of developments in the recent past. Those developments make it clear, first, that the capacity exists among the people of those nations and, secondly, that ideas of human rights and the rule of law are widespread in the region.
However, it is undeniable that progress towards democracy and the rule of law has stalled. There is no need for a lengthy exposition of those problems as the Minister will be well aware of them. For those who, like me, have found so much to admire over the years, it is a great disappointment. It was disheartening to read reports earlier this month that prisoners in Kazakhstan are once again inflicting terrible mutilations on themselves to protest against their conditions and treatment, and to hear of the way in which the very moderate and responsible human rights worker, Yevgeny Zhovtis, has been treated. As other noble Lords have said, the developments in Kyrgyzstan have been tragic and a cause of great concern.
Yesterday, there ended in Astana a meeting of the parallel OSCE civil society conference, held prior to the summit. I have a draft of the declaration from that conference from which I shall quote briefly. It states:
“We recognize the unique role of the OSCE in Central Asia, as the only multi-lateral regional intergovernmental body in this region with a mandate to protect human security and promote respect for human rights and fundamental freedoms, democracy and the rule of law. In light of this unique role, the alarming situation with respect to human rights in the region, and the fact that the 2010 Astana Summit is the first one to be held on Central Asian soil, special attention is merited for this region. A number of severe, alarming and persistent problems in human rights observance are relevant for many countries in the OSCE space but must be noted for the Central Asian region as a whole … severe human rights violations, including violations of rights of persons belonging to national minorities, have in many cases contributed to or been at the core of conflicts and instability”.
We should respond to those civil society voices.
I therefore ask the Minister what strategy the Government have in mind to confront those problems. Does he accept the view that while there is no democracy and no rule of law, stability will always be at risk, so perseverance and a long-term strategy are necessary? I ask him, in particular, how he sees the European Union’s central Asia strategy and whether he regards it as a useful way forward. If he does, what support are the Government giving to it? How does he view the role of the OSCE and its human dimension arm—the Office for Democratic Institutions and Human Rights? Is its work effective and do the Government plan to make supporting it a priority? Finally, what other policies do the Government have in mind that might be effective in supporting the central Asian countries in moving forward on human rights and the rule of law?
My Lords, I, too, thank the noble Viscount, Lord Waverley, for initiating this debate today. Like the noble Lord, Lord Dykes, I commend him for the considerable time and energy that he has devoted to establishing a parliamentary group in support of the United Kingdom’s relationship with the central Asian states and the role that he has played and continues to play in furthering our relationship with the south Caucasus in our political and trading dialogue. I declare an interest as a member of the All-Party Group on Central Asia and as chairman of the British-Azerbaijan interaction group.
As has been clear from our exchanges this afternoon, this enormous region is now taking its own place on the world stage in foreign policy, economic influence and internal change. It borders Russia, the Middle East and Afghanistan, and it lives alongside Pakistan. Newly discovered mineral wealth, together with a strong sense of national identity, characterises the way in which many of these states are developing and increasing democracy. There is a conscious effort, as the noble Baroness, Lady Stern, demonstrated, to engage in human and civil rights and a powerful and growing sense of its ability as a centre for entrepreneurship.
A good example is Kazakhstan’s chairmanship of the OSCE, which has been well organised and is very effective, particularly in how it responded to the crisis in Kyrgyzstan in April. Kazakhstan has worked hard to increase the OSCE’s focus on the central Asian states and the south Caucasus, working closely not only with OSCE envoys but with the UN and the EU. In the run-up to the OSCE summit tomorrow and Thursday, Kazakhstan has facilitated an NGO forum on 26 November and a civil society parallel conference on 28 and 29 November. Those are both welcome initiatives, which demonstrate Kazakhstan’s willingness to engage with civil society in the way that has been demonstrated already.
The economies of the region vary enormously. Kazakhstan’s huge potential in the development of its oil and gas means that it is expected to be one of the top 10 oil producers by 2025, with exports of more than 3 million barrels a day. In addition, a quarter of the world’s uranium, as well as large reserves of gold, silver, zinc and copper, is thought to be in Kazakhstan. Moreover, it is the ninth largest country in the world and has vast potential in its arable and other forms of farming. Uzbekistan, too, has established national resources in its gas, oil, gold and silver, as well as being the world's third largest exporter of cotton. Turkmenistan is similarly rich in its long-term energy potential, with the world's fifth largest resources of natural gas. The development of the EU-led Nabucco pipeline project will lessen Turkmenistan’s reliance on Russia.
That is in stark contrast to the fate of Kyrgyzstan and Tajikistan, which are both among the poorest of the former Soviet states. Most Tajikistan manufacturing plants from the Soviet era were abandoned and have simply not been replaced by any forms of new production. In Kyrgyzstan, despite the backing of the western donors and the International Monetary Fund, the economy remains weak.
I stress those economic differences for an obvious reason. It is clear that international trade and investment will follow the natural resources: the oil and gas, uranium or gold and silver. However, in concentrating so much on the economic factors, it is very important to engage with the smaller economies of Tajikistan and Kyrgyzstan, to help to diversify their economic base and grow their future, without which there is real potential for instability and security problems, which might affect their near neighbour, and indeed the rest of the region eventually.
What level of engagement do the United Kingdom Government propose to sustain on trade and investment dialogues not only with the mineral-rich countries of central Asia but with the less well-placed economies of Kyrgyzstan and Tajikistan? Meanwhile, I strongly support the noble Viscount in his initiative to engage at parliamentary level with all the central Asian states. I visited Turkmenistan last year as part of the initiative, and was hugely impressed by the level of interest and engagement from Ministers, parliamentarians and civil society. They were enthusiastic about setting up parliamentary dialogue, and the noble Viscount has rightly ensured that the smaller economies of central Asia are included as important partners in establishing that dialogue.
Human rights are an important factor in all this, as my noble friend Lady Stern pointed out. When most of us think about the issues of the south Caucasus, Nagorno-Karabakh, which many of your Lordships have already mentioned, comes to the fore. Will those issues be discussed at the forthcoming OSCE meeting? I understand that the Deputy Prime Minister will attend that meeting. Do the Government believe that the Minsk group is still the best vehicle to facilitate the long-standing intraregional conflict? The UK is not a member of the Minsk group, but we have a strong relationship, particularly with Azerbaijan, including through our increased trade. It has increased by a staggering 72 per cent over the past year alone. Along with our EU colleagues, we have long thought that any solution to Nagorno-Karabakh should be based on the sovereignty of Azerbaijan, with real autonomy for the people of the Nagorno-Karabakh. Does that remain the Government's view? Also, has there been any direct discussion on those issues with either Azerbaijan or the Armenian Government in recent months?
As the noble Viscount, Lord Waverley, said, engagement with all those countries is important. Can the Minister tell us whether the FCO's global opportunity fund will continue to support the development of the Azerbaijan Parliament, and what the likely fate of the early transition initiative will be in the coming months?
Human rights were mentioned by the noble Baroness, Lady Stern. Can the Minister address the situation that arose in Uzbekistan? It was a matter of some worry and, as he will know, it was featured as what is described as a country of concern in the annual report on human rights which the Foreign Office produces. In my visits, I have found, as the noble Baroness said, that there is a great deal of willingness to engage on those issues. The countries of central Asia and the south Caucasus are not afraid of embracing a real dialogue with us on those issues. That is an important point for us to pursue.
I am conscious that I have asked a great number of questions on a wide range of countries. I appreciate that the Minister may not be able to answer them all, but I hope that, if he is not, he may be able to do so in writing.
My Lords, this has been a fascinating debate, and we all owe a debt to the noble Viscount, Lord Waverley, for promoting it and for bringing to our attention—not merely in this debate but with the great vigour that he has shown in dealing with this region—the tremendous potential and importance of an area with which, I would say quite frankly, not many of us were too familiar a few years back. In fact, if I think back to my schoolboy days, I would have had difficulty when I opened the map in establishing exactly which part of the world we were dealing with. Now—and this is evidence of the new international landscape with which we are all dealing—power, wealth, interest and influence have all shifted. As a trading nation and as a nation that wishes to contribute to the stability and good governance of the planet, we are right now to concentrate very much on these nations.
We are looking at two sets here, as the noble Viscount, Lord Waverley, knows: five central Asian nations and three in the Caucasus, all with unique qualities and some with problems, but all with a degree of dynamism. In a sense, on the biggest in the south Caucasus, we are much the biggest investor in Azerbaijan. At £85 billion, Azerbaijan has the biggest GNP in the south Caucasus. The noble Lord, Lord Laird, and many others spoke about Azerbaijan’s potential and the links; indeed, the noble Baroness, Lady Symons, has just mentioned that potential. I had some close connection with UK-Azerbaijan relations before I joined the Government and am very familiar with the dynamism of that place and its determination to move on from the distant, sovietised past and establish an entirely new and very welcome role for itself in the comity of nations and the world economy.
I shall take some of the comments made quite quickly; I then want to come to my own overview of how we should proceed. My noble friend Lord Sheikh, who is immensely familiar with this area, kindly mentioned the central Asian and south Caucasus association which has been formed. I had the privilege of sharing its launching occasion. It was a very dynamic occasion and Asia House has done an extremely good job in promoting and taking a lead on it. My noble friend also mentioned in particular Nagorno-Karabakh, which one obviously feels enormously involved in by visiting it. One only has to visit Azerbaijan to understand the centrality of the issue and the difficulties with its neighbour. We are concerned that this conflict goes on and on. It is, of course, a source of regional instability and the longer that it remains unresolved, the greater the deprivation and loss of life on the line of contact and the more difficult a settlement could become.
In answer to the noble Baroness, Lady Symons, the British Government support the OSCE’s Minsk Group peace process, and we encourage Azerbaijan and Armenia to accelerate efforts to achieve a negotiated settlement based on the principles of refraining from the threat of using force, territorial integrity and the people’s right to self-determination. We do not underestimate that this will involve some difficult decisions and necessary compromises on both sides, but compromises there must be. I have visited some of the displaced persons in the outskirts of Baku. They feel that they have lost their land, and I realise the intensity of feeling on both sides about this very difficult issue.
I owe a debt of gratitude to the noble Lord, Lord Dykes, for his success in bringing the issue of the Commonwealth—dear to my heart—into a region where, frankly, the Commonwealth does not feature very visibly. He brought home the point that the Commonwealth is a network, as is the area we are looking at. We have to understand these countries not as top dogs and lower levels and so on. They are all countries which deserve a great deal of respect and to be part of the new network of the planet, of which the Commonwealth is certainly a part as well. He urged, as others have done, more involvement in the energy question, and I shall say a bit more about that in my final remarks.
I mentioned the noble Lord, Lord Laird, in relation to Azerbaijan. He also raised the question of the network of pipelines and the pipeline politics that are developing around the region, the most prominent physical feature of which at the moment is the Baku-Ceyhan oil line. There are many plans for further gas development and for getting gas out of the region, even possibly from Turkmenistan across the Caspian, although there are difficulties there. A great deal of the Turkmenistan gas may, in any case, go eastwards rather than westwards.
