With permission, Mr. Speaker, I wish to make a statement on the legislative steps necessary to counter the threat from international terrorism.

First, I pay tribute to all those in the security and emergency services and elsewhere who have already risen to the challenge over the past five weeks, and all those who have assisted in the immediate aftermath of the terrorist attack in New York itself.

It is the first job of Government and the essence of our democracy that we safeguard rights and freedoms, the most basic of which is to live safely and in peace. It is now necessary that we look afresh, in a measured and proportionate manner, at whether our legal framework is adequate and our security sufficient.

Although the nature and the level of the threat is different from what was previously envisaged, wholesale revision of our anti-terrorism laws is unnecessary. That is also the view of the law enforcement agencies. However, we do need specific and targeted measures, which is why I intend to introduce an emergency anti-terrorism Bill. I am determined to strike a balance between respecting our fundamental civil liberties and ensuring that they are not exploited.

Through those measures, we will reinforce action against the perpetrators of organised crime, drugs and people trafficking. Therefore, in the next few days we will introduce separate measures in the Proceeds of Crime Bill, which will now be complemented by anti-terrorist legislation. Terrorists use organised crime and trade in human misery to finance their activities. The tough new financial controls in the emergency Bill will help us to staunch the flow of terrorist funding.

The emergency legislation will build on the provisions of the Proceeds of Crime Bill to deal specifically with terrorist finance through monitoring and freezing the accounts of suspected terrorists. My right hon. Friend the Chancellor of the Exchequer will spell out in more detail measures on the seizure of cash within this country and strict reporting requirements on the financial institutions. Separately, a new anti-terrorist finance unit is to be established in conjunction with my right hon. Friend under the auspices of the National Criminal Intelligence Service.

The events of 11 September have led to a new determination to co-operate at European and international level. Terrorists do not respect national boundaries. In line with the Europe-wide endeavour, I intend to include in the emergency Bill an enabling power to allow implementation by affirmative order of measures from the Justice and Home Affairs Council on police and judicial co-operation.

Regrettably, there are those who are prepared to exploit the tensions created by the global threat. Racists, bigots, and hotheads, as well as those associating with terrorists, are prepared to use the opportunity to stir up hate. It is therefore my intention to introduce new laws to ensure that incitement to religious, as well as racial, hatred will become a criminal offence. I also intend to increase the current two-year maximum penalty to seven years.

I am examining wider powers in relation to incitement by people in the United Kingdom, against groups or individuals overseas. I am also examining additional powers in relation to conspiracy. None of those measures is intended to stifle free speech, dialogue, or debate. Fair comment is not at risk, only the incitement to hate.

Obtaining good intelligence and being able to target and track potential terrorists is essential. We need comprehensive powers to require best practice to become the norm. This legislation will therefore facilitate the exchange of information in two key areas. It will ensure that law enforcement agencies can access vital information on passengers and freight. It will also enable customs and revenue officers to pass information to the police. These provisions will remove barriers which currently prevent the exchange of information in the fight against terrorism. These will be carefully targeted measures designed to protect the public, not affecting the privacy of law-abiding citizens.

We will introduce measures to enable communication service providers to retain data generated in the course of their business, by which I mean the recording of calls made and other data, not the content. We will work with the industry on a code of practice. I wish to thank those who have co-operated so well over the past five weeks in the industry.

I think that we all accept that there is a compelling need for more effective powers to exclude and remove suspected terrorists from our country. We rightly pride ourselves on the safe haven that we offer to those genuinely fleeing terror. But our moral obligation and love of freedom does not extend to offering hospitality to terrorists. That is why, both in the emergency terrorism Bill and in a separate extradition measure, I will ensure that we have robust and streamlined procedures.

I believe that it will be possible to achieve these changes without substantial alteration to the Human Rights Act 1998. Nevertheless, it may well be necessary, using article 15, to derogate from article 5 of the European convention. That would allow the detention of foreign nationals whom we intend to remove from the country, and who are considered a threat to national security. This would occur in circumstances falling outside those permitted by article 5 of the European convention on human rights, but within the scope of article if of the 1951 refugee convention.

I am also looking to take power to deny substantive asylum claims to those who are suspected of terrorist associations, and to streamline the existing judicial review procedures while retaining the right of appeal. Appropriate safeguards would apply to any such derogation.