Then we came to the noble Baroness, Lady Stern, who is tireless in her work for human rights and against torture and other hideous practices. She asked particularly about the case of Evgeniy Zhovtis in Kazakhstan. We and our EU partners have raised this case with Kazakh authorities on a number of occasions. Our concerns centre on the reliability of the legal process. Those concerns are reinforced in a report by the International Commission of Jurists published in March, which concluded:
“There are strong indications that the proceedings against Evgeniy Zhovtis failed to meet international fair trial standards”.
Therefore, we continue to encourage the Kazakh authorities to address the systemic weaknesses in the judicial system which his case appears to highlight. The noble Baroness also raised broader questions of human rights to which I shall return in my closing remarks. However, she asked about the EU/central Asia strategy. We fully support the strategy, which provides an effective framework for relations between the regions. I shall come back to other concerns in a moment.
The noble Baroness, Lady Symons, rounded off the debate with her usual skill. She spoke about the human rights issue. That is central to our concerns and part of our strategy, to which I want to turn, but I shall just say a word about Uzbekistan, because that was raised specifically. We have a good, constructive and balanced relationship with Uzbekistan and there have been some good exchanges recently. The Permanent Under-Secretary of State at the Foreign and Commonwealth Office visited Tashkent earlier this month. We are concerned about the overall level of respect for human rights in Uzbekistan, but there have been some positive steps; for example, the abolition of the death penalty, which we are all working for; the introduction of habeas corpus; the release of Sanjar Umarov; and enhanced co-operation with the EU and OSCE on issues such as criminal justice reform and police training. However, a lot more needs to be done. The UK and the EU stand ready to assist Uzbekistan in this respect.
Perhaps I may now sum up the excellent contributions to this debate, initiated by the noble Viscount, Lord Waverley. I want to put my thoughts under three themes: first, prosperity and economy; secondly, security; and, thirdly—although perhaps one should put this first because in a way it is the most important—human rights and good governance. Supporting our own nation’s prosperity is obviously the central theme in our foreign policy. We have to survive, perform and prosper in a very difficult new world. As I mentioned, we are very well placed in Azerbaijan, where we are the largest investor, and in Kazakhstan, where we are among the top five investors. The big names—Shell, BP, BG Group and others—are all taking forward huge and very important projects. Another country which is increasingly important is Turkmenistan, which, as I have already mentioned, is developing fast. In all these, energy is the big focus. Gas out of the Caspian, in particular, could be the vital contribution to pan-European energy security and could perhaps provide a better balance with the sometimes rather erratic domination of Gazprom from Russia.
At the same time, the general world gas situation, as noble Lords know, is becoming easier with the rise of Shell Gas. All of that is good for us because in the next few years, until we get fully into the renewable and green economy, we will have to see a growth in gas consumption. As the noble Lord, Lord Laird, reminded us, it is not just energy—there are financial services, law and education and all kinds of other exports of skills that we can contribute to this region. The noble Baroness, Lady Symons, mentioned Tajikistan and Kyrgyzstan, which we also think offer important opportunities, and there are UK companies already operating there. We welcome the recent increase in commercial activity in the whole of this region. The Minister of Trade, my honourable friend David Lidington, took a trade delegation down to Baku recently, and we have established a Turkmenistan-UK trade council and the Uzbek-British Trade and Industry Council. I have tried personally to contribute to these activities with various speeches and meetings.
Of course, there are barriers; there are problems of corruption and an absence of transparency, as well as other difficulties, but we think that we can crack these difficulties, and we intend to keep trying. On the security side, there is Afghanistan, with its vast frontier with Tajikistan, which is very relevant to our concern with the Caucasus generally. We need to look for alternative supply routes to our forces, and the central Asians in particular can help underpin the long-term security of the region. I have not got time to mention narcotics considerations, but they are also central to the area. I should add that my honourable friend the Minister of State and my right honourable friend the Deputy Prime Minister are at this moment at the OSCE conference; they are obviously in a position to take up and pursue all the issues, including the Minsk process issue that we have discussed. That is very good and positive.
I end on what is, in a sense, the most important area of governance and human rights. We need to underpin this whole engagement with central Asia and the Caucasus with substantive political dialogue, and we intend to work closely with the region to support development of its democratic institutions in all aspects. We have serious concerns, as does the noble Baroness, Lady Stern, but it is not just a question of lecturing. That will not work. We need to share experience and work together and, when necessary, to remind our friends in this dynamic new area of their growing international commitments. That benefits all of us and helps the long-term stability of the whole area.
The thread linking our policy is common interest and mutual gain. We stand ready to support central Asia and the south Caucasus and the countries of that region, which have been through many difficulties but have acted with heroism, to help them to meet the challenges ahead.
Sitting suspended 5.28 pm.
Railways: Public Procurement
Question for Short Debate
My Lords, it would seem that in the future more and more public services will be procured by local authorities contracting with the private or voluntary sectors actually to deliver those services. The object of this debate is not to discuss the rights or wrongs of such a policy; rather it is to try to make sure that if that is the way we are going, we should try to do this as well as we possibly can. To me that must mean not merely looking forward to what we want to achieve but, just as importantly, looking back to learn the lessons of past experience. At this point, I stress again as strongly as I can that this is not a debate about the rights and wrongs of public procurement, nor is it meant as a moment at which we revisit our views on the role of the state in our lives. Surely what we have learnt from all of this can and should guide us in future exercises.
Probably one of the biggest exercises in public procurement that we have had was the privatisation of the railways. With this in mind, a short while ago I set up a small group of experts to help me identify some of those lessons, and I would like to thank them for their enormous contribution. I also thank the International Longevity Centre-UK, which I am privileged to head, for its sponsorship of this work.
What, then, are the lessons that we draw? The first and perhaps the most overriding thing in any public procurement exercise is that the reasons and objectives of the exercise must be clearly laid out. It is essential that the Government are honest not merely with the public but with themselves. Only in this way can the delivery be monitored, success or failure assessed, and changes, if necessary, made.
Secondly, in negotiating the contract, experience has shown that it is essential that a realistic and workable alternative method of operation is in place first. A Government without a credible fallback situation are not in a strong position when negotiating the original contract or in its subsequent enforcement.
Third is the need for proper risk allocation. In any public procurement, the Government need to be absolutely clear about what risks they want to allocate to the operator and why and how they intend to do that. For example, while some risks that arise from changes in public policy relating to the contract should clearly not be taken by the contractor, if the operator wants the profits of public procurement, it must surely take the commercial risks. It does so in its dealings with the commercial world—some people would say the real world—so why not in its dealings with the Government? From rail privatisation, one will have seen too often such risk merely being transferred back to the Government.
Fourthly, the Government’s ability to enforce the contract properly is essential. All contracts should incorporate, for example, an adequately-sized bond, to be forfeited if the contractor or the franchisee walks away from the contract. That should be accompanied by pre-defined penalties, to be levied for non-delivery at the end of, or even—dare I suggest?—during, the contract.
Sitting suspended for a Division in the House.
My Lords, I have already spoken about the need for the Government to be clear and honest about their objectives in any procurement exercise, and I have stressed the need for a workable and realistic alternative to give strength to the Government’s hand. I cannot stress strongly enough the need for a proper risk allocation. Next is the Government’s ability to enforce the contract properly. It is essential that all contracts should incorporate an adequately sized bond, to be forfeited if the contractor or franchisee walks away from the contract. That should also be accompanied by predefined penalties to be levied for non-delivery at the end of, or dare I suggest during, the contract. If the contractor is a wholly-owned subsidiary, these should also be guaranteed by the parent company. Finally, whatever mechanisms are used, it is absolutely essential that they are made subject to independent and credible audit. Past arrangements have proved to be deficient in this respect and there is considerable scope for improvement.
These are just some of the lessons that this group of experts drew from the history of rail privatisation. For anyone who may be interested, I would be happy to arrange to send them a copy of the report. May I ask the Minister—this long preamble does not change the fact that this is a Question for Short Debate—what he has learnt from past privatisation? What lessons have the Government learnt? Above all, can we have an assurance that these lessons will be properly reflected in any future public procurements? I am sure the Minister will understand that this debate is not just about the railways and that he will answer with that in mind. I intend to broaden my work on procurement with the help of experts in their field to look at education, the Prison Service, healthcare and housing to see how we can all learn from these lessons and ensure better procurement in the future. I am grateful to your Lordships for hearing me this afternoon.
As someone who has spent most of my life working in the voluntary sector, often interacting with the private sector, it is not surprising that I have strong feelings about the procurement of services through these sectors. I know only too well how well, and sometimes sadly how badly, they can deliver services. The lunacy whereby we recently learnt that it would cost more money to cancel the building of two aircraft carriers than to have them completed must not be allowed to continue. It sometimes seems that the inmates have truly taken over the asylum. They say that hindsight gives 20:20 vision. Let us at the very least resolve to learn from the pains and tribulations of the past. I hope the Minister can assure me that Her Majesty’s Government will do just that in the future.
I have been a victim of privatisation in two industries. Your Lordships should reflect first on who benefits most from privatisation. We should perhaps do well to think about the vision. It was about small shareholders, employee shareholders and people taking part in the running of their companies, with the shares to be well spread. However, that was in the era of the carpetbagger, and the shares were disposed of by small shareholders and vacuumed up by big corporations. Moreover, the privatised companies, in particular water and electricity companies, geared up enormously. They had virtually no debt, because they had received money from the Government. They then went out and borrowed large sums of money and gave it to their shareholders, which was not what was intended. To crown it all, they then came back to the regulator and said, “We haven’t got enough money to repair what we’ve taken over. You must allow us more money”, so their prices went up to a level which I imagine would have been quite unacceptable had they remained in the state sector.
That is a bit of history. Let us turn to who benefited. I know very well that they were the professional money men, the merchant bankers, the lawyers and the consultants. It ended up with those people being paid salaries that were massively in advance of those of anyone who did the job on the floor of the business concerned, be they engineers, operators or the employees.
What do we want in future? When the Government privatise the Post Office, which seems to be next in line, and consider employee shareholding as a part of that—which is what the Prime Minister has said—how will they make sure that it remains a mutual? I believe that mutuality was one of the aims of the people who devised these systems, but the system just ran away with them. How can we privatise an organisation such as the Post Office in a way that engages its employees in the operation of their business?
The question goes much further. Once local government starts to privatise its services, how will we stop them being run by large foreign conglomerates in a way that is detrimental to the people in local government or to the customers of those organisations? We know that large American healthcare companies would be interested. Is responsibility for looking after people’s interests to be contractualised out of all recognition? It is essential to think carefully through any further privatisations or any contractual organisations that are set up.
I saw an article in the Times yesterday—I am sure that it was coat-trailed by another very expensive firm of consultants—suggesting that Network Rail should be split up into this and that. I should like the Minister, if he can, to deny that there is any truth in it. I am sure that the consultants who suggested that were not unmindful of the sort of work that it would create for them, their lawyer friends, their financier friends and their merchant banker friends, who are not really party to what Network Rail is doing. They would take money away from what Network Rail should be doing—and I have no particular brief for Network Rail.
I also ask the Minister to look very hard at the PFI schemes. Those have been, if I might say so, a financial disaster and, what is more, we are going to go on paying the bill for them for years and years. I experienced one of those in the police force, when we were made by the then Government to go out to a private finance initiative bid. It has cost a huge amount of money, not just for the new building but for the services that we were obliged to take as part of the deal. It has become a very expensive millstone around the neck of the authority.
Turning back to the railway, some railway franchises are well run, such as Chiltern Railways and Merseyrail, but I am very concerned about whether most of the people put the customer at the top of their list. I recommend that the Minister looks very hard at the survey work that is being done by Passenger Focus. It measures passenger satisfaction on many scales, which is very important in what we are doing.
My Lords, I thank the Minister for indulging my short absence. I also thank the noble Baroness, Lady Greengross, for introducing this debate and for sharing with me the paper from her transport forum. It reminded me of a paper that I had written some seven years ago, after 12 years’ experience of procuring goods and services for the public. I was procuring at the rate of something like £0.5 billion worth a year and I set down in a paper—it was literally only 22 lines long, so it was not a great seller—what I thought I had learnt from those 12 years. I ended up with 22 tips for contracting. I have looked at where the two papers coincided.
I take my first two points:
“Know what your objectives are”,
and, “Understand your suppliers’ objectives”. The essence of making a good contract is to think first of why you are doing it. You are doing it not for the Government but for the citizens, either singly or in groups, so you must know what you want and what that service is. You must have mutually compatible objectives and you really need measurable objectives. You do not want indulgences such as, “Let’s have innovation”, or all those fancy words. Get your objectives right first and understand your suppliers’ objectives so that they know whether those are possible.
I come now to contracts, which were at 11 and 12 on my list. I wrote,
“Contracts beyond their foreseen limits become progressively valueless”,
and, at point 12, “You cannot subcontract responsibility”. Because of those two facts, the idea that you can take contracts, litigate them and bring the behaviour of your contractor into line is pretty thin. My experience is that once you have a contract so far out of line that you cannot do business with your contractor, it is useless to try and litigate it and that, because you cannot subcontract your responsibility to operate the service, you are forced into a deadly embrace with your contractor. Much better than depending on tight contracts with penalty clauses is to have win-win contracts. In a good win-win contract, when a contractor’s manager thinks about making a decision to maximise the profit for his employer, he should be thinking, “That same action will maximise the benefit to the citizen”. Contracts that have those win-win characteristics are the only ones that really work over time, so win-win contracts with good mutual alignment are best.
My points 15 and 16 were:
“Risk migrates to the party of substance”,
“Risk transfer should be appropriate”.
This idea that you can somehow subcontract risk to the private sector is unreal. When things go wrong, the risk will come back to the state. The reason that the state provides this service in the first place is that it has to be provided and the state cannot back out. You can only transfer to your contractor the risks that he can manage. You should not try to transfer risks that he cannot manage because, if you do, your contractor will then be a gambler. If he is lucky, he will make a fortune but, if he is unlucky, you will pick up the pain. We should remember that the private sector is risk-averse.
Point 21 on my list is that the private sector is good at focus and continuous improvement. Therefore, I allowed the private sector an important role here. However, as I wrote carefully on my piece of paper as point 22, the private sector becomes increasingly dysfunctional in loss-making situations or, as I said in discussions with colleagues at the time, the private sector runs around like a headless chicken. If your supplier is not making profits, all the nice things that he said in the contract and during the negotiations—all the cuddly and furry bits round the edge of what he promised to do—will evaporate. Private sector companies cannot survive without making a profit, so it is in your interests to make sure that you think through how they are going to provide the service and make a profit.
The one area in the report which I missed out but which I think is very valid is transparency. I certainly believe that we have had too much talk of commercial confidentiality over the years and that far more openness and open-book policies in contracting would benefit both sides so that all parties, including citizens’ representatives and the citizens themselves, could see what was happening on their behalf. Therefore, I strongly support the idea of far more transparency, including during the contracting and bidding periods.
Returning to the question of the railway contracts, I ask the Minister, first, whether we have clear criteria by which future franchise renewals will be judged. Do we have criteria by which to create the invitation to tender? Are those criteria written down? If so, where are they and, if not, will they be written down?
Secondly, do the Government understand the importance of win-win contracts as the only contracts that really work over time? Finally, do the Minister and the Government understand the whole issue of risk transfer and how it must be appropriate so that the public and the state do not become the losers?
My Lords, I apologise for getting locked in the Division Lobby for a few minutes and therefore missing a little of the speech of my noble friend Lady Greengross. However, I have glanced at it and congratulate her very much on what she said and on initiating this debate.
The technicalities of railway systems are certainly not an area in which I have the slightest expertise or experience. However, as has been said, this debate is not about railways; its importance goes wider even than that issue. Indeed, the more I glanced through the report, the more I felt that most of its recommendations would be relevant to many other areas—not least when government departments are considering outsourcing social service contracts to the voluntary and other sectors, where many of your Lordships have considerable expertise and experience.
We know that the country is facing just such a situation, because the coalition Government wish to change and very much localise the big society—the way in which many, if not most, of our public services are provided in the future. If we take charities—the third sector—for example, we know that their main areas of concern and undoubted expertise are hardly likely to disappear. They were, after all, pioneers in what is now firmly accepted as state social service responsibilities. However, that does not mean that there will not be changes to be coped with in, to name but a few areas, population size, ageing, the effect of immigration, and medical advances, which mean that many more people live with quite severe handicaps, which again we provide for. Nor indeed does it mean that there will not be other challengers for these contracts from, as we have already heard, the business world claiming that they can provide an even better quality of service at a lower cost.
Larger charities have over recent years learnt to present their cases as required to fairly high commercial business standards and, with the help of organisations such as the NCVO, they are pretty well able to negotiate their own contracts, but smaller charities will certainly benefit from the report's emphasis on the need for greater transparency—I agree with what the noble Lord said—particularly when negotiating contracts. Clarity in the detail of what both sides are expected to deliver will be crucial. As the report states:
“a contract is the mechanism by which conflicts are resolved when things go wrong”.
This is one of the fundamental lessons which the report stresses should be learnt from the experiences of railway privatisation.
Two smaller but equally valuable lessons are what should constitute a sensible length for a contract and how risk should be allocated between the operator and the Government. One of the complaints that many third-sector operators have, apart from the main one that payments from the Government or the local authority are always late, is that the contract time, often only three years, is too short to achieve worthwhile results. The report's suggested sensible length of an initial contract is five years, a much more realistic timescale, which perhaps could be extended for the same period twice more if all the right boxes are ticked.
On risk, not least in the light of the ghastly situation that we are all facing, it should be realistically shared between the Government or the local authority and the operator or at least linked to something like the GDP, as is suggested. One crucial lesson when negotiating the contract is for the Government or the local authority to have a realistic and workable alternative method of operation in place before beginning negotiations, as my noble friend mentioned. There must be competition in the bidding process to get the best results. Another sensible suggestion is that an independent supervisory board can play a really effective role as a buffer between the day-to-day operators and the Government. Equally, there should be a representative on that board of those on the receiving end of such services.
The last element I want to stress is the need for there to be an independent audit of what is being achieved, not least to avoid the suggestion of inappropriate political influence. It is, of course, vital for the Government to be open and honest both with themselves and with the general public about what they are trying to achieve. Public procurement is not an us-and-them situation. A proper working relationship is essential if the contract is to be fully effective.
I shall end by underlining what my noble friend Lady Greengross said. The ideas and experience behind what the report is saying are important and contain lessons that need sober consideration by the many Ministers and government departments that will be involved in the massive amount of public procurement that is already under way. Can the Minister give the Committee his assurance that these lessons will have been carefully studied and learnt when future public procurements are made?
My Lords, like other speakers, I congratulate the noble Baroness, Lady Greengross, on her ingenuity in managing to hang a debate about the wider issues of public procurement on the rather slender hook of railway privatisation. I am glad that she intends to look at further areas of service delivery where this might apply, because although some lessons, particularly in risk, might arise from the experience of rail privatisation, it does not seem a particularly good analogy for most of the services in which government or local government are engaged.
However, as a frequent user of the east coast express line, I am somewhat nostalgic for the days of British Rail, but that is one area that the report did not touch on. Clearly, the issue of risk is widely recognised in that report and by previous speakers as being somewhat unreal when it comes to the expectation of benefit to be derived from privatisation or outsourcing, given the importance of the services in question.
There is one area which Governments of any political colour might be tempted to advance as an argument for privatisation. First, you have to raise capital, which may be more difficult, and secondly, you have to keep it off the public sector borrowing requirement. That seems to be the only compelling justification for the private finance initiative. Even then, contracts were entered into that were far too long. Clearly, if things go wrong, as they have done, the Government have to step in. It is always open for a contractor to liquidate rather than continue and to be made to pay penalties.
The noble Baroness referred to the possibility of bonds and penalties, which is superficially attractive, but that would be priced into the contract in the first instance and, in any event, it might not suffice in the end to deal with problems that arise. It struck me that a more useful transport comparison might have been the bus industry, which was largely municipally owned—it still is, very successfully, in London. The competition that ensued—sometimes there were too many buses chasing each other down the high street—and the standards of service that followed might have made a better comparison. It is important to recognise that there is virtue in having a mixed economy of provision in which public and private providers, and those from the voluntary sector, all have a part to play.
That is valuable, and I would not want us to move in the direction that Nicholas Ridley once advocated of councils meeting once a year simply to let the contracts. Councils and other bodies should be both commissioners and providers of services. I say that in the light of experience in residential care in the 1980s and 1990s, which was largely privatised as a result of the then Government’s approach to paying for it. Previously, it was organised largely by local councils. Ultimately, most local authorities withdrew from the field—eventually, unfortunately, so did many of those who succeeded in obtaining contracts—and we were left with a very unsatisfactory situation.
The public sector needs to be involved as one of the providers. There also need to be safeguards. Clearly, there has to be a level playing field on terms and conditions for those competing in this arena. We saw in the National Health Service how outsourcing led to a significant reduction in the levels of remuneration of care staff, and we have seen the same thing happening to some degree in the outsourcing of domiciliary services, even when they are run by third-sector organisations. We clearly need accountability; I endorse what the noble Baroness, Lady Howe, said about that. Some of that can take place in the realm of local authority scrutiny, which can be quite effective provided that it brings in the users of services as well as others. In all this, we have to bear in mind the need particularly to encourage the role of the third-sector providers, which means looking at the size of contracts. It is possible to achieve economies of scale by letting large contracts all the time with which smaller organisations cannot compete, so we need to ensure that there are smaller or local-scale contracts, which will enhance accountability and allow for the innovation that the third sector often brings.