A review of extradition procedure had been undertaken by the Government before 11 September. I intend to bring forward a separate substantive measure to modernise and place our laws in the context of the new international situation. Streamlining, while retaining rights of appeal, will form part of this measure. I also intend, following an announcement to the House in the weeks ahead, to modernise our nationality and asylum system.

There are four other measures to which I wish to refer today. The first, which relates to the responsibilities of my right hon. Friend the Secretary of State for Transport, Local Government and the Regions, will strengthen security at airports and for passengers. Powers both within restricted areas at airports and aboard aircraft will all be strengthened.

In addition, I can announce that we will expand the role and jurisdiction of the British Transport police, together with those working on enforcement from the Ministry of Defence and the Atomic Energy Authority. We will ask the House to agree to widen their powers beyond the boundaries of particular sites. I am also seeking powers to provide the police and customs services with the authority to demand the removal of facial covering or gloves. That is a basic requirement to enable identification where finger printing or other biometric tests are important.

I am also including in the Bill clauses on nuclear, chemical, biological and radiological materials, generally described as weapons of mass destruction, which will cover the intention to use, produce, possess or participate in unauthorised transfers of those materials. At the time of the millennium, a great deal of work was undertaken to ensure the security of key utilities. I want to assure the House that both in the Civil Contingencies Committee, and more widely, we have examined and put in place further work to update our preparedness, preventive action and remedial steps, should they be necessary.

The United Kingdom has some of the world's best counter-terrorist expertise. Working together with international partners, we are taking every step to protect ourselves. Those plans are continually reviewed and tested. There is no immediate intelligence pointing to a specific threat to the United Kingdom, but we remain alert, domestically as well as internationally.

I know that many in the House will agree that strengthening our democracy and reinforcing our values is as important as the passage of new laws. If, therefore, we do not rise to the challenge and provide through our democratic institutions the commitment and will to face down terrorists, our economy, social well-being and quality of life will suffer. The legislative measures which I have outlined today will protect and enhance our rights, not diminish them. Justice for individuals and minorities are reaffirmed, and justice for the majority and the security of our nation will be secured.

On 11 September, families lost their loved ones, and the threat of terrorism touched us all. If we fail now to take the necessary action to protect our people, future generations will never forgive us. That is why I am asking for the wholehearted support of both sides of the House in demonstrating that this Parliament, our democracy and our judicial system are capable of rising to the challenge, and of doing so swiftly and effectively.

I should like to thank the Home Secretary for his courtesy in giving us an advance copy of the statement and a briefing. He will be aware that, as far as his principal objectives are concerned, he has our support. Like him, we wish to see changes in our law that will increase the effectiveness of domestic measures against terrorism.

We share the Government's view that legislation is required to increase the effectiveness of our counter-terrorist enforcement. However, does the Home Secretary agree that, too often in the past, over-hasty legislation has proved inoperable in practice? Does he agree that the best guard against that danger is detailed scrutiny, which teases out the implications of the legislation to determine both whether it will be effective and whether it poses any undue threat to our fundamental liberties? Can he assure us that those critical measures at this critical time will be debated in detail on the Floor of the House? Is he aware that we will resist using the emergency legislation as a means of addressing problems of law enforcement outside the field of terrorism?

We are delighted that the Home Secretary accepts that the duty of Parliament in a crisis of the kind that we now face is to maintain a careful balance between public safety and individual freedom. We welcome his agreement that public safety demands changes to the law that will enable him to refuse entry to those foreign nationals whom he judges a risk to national security. But does he agree that he also needs to be able to remove such dangerous individuals from this country if they are already here?

In the light of the Chahal case, the Singh and Singh case and other jurisprudence associated with the European convention on human rights and the Human Rights Act, does the Home Secretary accept that such removal of dangerous individuals poses a significant legislative problem? Does he accept that the internment or indefinite detention powers that he signalled in his statement today may not provide a workable means of avoiding that problem? Will he confirm the view taken by his predecessor that Parliament can legislate to alter the effect of the Human Rights Act?