Have the Government given thought to the requirements of the EU on tendering? There is an assumption that you can take a workforce and turn it into a mutual and it will get a contract, but I understand that that may not be the case. Everyone has to compete in the same way as any other contractor, and there is no automatic assumption that that will happen.
Finally, I turn to one developing area that will require very sensitive handling. We are now moving into an area in which commissioning will be not only for a service and by a large commissioning body, such as GP commissioners or a local authority, but by individuals using personal budgets. That is to be welcomed, but it has to be managed; people will have to be helped to navigate their way through a system, choosing the right suppliers of a service and the right kind of service. The market has to be managed, and there has to be considerable quality assurance. A new dimension is opening up, and I hope the noble Baroness will look at that as well as the current practice in the areas that she has identified. I congratulate her again on her ingenuity, which struck me as being worthy of a Wall Street banker or derivatives trader, but in this case with much more benign results.
My Lords, I thank the noble Baroness for introducing this Question for Short Debate. She has certainly hooked me on railways. I shall mention one or two points about railway procurement, starting off with vehicles and moving on to franchise procurement, along with one or two problems which I think are occurring at present in this context.
The first thing, which is surprising after what was expected in 1994, is the amount of control that the Department for Transport has of rolling stock and dealing with the cascades, the specifications and electrification. That may not be surprising, but I do not think that it was the original idea. The second point concerns the rolling stock companies, or roscos. This is the one point of railway privatisation that British Rail would have liked, but now it has been shown that, broadly speaking, they do not accept risk; they want guarantees that the vehicles that they own will be used for the whole of their life. I cannot say that I am against the idea of vehicles being used for the whole of their life—after all, railway vehicles have a life of at least 40 years. That means that decisions made now will last well into the future. Unfortunately, rail vehicle procurement is somewhat stymied and paralysed until the Government decide what is to happen next. The roscos are not bringing in new stock for fear that it might not be needed for the full 40 years. That paralysis leads to problems for the rail vehicle builders, which would love to have a continuous flow of work but clearly do not. One joy of our historic position in the railways is that we have a smaller loading gauge than anywhere else. Therefore, there are no foreign, off-the-peg vehicles to buy, although of course British rolling stock can be used on the continent—albeit it looks rather smaller.
Then there is, yet again, the delay with the intercity express programme—the IEP. That means that the lives of the high-speed trains, or HSTs, have to be extended. It strikes me that we will be using them on the main line for up to 40 years at the rate we are going. They are good trains but it will be interesting to see what they are like when they are 40 years old.
On a franchising rather than vehicle procurement issue, there is what I consider to be the clumsy handling of the Pendolino integration. I understand that Virgin asked for a franchise extension in exchange for integrating the new Pendolino carriages, extending them by an extra two carriages per train and bringing into service four new trains. I understand that it wanted a franchise extension but the DfT did not want to give it one. Although I am certain that there is right on both sides, it would be better if the existing franchisees—the people who have been handling those trains for the past few years—handled the integration of the new carriages rather than handing it to a new franchisee.
My sixth point on vehicle procurement—my noble friend will not be surprised to hear me mention this yet again—is the desirability of having trains that are suitable for tourist routes. I understand that they must be cascaded, but it is very important that on the scenic lines throughout the British mainland we get some straightforward window and seat alignment so that people can take advantage of the scenic potential of tourist and holiday railways.
My time is, unfortunately, coming to an end. On franchising, I should like to pick up the point about competition. There is rarely competition within franchise procurement. Usually, it is the allocation of regional or, in the case of Scotland, national fiefdoms. I am one of the few people who has competition, at least in theory, because, living equidistant between Edinburgh and Glasgow, I can come to your Lordships’ House with either Virgin or East Coast Trains—or, if I were being really pedantic, I could go down to Carlisle and then go from Carlisle to Leeds with Northern and then East Coast Trains, but even I want to get here.
The franchise context has changed. Initially it was all about entrepreneurialism; now it has become entrepreneurialism in the context of the death of the railways. The most important thing, which has really muddled the situation, is that people might want to travel by train. Railways are back on the up and the franchise context is now about management contracts rather than entrepreneurialism.
Finally, how happy are the Minister and his department with the way that the franchising process has been wandering about, accidentally arriving where it is now? Does he have a clear idea of where he would like franchising to go?
My Lords, I, too, begin by congratulating the noble Baroness, Lady Greengross, not only on her introductory speech, which emphasised the value of the report of the Transport Forum, which she chaired and which did such valuable work, but on indicating that there are a few hares that may run well beyond the range of the railways issue for the Minister to consider. It is not often that I express sympathy for Ministers, and I will not make a habit of it, but I have a little sympathy for him today. I am sure that he has concentrated a great deal on the railways, and I want to reflect on the lessons that we need to learn in relation to them, but other Members of the Committee have taken the opportunity to identify areas which ought to be considered in the light of the report and its formative work on the issues of public services and public procurement.
I hope that the Minister has some response for the noble Lord, Lord Bradshaw, about the future of the Post Office and about where mutuals may play their part in the provision of services. The Minister will also have noted the experience of my noble friend Lord Tunnicliffe in procurement and the way that contracts need to be drawn, pursued and followed through. On that, we derive insight from the railways, but not all those insights give us much comfort at present. Hence, a number of noble Lords have identified their areas of anxiety.
My noble friend Lord Beecham, with his vast experience of local government, brought up the issue of PFIs. The range of responsibilities and opportunities that may derive from them makes it important for the Government to learn lessons on procurement, given the range of issues to be covered. The noble Baroness, Lady Howe, identified the voluntary sector, and the noble Earl, Lord Attlee, therefore has a great deal on his plate when responding on the lessons on which we want enlightenment. I look forward to his response.
My party has been very concerned about what we need to learn from the experience of railway service provision. We were on the brink of re-evaluating the way in which the present system of privatised railways works. That is why we produced an outline policy document on the key issues that we had learnt from years of operating the railways. It was quite clear that important lessons needed to be learnt, and they have been identified to a very large extent in this report. We were particularly concerned about how to encourage innovation and investment. The business process needs to be altered to put greater emphasis on that. We were also concerned about the changes required during the life of a franchise. It seemed to us that it is necessary to have elements of flexibility that enable you to come to terms with changed circumstances over a franchise. We were concerned about the specification and delivery. In particular, we thought that the TOCs needed to be contractually required to deliver services and other outputs important to the public. We need those contracts to be established in a clearer way than has, perhaps, been the case in the past. We are concerned about risk. I bear in mind the point made in the debate that the risk falls upon the public sector—either the local authority or the state—because that is where responsibility for the service lies. Nevertheless, that means better management of risk and incentivising operators.
I would ask the noble Earl to think about and respond on one little matter. He will be aware that the level of costs borne by fares was 57 per cent in 1992 and that it went down to 54 per cent by 2008. What is his estimate for 2014-15 in the light of the recent indication of the part that the rail passenger has to pay in increased fares? What will the fare burden be as a percentage of the costs of the railway four to five years from now? I am sure the noble Earl has quite enough to respond to.
My Lords, I congratulate the noble Baroness, Lady Greengross, and her colleagues on developing an excellent and thought-provoking contribution to the public procurement debate. This debate has been fascinating to me and will be valuable to my officials. The noble Baroness asked me whether we will learn lessons. Yes, because it is extremely boring to make the same mistake twice.
Rail delivers an essential service with more than 1.2 billion passenger journeys and more than 19 billion freight tonne kilometres in 2009-10. Total government support to the rail network was £3.9 billion in 2009-10. Two initiatives are central to the Government’s plans for rail services and to provide better value for money. The rail value-for-money study, chaired by Sir Roy McNulty, will help us tackle the greater costs of rail in the UK compared with mainland Europe, while our consultation on reforming rail franchising will assist us in devising a new franchising policy.
The Government want a stronger focus on the quality of outcomes for passengers, giving operators freedom to decide the detail of how they run their businesses. We also intend to grant longer franchises to encourage private sector investment in enhancements to the railway and to make it easier for train operators to establish long-term relationships with Network Rail and others, but we have to make sure that contracts are demanding and that operators are held to account.
The noble Baroness, Lady Greengross, talked about the penalties for poor performance. The department's policy has been to avoid renegotiation. National Express paid a large financial cost for its failure to deliver its commitments on the east coast. That sends a clear message to the bidding community. Sir Roy McNulty is not scheduled to present his final conclusions until next spring. The consultation on reforming rail franchising closed during October, and ministerial colleagues will shortly present our revised franchising policy and timetable.
I take this opportunity to thank everyone who took the time to respond to the reforming rail franchising consultation, including the helpful submission from the transport forum chaired by the noble Baroness. I will discuss some of the issues raised, without prejudging the outcome of the franchise reform review. One issue raised was the importance of negotiation and early engagement with shortlisted bidders. The responses provided broad support for the proposal in the consultation document that,
“bilateral discussions are held with each of the shortlisted bidders prior to the issue of the Invitation to Tender, enabling bidders to inform the specification and contract documentation”.
I expect this approach to be reflected in the new processes, ensuring that the department does not inadvertently prevent any bidder from proposing an innovative solution.
The noble Lord, Lord Tunnicliffe, talked about the need for transparency. The coalition has introduced new rules requiring the publication of all contracts and tender documents. This is an area where rail procurement can be held to have led the way. All selection processes, invitations to tender and successful contracts have been made available on the DfT website for many years under the previous Administration. The submission raises the important but complex issue of risk allocation. It correctly points out how important it will be for future franchises to make it clear which risks are to be borne by operators and which by the Government. The submission suggests that there might be merit in the Government bearing some of the risk of changes in the economic climate. We continue to develop policy in this area but are clear that risk transfer to the private sector may be costly.
The noble Baroness, Lady Greengross, and the noble Lord, Lord Tunnicliffe, both talked about risk allocation. Rail contracts strive to define which risks are held by which party. However, as the noble Baroness noted, some risks have reverted to the Government—for instance, if a franchise fails, the Government are legally required to run the train services. We seek to limit that risk by bonds, which the franchisee pays in the event of failure, but also by parental guarantees, which ensure that a parent company is required to support the franchisee through temporary financial difficulty.
I have already touched on the issue of longer franchises, while the question of break points will need to be considered carefully. There is a danger that break points negate the advantages of a longer franchise if it is then perceived as merely a series of short franchises. We want to reform the franchising system as a whole, improving incentives to invest and to take account of passengers. However, although we are seeking to develop a new approach at policy level, the department has a good track record in the processes of procurement.
The strengths of the rail franchise procurement process were recognised by the NAO as good practice in its October 2008 report, Letting Rail Franchises 2005-2007. Likewise, the Office of Government Commerce, the OGC, in its initial procurement capability review carried out in late 2007, reported:
“Rail franchising is now a very impressive process, which has demonstrated innovation, good market involvement, transparent and robust processes, and successful financial outcomes”.
A report on the second procurement capability review in March 2010 also reflected:
“In a number of areas, DfT performance is leading edge in government procurement terms; for instance, the rail franchise process, the openness and transparency of communications with suppliers, and support for ‘policy through procurement’ initiatives are all exemplary”.
The procedures and techniques first applied in rail franchising have now been adopted across all major Department for Transport procurement activity. At the request of the OGC, the DfT has also provided advice and guidance to other departments.
The noble Baroness talked about performance bonds. An appropriate balance must be struck on this issue. If the bond is set too low, it may discourage a franchisee from handing back the keys at the first scent of trouble and it might be inadequate to cover the direct incremental cost to government of stepping in to deliver the train service and running an additional unscheduled franchise competition. However, if the bond is set too high, we may inadvertently exclude smaller operators from the franchise marketplace and we will pay a substantial cost for the performance bonds, the majority of which are never called upon. The noble Lord, Lord Beecham, talked about some of these difficulties.
The rail value-for-money study, led by Sir Roy McNulty, is looking at why UK railways are so much more expensive than those in the rest of Europe. Focusing Network Rail on the regions and routes may have some benefits. Certainly no decision has been made to split up Network Rail, but all options are being considered in Sir Roy’s review.
The noble Baroness talked about the need to have a fallback in negotiations. During competitions, the fallback is clear: the contract may be awarded to a competitor. Mid-term negotiation is of course always more difficult, but contracts contain a provision for government to impose a “reasonable” settlement and, ultimately, the franchisee will lose the franchise if it is in default.
I was delighted to see the noble Lord, Lord Tunnicliffe, put his name down to speak in this debate. Few noble Lords have as much experience as he does in public procurement for transport infrastructure. The noble Lord raised the advantages of win-win contracts. The alternative, of course, is a win-lose or a lose-lose situation. Train operators need to make a profit by attracting more passengers and increasing revenue. This revenue incentive helps to make contracts win-win, but we are reviewing how to improve incentives further.
The noble Lord, Lord Beecham, touched on the size of contractors and, I think, by implication, SMEs. SMEs are an engine of the economy, providing nearly 60 per cent of our jobs and 50 per cent of GDP, and it is only right that they should benefit from the Government’s substantial purchasing power. The public purse will benefit from the ability of small businesses to offer value for money, flexibility, responsiveness and innovation.
The noble Earl, Lord Mar and Kellie, talked about the problems of interlinking rolling stock and electrification. He also talked about the IEP project. This is a very complex, long-term project and it is vital that we get the decision right. I hope that we will be able to announce our conclusions shortly.
The noble Earl talked about roscos wanting guarantees. The department seeks to avoid giving these guarantees, as they reduce flexibility. However, there have been cases where such guarantees have brought down the cost to the taxpayer. He also talked about the Pendolinos on the west coast franchise. There have been many positive aspects to Virgin’s management of the intercity west coast franchise and I look forward to seeing how it will develop and build on that as part of a competitive tendering process for the new franchise.
The noble Earl also talked about scenic railways. The layout of trains provides a scenic view from all seats but it is a matter for the operator, not something that the department should be micromanaging.
My Lords, I will certainly reflect upon that and have a chat with my officials afterwards.
The noble Baroness, Lady Greengross, spoke of future studies in other areas of public procurement. We look forward to her results with interest and we will certainly take note of them. I am confident that the public procurement processes adopted for rail will continue to represent best practice and provide transparency and equal treatment for bidders. The rail franchise specifications which are procured will evolve and reflect the results of the consultation to provide an environment where operators have the freedom to provide improved value for money and the improvement that passengers want.
Question for Short Debate
My Lords, there is a general perception in the press and the public mind that we no longer manufacture things but depend almost exclusively on financial services for our well-being. No one disputes that financial services, as exemplified by the City of London, are a very valuable and significant part of our economy, but so also is manufacturing—perhaps even more so.
In introducing this short debate, I am indebted to the Institution of Engineering and Technology and the Food and Drink Federation, which have sent me briefs, and most particularly to the Institute for Manufacturing, part of the engineering faculty at Cambridge University. Here I must declare a purely honorary interest in that I am a past president of the Cambridge University Engineers’ Association and, some 60 years ago, was a graduate of the engineering department.
Let us now consider what we mean by manufacturing today. Of course, we no longer have the old smokestack industries; we have a much wider concept of engineering and manufacturing. This comprises the full cycle from understanding markets and technology, through product and process design to operations, construction, contracting and on to distribution and related services. Of course, the food and drink industries play a very important part in that. When you view manufacturing in this light, you begin to realise how vast is its output and how valuable it is to the economy, particularly in its huge contribution to employment and exports.
A further factor is the speed of change. For example, the first iPod was designed and built in less than one year. Shelf life is short, and new models emerge with ever-increasing speed. Traditionally, manufacturing has been associated with manual skills, and these certainly remain important and need to be fostered through apprenticeships. Increasingly, however, the value chain is enhanced by transforming ideas and opportunities into products and services. In other words, engineering and manufacturing are part of the knowledge economy, where brains matter.
My amateurish analysis of the information that I have received indicates that we are talking about an area of economic activity that contributes around £500 billion to GDP, generating more than 50 per cent of exports and employing huge numbers of people. I should be interested to know what the Government make of this figure and what their figure is.
The Government can help further by taking note of the areas of difficulty identified by the organisations which provided briefs. An obvious area is the need for simplification of the tax structure, with reference particularly to research and development and the creation of a favourable climate for small and medium enterprises, where much of what we are discussing takes place. I noticed that this was mentioned in the previous debate in connection with public procurement.
I have tried to set the scene. As I have no right of reply, I express my thanks in advance to the Minister who will answer this debate. I thank most profusely the very knowledgeable Peers who are joining in. I very much look forward to hearing what they and the Minister will say.
My Lords, in a debate where, due to its popularity, Procrustes has reduced most of us to speeches of four minutes, I hope that I shall speak for everyone when I thank the noble Viscount, Lord Montgomery, for his choice of subject and his introduction of it. My only hesitation is that the wording of the Question carries a mild ambiguity as to whether the answer expected is to be quantitative or qualitative.
I am, however, taking it as a given that, in our present parlous circumstances, it is a case of all hands to the pumps and that any enhanced contribution to the economy by the manufacturing sector is profoundly to be welcomed. Although, after leaving Harvard Business School, I made my living across the whole face of the economy and, within that, across a wide range of manufacturing, it is easier if I confine these remarks to a particular part. I shall dwell on engineering, not least because it has had a notable role in Britain’s industrial past, but also because Germany, now the premier European exporter, is still so powerful a force within it.
It is awesome even in this Ashes week to be batting immediately before the noble Lord, Lord Bhattacharyya, who has a personal cricketing reputation as well, and I risk being told that I am wholly out of date, but I am genuinely impressed, diminished though our engineering sector is, at the health of those British engineering companies which have survived the industry’s decline. I put it down to survivors surviving because of the quality of their products in market niches where product quality and utility are at a premium.
When in the 1960s and 1970s in the private sector I was assisting companies such as Rolls-Royce, we were wont to be told that Rolls-Royce’s American competitors enjoyed the advantage of a component manufacturing sector which could produce to the most precise of specifications in an industry where such were required, often in new materials, whereas Rolls-Royce had to design and manufacture its components itself. If there is anything in this hypothesis, even in a global market, then the growth that we are seeking beyond exports will be assisted by an expansion in self-sufficiency in components at home and by entrepreneurs who create new leads for them. I am also assuming that there are still market opportunities similar to those experienced in the United States in the application of electronics to what I shall call the rust belt industries.
An encouraging example that applies to both my hypotheses is the recent decision of the Department for Transport to fund 1,200 new trains on the Thameslink line, specifically with up-to-date and innovative signalling instrumentation, taking us away from the historical poverty of obsessively British-built signalling technology. One sad characteristic of British industry, not only at the time of the original Brookings Institute inquiry of 1968 but lasting to revisiting the issues in the 1980s, was the charge that we were short of engineers to an extent whereby we were using scientists to do the jobs of engineers, thus robbing the science base. The Division Bell is ringing. Do you want me to finish the speech or stop? I think that I have one more minute.
Thus we are robbing the science base of the scientists that it could otherwise have used in research. The institute attributed it to the low value that our economy put on the utility of engineers in the 1970s. It always disturbed me that the financial incentives of industry were so comparatively low. Although in those days, the accountants were more of a salary competitor than the totality of the financial sector, the explosive effect of the big bang compounded the problem thereafter, taking engineers straight into the City. In this respect, globalism has helped by introducing international salary arrangements into our marketplace.
Finally, in the four-year period when I was a Treasury Minister, I was the only one of the eight of us in that overall period who had never worked in the City. Shortly after I went there, Douglas Wass asked me what I was responsible for and categorised my answer as the housekeeping end of the Treasury. Of course, I understood then my colleagues’ views that the decline of manufacturing did not matter if the financial sector was growing as fast as it was, but happily—in some ways—we now know different, and the terms of economic trade are moving back to what we were always once good at.
Committee adjourned for a Division in the House at 6.52 pm.
I would like to thank the noble Viscount, Lord Montgomery, for securing this debate. Whenever the economy is in trouble, we turn to manufacturing for the answers. I remember Ministers talking about sunrise industries, the knowledge economy and high value-added manufacturing. Last year the soundbite was “industrial activism” and now the phrase is “the balanced economy”.
I am not sure that any of these phrases has made a blind bit of difference to our economy. It all sounds a little like gobbledegook to our industrial friends. For example, when the car industry was in trouble we had headlines about 3 billion in support. Most of us thought the 3 billion would be in sterling but it ended up being in peanuts. Most manufacturers got very little, but despite this, manufacturing is playing a big part in our economic recovery. Today, the manufacturing share of British GDP is 12 per cent. That is a touch less than France and within striking distance of the Americans. Not bad.
Much of our recent growth is due to exports in goods, which rose by 15 per cent in the last year, predominantly due to the fall in exchange rates. But any long-term success requires innovation, not devaluation. A car company that was in trouble two years ago because of not getting credit, Jaguar Land Rover is now one of the largest exporters in the country with £7 billion exports this year. It regards developing markets as a major growth area. Exports to China are up 70 per cent. How can we help companies like this to succeed? At the moment our share of exports to emerging markets is tiny. We have a 1 per cent share of Chinese imports. Businesses based in China, Brazil and India are developing the highest technology products—from the C919 aeroplane to domestic designed automobiles and the Embraer corporate jets of Brazil. If they do not have the technology they can get it at the click of a button, or they can just buy another company such as the recent purchase of Volvo by Geely.
We often talk in the UK about low-carbon, high value-added exports, but how many politicians know that China is the world's leader in solar cell technology? We have no privilege in the global economy; we have to earn our place. The major opportunity for our exporters is not merely competing with the emerging economy manufacturers but being partners with them in the global economy. I focus on two areas. First, we must encourage inward investment. We should not be concerned about who owns the companies. The latest figures from the ONS show that the British economy still suffers from low rates of capital investment, as it has for the past 50 years.
If small manufacturing enterprises are to be the seedbed of innovation, full exploitation of their ideas requires long-term investment from larger firms and banks. Today, we have too many barriers to inward investment. The corporate tax system is confusing. Measures such as tax credits are hard to access. Regional support is baffling, and immigration rules send the wrong signals to the inward investor.
Next, we need to understand that trade barriers will exist for a long time. For example, China's tariff on imports of upmarket saloon cars is more than 40 per cent. At the higher end, it is 90 per cent. That is an extremely high barrier to get over. Therefore, most companies will end up manufacturing in growing markets just to get a level playing field, and the countries will make sure that there is technology transfer. We must help them to find partners to get access. Today, we are a gateway to Europe—that is where our major exports are—but we need to be a partner to the world.
The Government have announced innovation centres, a regional growth fund and a green bank. I do not want to talk today about how many engineers are produced, the quality of engineers, how much they are paid, or of technicians or of what the Government have to do in this or that area. We must make whatever the Government have announced simple. Most important, we must make those initiatives happen, not just talk about them. We must not have another saga where we tell the world that we are ready to act but very little happens. I wish the Government good luck in that task.
My Lords, I, too, thank the noble Viscount, Lord Montgomery of Alamein, for initiating this debate at this time. It is at a time of cutbacks. Emphasis is on the private sector to help our country to grow and to provide new jobs. How better than through manufacture? I was a managing director of a small manufacturing company before I got into Parliament. Not only does the UK remain the sixth largest global manufacturer, but the manufacturing sector produces 74 per cent of R&D in this country, which is praiseworthy. However, there is often misunderstanding of manufacturing in this country. It is still a very significant sector, but the perception that manufacturing is the poor relation of the financial sector and others—neat and tidy occupations, if you like—has to be corrected.
It is welcome that just this week, through the autumn forecast Statement, we heard the Government speak of increasing the incentives to innovate and develop new products in this country and to encourage high-tech businesses to invest in the UK. They will introduce a lower 10 per cent corporation tax to that effect on profits for newly commercialised patents, hopefully to be manufactured in this country.
That leads me to the future, and skills and training. In that connection, it is encouraging that both in the country as a whole and in the Government the need for hands-on training, vocational training, is being emphasised time and again. At a recent seminar promoted by the Edge Foundation, which is an education foundation dedicated to raising the stature of practical, vocational learning, it was said:
“Both George Osborne and Vince Cable make the case with force, coherence and intelligence that our economic recovery depends on a manufacturing renaissance … Given the devastation wrought on our economy by the events of the last three years, the need to drive private sector growth is urgent and overwhelming … And that depends on a reform of our education system which addresses our long term weakness in practical learning”—
from which we have suffered for many years.
It is good that there is to be an increase in apprenticeships of 75,000 by 2014-15 and that around £605 million will be invested in apprenticeships in 2011-12. It is also intended that hands-on training will be given increased status. So often, people have been encouraged—at school or wherever—to go to university, which is very praiseworthy. However, the intention of the Government is to give a qualification giving technician status when you do an apprenticeship, to give people status and represent the importance of that particular form of education.
It is good that the Government are aware of the need to improve careers advice as well, because for many years it has been said—truthfully, I think—that careers advice, in particular in schools, has not been good. For example, many instances have been put forward where careers advice at schools level has not included talk about apprenticeships at all, so the new initiative to raise the importance and efficiency of careers advice is very welcome. It must incorporate the important sectors of manufacturing that we are talking about today, but many other sectors have been neglected in the past. For a vibrant and effective manufacturing industry, we need the skills and the importance of trading to be given a top-level need. On that line, I close my remarks.
My Lords, there seems to be a widely held perception that Britain is now purely a services and financial sector-driven economy with agriculture, for example, amounting to just 1 per cent of GDP. The perception is very much that manufacturing in this country is dead. I thank the noble Viscount, Lord Montgomery of Alamein, for introducing this crucial debate at a crucial time. The reality is, as we have heard, that manufacturing remains at the heart of Britain’s economy, accounting for 13 per cent of GDP and over £150 billion—again, I would be interested to see what the exact figure is, according to the Government. It is 50 per cent of exports, 10 per cent of total employment and 75 per cent of all research and development.
We are not only the sixth largest economy in the world but the sixth largest manufacturer by output. Of course, manufacturing directly and indirectly creates jobs in the service, financial and education sectors. However, how much of a priority is manufacturing to the Government? The sad realities are that in 1977 manufacturing was 26 per cent of GDP, double the proportion that it is today, and that the share of people in the economy working in manufacturing has gone from 30 per cent 30 years ago to 10 per cent today.
We all know that we cannot just cut our way out of the deficit and debt problem that we are in today. As an economy, we have to grow. But what has happened to the Government’s proposed growth White Paper? It has supposedly been postponed—why? Because,
“the government did not have enough serious content to warrant”,
one. In my two remaining minutes, I will try to give some serious content; in the one hour that we have together, I am sure that we can all come up with some. Is that some sort of a joke? Right on our doorstep Germany, a major manufacturer, is roaring ahead. China is roaring ahead. Even in India—from where I have just returned this morning—as president of the UK India Business Council, supported by UKTI, I see manufacturing in India roaring ahead. It is over 25 per cent of GDP over there.
In Britain, we are so lucky. We are fortunate to have the cutting-edge, world-class manufacturing that the noble Lord, Lord Bhattacharya, spoke about in every sector, producing products that are global. I see them everywhere on the road in India, for example: Smith’s security equipment at every airport and JCBs at every roadside. Jaguar Land Rover is now owned by an Indian company, Tata. Yet while we have spent hundreds of billions supporting our banks over the previous years, when the Tatas approached the noble Lord, Lord Mandelson, for help he lent them not one penny. It was so determined that it raised the money itself and now, from everything that I have heard, including from the noble Lord, Lord Bhattacharyya, Jaguar Land Rover is flying again—a shining example of cutting-edge, world-class and world-beating British manufacturing, design and innovation.
In my own industry, as the founder and chairman of Cobra Beer, it gives me great pride to visit Burton on Trent, where Molson Coors, our joint venture partners, own the largest brewery in Britain and one of the three largest breweries in Europe. Whenever I go there, I see British manufacturing at its best.
When it comes to education and skills, we have the finest available in this country. I remember with pride showcasing Cambridge University’s manufacturing and science capability to the top team of Tata, who were seriously impressed. I attended the business growth programme at the Cranfield School of Management. I maintain that if every SME in this country had the opportunity to attend that sort of programme, the GDP of this country would go up substantially. Why do the Government not think of having a competition and sponsoring 1,000 places for SMEs every year on courses such as that? It would encourage lifelong learning and management and leadership skills.
One area where we fall down badly in Britain is that we have very few large manufacturers compared with our competitors. For example, firms employing more than 500 people account for 0.6 per cent of our manufacturing firms in the UK. In the United States, the figure is 2.9 per cent, which is five times the number that we have. We need growth and we need scale in manufacturing. Of course, there is too much red tape and our taxes are too high; there is a madcap immigration cap and of course we have the problem of a lack of bank finance. However, unless the Government consciously and visibly make manufacturing a priority, we will be left behind. Like the noble Lord, Lord Bhattacharyya, I despair that our companies do not go out and sell more, participating more in growing markets such as those in India, where there is so much opportunity for our manufacturers. As I have said before, we export more to Ireland than we do to the BRICS countries combined.
In conclusion, most importantly we as a nation need to have pride in our manufacturing sector—pride that when a product is stamped “Made in Britain” it means that it is made with world-beating, world-class quality, excellence in design and non-stop innovation. Who says that British manufacturing is dead? It is a beacon of our economy, but the Government must help to keep that beacon shining.
My Lords, I also thank the noble Viscount for introducing this debate and for drawing our attention to the manufacturing industry, which is possibly the most important thing in this country. I come from the north-west of England and shall draw your Lordships’ attention to some of the issues relating to the manufacturing industry in that part of the country. In the 18th and 19th centuries, the north-west drove the manufacturing industry of the world, not just the UK. I should like to see a return to those times when the innovation, ideas and enthusiasm of individuals could flourish.
Most of the information that I shall give comes from the North West Manufacturing Institute, which represents, or shows the interests of, the north-west manufacturing industry. We have some 18,200 production- driven manufacturing companies in the north-west of England and they make a major contribution to our economy. Output grew by 4.8 per cent from September 2009 to September 2010. In the mechanical and equipment manufacturing industries, it increased by 21 per cent. Therefore, there has been an enormous increase in activity and growth in our manufacturing industries in the north-west. The food and drink industries in the north-west have seen an increase of 6.6 per cent. The noble Lord referred to the importance of the food and drink industry. It is an industry in which I was involved for most of my life. I refer not to the drink side—I shall leave that to the noble Lord, Lord Bilimoria—but the food side. It has been a very important part of the north-west’s economy for a long time and it is still growing at a considerable rate. Some of our most innovative companies are in the food industry. They have contributed to a considerable increase in exports and development in other countries, and I am very proud of some of our major food industry companies in the north-west of England.
I am patron of the Society of Dairy Technology and should declare an interest in that regard. We are trying to improve innovation, particularly in the dairy industry. Our membership covers the whole of Europe and is part of a European structure that enables many companies now to be driven by new investments and new developments. I shall make the point now while I have the opportunity that I favour the large dairy units that are now being considered in this country. I would encourage the whole of Europe to accept new technologies in farming, agriculture and growth. They will be essential if we are going to compete with the rest of the world. We must stop burying our heads in the sand and thinking that we can continue to farm and grow and manufacture food in the way that we did in the previous century.
One of the issues in the north-west to which I would like to draw the Committee’s attention is that, as I understand it from the information I receive from the institute, we will need to replace 550,000 employees over the next five to six years in the north-west alone. That gives some indication of how the manufacturing industry is going to provide extra employment in the coming years. The Government’s policy of encouraging that and of moving people from the state sector into manufacturing industry will be one way of generating much more wealth. In the engineering sub-sector alone, it is hard to fill vacancies. We will require around 18,000 jobs per year, and the estimated lost GVA through lack of recruitment comes to approximately £823 million per annum. That is an important aspect that we have to be aware of.
I draw the Minister’s attention to some of the issues that concern people most. One is the shortage of skills. There is a north-west factory that is trying to recruit 800 specialist engineers and finds it impossible to do so. Another company has had a 170 per cent increase in its exports to China and is looking for 100 new managers and quality people, but it cannot find them. A company that I chair, Rocktron Limited, is a specialist engineering company and is finding it extremely difficult to get the right quality of electrical and processing engineers and craftsmen—welders and the like. There is an enormous shortage, which is handicapping the growth of these industries.
Finally, if I ask businessmen what they want, they say that they want government to leave them alone, to say yes when they want to do something and to encourage officials, particularly at local government level, to stop making hold-up decisions rather than saying “Get on with it and do it”. There is a great hold-up between what the Government at the top are saying about what they want to encourage local officials to do and what is happening at ground level. There is an awful lot of inertia in the system at the moment that needs stirring from the top. I look to the Minister to be the one who might carry out that action and stir people up. When business wants something, it is not money, but someone to say, “Yes, get that built, get that planning passed, get that decision made, get that done”. If that is done by government, business and manufacturing industry will always respond.
My Lords, I add to what the noble Lord, Lord Wade, said about the north-west that it is also a leading area in technical textiles, a business that I was in for 30 years. Noble Lords are right that manufacturing is an important part of our economy and will play an important part in our future, if we are competitive. To secure this future, there is an important political argument that the Minister and her department have to win. It is about debt. Her Government are giving debt a bad name because they say it is an unreasonable burden on our children, but that is a damaging generalisation. We should certainly avoid burdening our children with unproductive debt, but productive debt is not a burden but a blessing. As Martin Woolf pointed out, Professor Helm's paper for the Social Market Foundation is very convincing on this. Now that interest rates are so low, it is the time to build up productive assets. What could be more productive than manufacturing assets and the infrastructure that supports them? I am talking not just about the physical infrastructure but the infrastructure that bridges manufacturing and skills and bridges the gap between research and technology and commercialisation. It is the task of the Technology Strategy Board to provide the infrastructure to bridge that gap. It is the task of our training organisations and colleges to provide the infrastructure to bridge the skills gap. It is the task of the financial services industry to bridge the financial gap. So I hope the Minister and her department will argue that getting into debt to bridge those gaps is productive debt which is a public good and not a burden on future generations.
The noble Lord, Lord Bilimoria, told us that last week there was a headline in the Financial Times that said, “Growth Master Plan Dropped for Lack of Content. Long Awaited White Paper Abandoned”. That gave the impression that the Minister’s department had little idea on how to get growth back into the economy. I am afraid that the paper published yesterday by her department confirms this headline. Perhaps the noble Lord noticed that directly below that article in the Financial Times was an article about a report from McKinsey entitled From Austerity to Prosperity. I am no particular friend of consultants, but the report identifies seven priorities, priorities which are practical and achievable and many of which have been mentioned by noble Lords in this debate. They are in fact common-sense actions dealing with raising productivity sector by sector instead of the general aspiration to raise productivity that is in the Government’s paper. On how to release new money to invest in the infrastructure, the Government's paper speaks only of existing sources. On concentrating innovation in large clusters to make it more effective, the Government's paper speaks only of being “innovation friendly”. The report refers to how to capitalise on the huge potential for economic growth in education and health, and generally on how to make Britain a better place for business, in ways that the Government’s paper ignores but other noble Lords have mentioned.
The Minister and her department have to start to do better and to start being serious and more radical about our future prosperity, even if some of the ideas come from outside government. Otherwise, there will be a vacuum in government thinking and the manufacturing sector will suffer most.
My Lords, I, too, thank the noble Viscount for introducing this debate. In the true style of the noble Lord, Lord Brooke, this is my first innings in one of these debates. I have to say to the noble Lord, Lord Haskel, that for 13 years the previous Government did not have any manufacturing strategy whatever, so it is a bit rich to say in the first six months of this Government that they have failed to produce one, but I shall return to that later.
We are without doubt successful as a manufacturing nation. The noble Lord, Lord Bilimoria, is absolutely right. To pretend that somehow manufacturing is dead and that it went out when Mrs Thatcher left Downing Street is quite frankly ridiculous. As noble Lords have said, we are the sixth-largest manufacturer in the world; 53 per cent of our exports are accounted for in manufacturing, and 2.3 million jobs. It is very striking, too, that in high-tech areas we outstrip Germany, France and Japan in the amount of high-tech goods we not only produce but export. Those are things that we should celebrate. Manufacturing is not dead.
When the Prime Minister made his rallying call to create, innovate, invest and grow a few weeks ago, he was describing what UK manufacturing was all about. He was recognising that in every major economic recession in the past two centuries, the one sector that leads a drive out of recession is manufacturing. The noble Lord referred to that. The industrial revolution was built on the backs of great engineers and scientists, but it was making things that the UK and the rest of the world wanted that made the industrial revolution successful. Inventions on their own were of little consequence.
It was the same in the 1930s and the 1950s after a second great war, and it will be the same in the second decade of the 21st century. In the past three quarters, manufacturing has averaged 3.5 per cent growth, which is a remarkable record beaten only by construction, and there were particular reasons for that. We produced 124,000 more cars last month than we did a year ago. We should be celebrating that as part of this debate. Real barriers need to be overcome if the UK is to achieve its economic recovery on the back of manufacturing. The first is ambition. We have been content over the years to see manufacturing as a small or medium-sized operation. That is the problem. There is a belief that manufacturing, by definition, has to be somewhere else and it should not be here. That assumption is fundamentally wrong.
I applaud many initiatives that this Government are making to encourage small companies, as did the previous one. I put that on the record. The chief executive of the EEF, Terry Scuoler, said that while the current attention on young business and start-ups was helpful, we must not ignore the wider benefits to the economy that larger companies bring. He is absolutely right, as was the noble Lord, Lord Bilimoria. If we are serious about growing our economy on the back of manufacturing, to pretend that we can do it by growing a number of small start-up businesses is absolutely wrong. Of course, they are vital but it is growing live businesses out of SMEs that is so important. Germany has twice as many manufacturing companies with more than 250 employees than the UK. The noble Lord made it clear that in the United States, 2.9 per cent of manufacturing companies have more than 500 employees, compared with 0.6 per cent here in the UK.
The excuse in the past was that America is a big country, but Europe is a huge market for us. Indeed, so are the new emerging markets of China, India, Brazil and Africa, where large numbers of exports can be made. Not only do we have large-scale manufacturing companies, which make significant investments in research and development—pharmaceuticals is a classic example, and aerospace is another—we also have, at the Institute for Manufacturing in Cambridge, the global leader in manufacturing research and Mike Gregory, who I regard as the leading academic in the whole world, at our disposal. We need those people to get on board.
I was hugely disappointed that the new manufacturing framework has been pulled. Will the Minister explain what is coming in its place? We do not want another collection of small initiatives. We want a big initiative that says to the largest manufacturers that we want them here in the United Kingdom because that is where our future lies.
My Lords, I, too, congratulate and thank the noble Viscount, Lord Montgomery, on this debate. I agree with all noble Lords. How could I disagree with the noble Lord, Lord Willis, about Mike Gregory—and others—who I put into professorship?
The UK remains, according to my numbers, in seventh not sixth place but these numbers seem to be somewhat confused. The important point is that we slipped from fourth in about 20 years. As pointed out by Sir Alan Rudge in an article based on Pink Book data and published by the ERA Foundation recently, present trends suggest that we will fall out of the top 10 within a decade. If that dire prediction is fulfilled, which I hope it is not, it is unlikely that we will ever be able to restore our economy to pre-recession levels.
According to Cambridge economists Coutts and Rowthorn in their recent paper, Prospects for the UK Balance of Payments, our persistent current account deficit could grow from 2 per cent to an unacceptable 5 per cent of GDP by 2020. They point out that, in 2008, our deficit in the trade of finished manufactured goods was £58 billion, far outweighing the surplus of £46 billion generated by the financial and insurance sector, and that it remained at £50 billion in 2009. The most striking point that they make, however, is that an increase of only 10 per cent in manufactured exports, combined with a 10 per cent fall in manufactured imports, would generate a £45 billion improvement in the current account balance, which is equal to total UK net earnings from financial services and insurance and more than one and a half times that contributed by all other services, so manufacturing is hugely important to the UK. It may in fact provide the only way out of our financial difficulties.
Ironically, what manufacturers need is more support from the financial sector, but this is seldom forthcoming, presumably because the timescales for returns from manufacturing are longer than those for the simple trading and exchange of finance. The gains in many cases are smaller. In the long run, however, as the excesses of the financial sector are reined in, the gains in the financial sector will probably fall way below those of the manufacturing sector. To help resolve this difficulty, the coalition should once and for all abandon the strategy of leaving manufacturing industry to fend for itself while it does everything possible to prop up the financial and knowledge-based services in the false belief that they alone can provide all that is needed. Instead, it should do everything it can to support manufacturing.
One key area where manufacturing needs assistance is in breaking down the barrier that persists between product design, at which we are strong, and scientific and technological advances—we endlessly talk about the excellence of our science and engineering base—and their implementation in profitable products. This difficulty has been discussed ad nauseam, but today we have the opportunity to do something about it. We can implement the recommendations of the Hauser review, to establish centres in which industry and universities work together in a focused manner to bring advances in product design and technological capability closer to the market. Such centres are used successfully in many of our competitor nations, most notably perhaps in the Fraunhofer centres in Germany, but they exist in this country in many places, one sparkling example being the centre linked with the noble Lord, Lord Bhattacharyya. Industry should be encouraged to concentrate its R&D resources into these centres and play a leading role in overcoming the barrier between university research and its effective application. It is crucial that we concentrate our efforts and not, as we have in the past, spread them thinly and ineffectively across a large number of small and uncompetitive centres.
Incentives to get the financial sector to invest in manufacturing and to concentrate our research and development efforts in large, critical-mass R&D centres would greatly benefit our economy.
My Lords, I, too, congratulate the noble Viscount, Lord Montgomery, on initiating this debate on an issue as vital as the value of manufacturing. We have had some illustrious contributions; I worry about trying to follow their quality.
A number of noble Lords, including the noble Lord, Lord Bilimoria, have said that manufacturing is not dead. My noble friend Lord Bhattacharrya made the same point in putting the state of our manufacturing in an international context. If the numbers have declined over here, so have they in other countries. That context is important, otherwise we make the task seem almost impossible.
Our concern is about manufacturing succeeding in the context of growth. We are concerned that the Government have the wrong policy on deficit reduction—it is too rapid and too deep and risks a fragile recovery. We would characterise it as an almost ideological stance on cuts to the public sector which they say will be obviated by growth in the private sector. I hope that they are right in that prediction, but that fails to acknowledge that many private sector manufacturing firms rely on contracts from the public sector. It fails to distinguish between investing for growth and infrastructure and general investment. My noble friend Lord Haskel got it right on the question of debt. There is debt which arises from investing in infrastructure and areas such as the Sheffield Forgemaster's loan. We thought it was an appalling decision by the Government not to carry on with that investment, which we believe would have proved to be not only a necessary but a profitable investment. There is still time for them to reconsider that.
We need a favourable climate. I turn to the question of skills and the skills deficit. I note that the Government's policies, which are now in a number of documents, whether the strategy for sustainable growth or the more recent document, The Path to Strong, Sustainable and Balanced Growth. I noticed that the Government stated in the latter that they are abandoning the targets set by Leitch. That is unfortunate. How will we measure progress on reducing the skills deficit?
I notice that we are not totally abandoning targets, because the Government have set themselves a target of 75,000 more adult apprenticeships. I am puzzled at that, because it is not just adult apprenticeships that we need; we need apprenticeships for the 16 to 18s. I have always described them as little beacons of hope to every young person. If we want to encourage young people into manufacturing, we need those apprenticeships, not just adult apprenticeships. I am puzzled that that is where the Government see the growth in apprenticeships.
The noble Lord, Lord Cotter, referred to the perception of manufacturing. We need a couple of programmes, “Strictly Manufacturing” and an “X-Factor” for manufacturing, to enhance the view that manufacturing is a great career choice for young people. We need to mean that and get the careers advice right. I agree with the noble Lord, Lord Cotter, on that, as well: schools still do not seem to understand the value and importance of apprenticeships. Recently, I went to a school for a prize-giving. I asked people about apprenticeships and they said, “Oh yes, well there might be one or two”, but they are seen as an add-on. It is unfortunate that in our correct drive to increase the number of young people wanting to go to university, a vocational career was seen as a second-class option. It is certainly not. I looked at the latest figures on apprenticeships. We have a remarkable 270,000 starts on apprenticeships by the end of 2009-10. If the Government can match the progress that we made from 1997 until then from 65,000 to 270,000, I promise that I will applaud their success.
We are in a short time trying to cover a very complex subject. Another question was the decision to abolish the regional development agencies—something which attracted quite a bit of criticism by business. The Government have taken that decision and decided that local employment partnerships will be a success in future in encouraging manufacture. My question for the Minister is: there seem to be areas of the country that are not covered by local employment partnerships; what are you going to do about that? Secondly, the papers that the Government have produced to date define a number of key activities that they expect the LEPs to undertake. If that is serious, what about the funding for those organisations?
I have to say to the noble Lord, Lord Willis, that he is wrong when he said that we had no manufacturing strategy. We did have a number of manufacturing strategies; the last one was “New industry, new jobs”, when we tried to look at the emerging jobs that would come from a new, greener economy. He himself talked about the manufacturing framework. I would not say that we had everything right—I do not think that any Government have got everything right on manufacturing —but to say that we did not have any manufacturing strategies is a bit of hyperbole.
I conclude by endorsing many of the points that the noble Lord, Lord Broers, made when he talked about the importance of manufacturing. He got the value bit right when he talked about the effect of a 10 per cent increase in exports, if we could achieve that. That is the target of this Government to build on some of the things that we did in trying to ensure that we had the skills base that manufacturing needs and the strategies for us to ensure that in this key period of our recovery, manufacturing can make the contribution that it needs to make.
My Lords, I begin by thanking the noble Viscount, Lord Montgomery, for securing this debate on the value of manufacturing to the United Kingdom. As he said, he set the scene; as far as we are concerned, it could not have been more timely given some of the announcements that we have made. The noble Lord, Lord Willis of Knaresborough, is to be thanked for giving up his birthday to be here and for his thundering good speech, on which we will reflect carefully. Of course, we welcome his celebration of UK manufacturing, which was very heartening to hear. Contrary to something that he said about the manufacturing framework, it has not been pulled; we are planning to announce it shortly and it will be set up with the necessary conditions.
The principal aim of the coalition Government is to return the United Kingdom economy to growth, but it needs to be a different sort of growth from what we have seen in the past, as the Chancellor and the Business Secretary reiterated yesterday. We must achieve growth that is more evenly balanced across the country, in the north as well as in the south, and growth across the range of business sectors, because we can no longer rely on just a handful of industries. We need growth that is sustainable and not so heavily based upon household consumption that is driven by personal debt or ever-increasing government spending. The alternative is an economy founded on greater levels of business investment, more export sales and a strong manufacturing base. Indeed, manufacturing already accounts for more than 50 per cent of United Kingdom exports, and contributes £140 billion annually to our economy. To respond to the question from the noble Viscount, yes, £140 billion is directly generated by manufacturing, but it also generates a lot of additional revenue. For every factory producing goods, there are accountants, designers and other service providers employed as well. Manufacturing accounts for 75 per cent of all industrial research and development investment and, with about 2.5 million jobs, accounts for roughly 8 per cent of total UK employment.
In the spending review, we took a number of tough decisions in order to tackle the deficit bequeathed to us by the previous Government, but we have also announced the areas in which we intend to invest what are, inevitably, limited financial resources at the moment, all with a view to growth. That investment will be in such things as in transport links and digital infrastructure, as well as £250 million in an additional 75,000 adult apprenticeship places, along with the apprenticeships that we already look to.
I have a question here about apprenticeships from the former Minister himself: are we ignoring the 16 to 18 apprenticeships? No, we are not. We are just trying to expand it and allow people the opportunity to retrain in adult life, and we are looking at the sort of apprenticeships that girls take up; they take up 50 per cent of the apprenticeships in this country but they tend to be in the caring, hairdressing or beauty professions, and we would like to see our girls encouraged at school with, as the noble Lord, Lord Cotter, mentioned, much better careers advice than we have seen so far—careers advice that goes right through from schools to further and higher education, so that that advice can be at all ages, at all times in life, to get those changes through.
We are creating a green investment bank with an initial budget of £1 billion so that the UK gains a technical and competitive edge in clean technologies and, perhaps more directly relevant to this debate, we are investing about £200 million to support the small and medium-sized enterprises in manufacturing. However, I take on board what the noble Lord, Lord Willis, said; we will reflect on the fact that we must remember that our big industries are very important.
All these measures, however, will benefit the manufacturing base, as will our reforms aimed at simplifying the tax system. Three or four of your Lordships talked about the tax system and simplification. We are well aware of trying to pull the Government off people who are trying to get their businesses going and instead simplify the tax system so that people know exactly where they are. We are reducing the main rate of corporation tax from 28 per cent to 24 per cent over the four years from April 2011, and the small-profits rate from 21 per cent to 20 per cent. The same goes for our assault on unnecessary red tape. New regulations are permitted now only a “one in, one out” basis.
Yesterday’s growth review announcement is the next stage in the process. Each government department must now identify and remove further barriers to economic growth. The review will also include a detailed look at advanced manufacturing, for which we will publish an action plan to coincide with next year’s Budget.
I know that we are time-limited, so I will briefly address some of the points that were made. The noble Lord, Lord Wade, made a blizzard of a speech on behalf of the north-west that picked up on so many things: inertia, lack of urgency, the fact that business wants “Yes” so let’s get it done, and so on. I hope that pulling the Government back off and some of the other things that I have talked about so far will help with that. He talked about local government not really getting to grips with the task.
We have also talked about LEPs, and we are certainly going to be moving on that. We have invited 25 local enterprise partnerships to form the local boards. The department has already held a workshop with the first 24 successful LEPs to discuss a wide range of policy issues, and that dialogue will continue. To answer the noble Lord, obviously we know that there are a lot more of these LEPs to come, but some of the contributions that they put forward were not going to work in the form in which they were submitted the first time around, so we are working with them right across the country to get the LEPs through. We have used them to replace a system that was using an enormous amount of money, the sort of money that we do not have left any more, and was not bringing the north and south together at all.
Unless I get this terribly wrong and they make me sit down—no, I had best not answer. Shall we write? It would be easier. We shall make a minute now, and I shall get through my brief. I will come back to the noble Lord, although I think that we have explained this fairly well.
Where is the growth White Paper? Our priority is to secure the economic recovery. Our growth paper and review, launched yesterday, set out how we will create the conditions for private sector growth. The decisions of business leaders, entrepreneurs and individual workers will build our future economy, which is why we are launching a growth review where the Government are inviting business to take part in a review of how each part of Government can address the barriers that are facing industry. It will include a detailed look at advanced manufacturing, producing an action plan at Budget 2011.
The noble Lord, Lord Bhattacharyya, is one of the great gurus of this country and it is always a great delight to listen to him speak. It does not matter to me which side of the political spectrum he stands on to speak; it is wonderful to hear him. On foreign direct investment, the UK has the third-largest stock of inward foreign direct investment in manufacturing in the OECD, for what that is worth. About one-third of the 1,600 new inward foreign direct investment projects in 2009 were in the areas of advanced manufacturing, life sciences, ICT and environmental technology. However, I will reflect on the noble Lord’s words today. I can always learn something whenever he speaks.
The noble Lords, Lord Brooke of Sutton Mandeville and Lord Cotter, talked, rightly, about the shortage of engineers. We recognise that it is still a problem for us. We welcome the comment by the noble Lord, Lord Cotter, and we support the move towards vocational training. He spoke in particular about apprenticeships. I think that is about all I can manage at the moment. Two minutes left—okay.
There is no question that manufacturing has a central role to play in the growth agenda. The UK has strengths in a diverse range of sectors from well established industries, such as aerospace and chemicals, to fledgling ones such as plastic electronics and composite technologies. We also know that major opportunities exist in new materials and new markets, especially in low carbon. Britain is the largest single market for offshore wind in the world and is already an attractive place for inward investment. Gamesa, a Spanish wind turbine manufacturer, is just the latest company to announce its intention to move here. It intends to invest £130 million by 2014 and expects to create more than 1,000 jobs, stimulating about 800 more jobs in the supply chain. There are further signs that manufacturing is beginning to move in the right direction after weathering what was, we hope, the worst of the global recession. For example, in 2009-10, inward investment in manufacturing generated 94,000 jobs, which was a 20 per cent rise on the previous year. Last week, a survey of 300 companies conducted by the Engineering Employers Federation found that UK manufacturing is growing at its fastest rate since 1994.
Let me see how quickly I can go. Both government and industry want to see UK manufacturing grow further. We cannot leave this to chance. We will shortly be launching a new manufacturing framework setting out the necessary conditions for a resurgence in UK manufacturing. The opportunities are there in overseas markets characterised by rising incomes and burgeoning demand, in the availability of new technologies and materials from our own science base and in the new business models that combine manufacturing and services to maximise revenue. Indeed, the framework will lay the foundations for a more co-ordinated approach that will complement the review of advanced manufacturing that I referred to previously.
Although it is the conviction of this Government that growth will best be achieved through a combination of private investment and a propitious business environment, we are under no illusions that the latter is yet within reach. Indeed, the former is heavily predicated upon the latter, and investors expect much more than warm words. Nevertheless, we are confident that our approach is the right one, and we will pursue it with vigour in order that Britain once again becomes synonymous with manufacturing. It only remains for me to thank the noble Viscount, Lord Montgomery of Alamein, for raising this issue of such national importance today.
Committee adjourned at 7.59 pm.