With reference to laws against incitement to religious hatred, does the right hon. Gentleman accept that although the whole House will wholeheartedly agree with his desire to protect vulnerable communities—and in particular, vulnerable Muslim communities during the present crisis—the Opposition will need to be persuaded that the drafting of the legislation will achieve this admirable effect without, as he so rightly said, curtailing proper freedom of speech?

Turning to the proposed EU framework directives, does the Home Secretary share our view that there is a fundamental difference between the proposed directive on combating terrorism and the proposed directive on European arrest warrants? We all support the principle of the proposed directive on combating terrorism. That will force other EU counties to adopt legislation parallel to our Terrorism Act 2000. But does the right hon. Gentleman agree that we certainly should not let the current crisis drive us into abandoning either the principle of habeas corpus or the principle of a person being presumed innocent until proven guilty?

Does the right hon. Gentleman accept that the proposed directive on European arrest warrants might threaten those principles? Does he acknowledge that many of us, in all parts of the House, will have very grave concerns about implementing those directives through affirmative orders? Does he agree that there should be urgent review by the Scrutiny Committee?

Does the Home Secretary recognise the strength of the case for introducing sunset clauses to legislation in all these difficult areas, so that the House, and Parliament as a whole, can have the opportunity with the benefit of hindsight regularly to reassess both the effectiveness of the legislation and its effect on individual freedom?

We will engage constructively with the Government as the legislation proceeds, but we shall perform the proper role of an Opposition under these circumstances—probing, inquiring and bringing likely effects to light. Let us hope that the combined efforts of all of us in this House and in the other place will be sufficient to produce a rarity in British legislative history—fast law that is also good law.

I welcome the hon. Member for West Dorset (Mr. Letwin) to his new Front-Bench portfolio. I look forward to the sort of brief but robust exchanges that I had with his predecessor, but perhaps at a lower pitch than was usual then. I welcome the general principle of the hon. Gentleman's approach, although I should hate to be opposite him on a day when he was facing down legislation, rather than welcoming it.

We are not intent on taking away rights or denying people normal opportunities through judicial process, but we are endeavouring to respond to the new situation. I can assure the hon. Gentleman that, with the agreement of the Leader of the House, we will look to take the legislation on the Floor of the House. We want to ensure that the areas that are identified with the Opposition as being key for debate have sufficient time allocated to them to allow proper debate, in order to reassure the entire House and the public outside that we have achieved the right balance between the need to act swiftly and the ability to draw up legislation that will be lasting.

I am happy to consider reaffirmation of aspects of the Bill that will be identified as we take the legislation through the House. That seems sensible in the case of emergency legislation. I am also prepared to consider proposals from the Opposition as well as from Labour Members that would enhance or improve what we are doing.

It is worth spending a moment on the points that the hon. Gentleman raised in relation to two matters, which are different but related. The first concerns extradition where we have treaty agreements with other countries and where it is possible in all present circumstances to extradite those who are required for due trial. The second concerns people whom we are seeking to eject from our country although they have not committed a crime here, but whose deportation would be desirable, given the threat that we believe they pose.

On the first matter, we have very clear treaties with main partner countries. There is no problem—indeed, there has been no problem—under section 11 of the Immigration and Asylum Act 1999 in relation to our European partners. There would be no problem on arrest warrants either, because to carry out an arrest is not to deny someone fair trial or to presume them guilty before trial has taken place; it is to respect mutual recognition of our judicial and policing systems throughout the European Union—something that goes back a long way, but which has taken a long time to recognise and to get through the system.

Deportation, like preventing people who are feared to be terrorists and who are travelling through our country from claiming asylum, is another matter. It seems to us that when a third safe country cannot be found, holding such people—with proper rights of appeal and the opportunity for a return to their case—is preferable to sending them back to certain death when their guilt has not been ascertained. We are not, therefore, seeking to withdraw from or deratify the ECHR, which would be necessary in terms of denying article 3. As I said, we may derogate from article 5, while continuing to hold to article if of the refugee convention, in order to have the ability better to protect ourselves while protecting appeal rights.

The speeding up of judicial review in both processes will be absolutely crucial. It is absurd that it can take five, seven or even 10 years, as happened in one case, to extradite someone from this country. That is not justice; it is playing monkey business with our judicial framework and processes.

I can assure the House that we have thought long and hard. We have not rushed into these measures. In the next few weeks, there will be time to contemplate as well as to scrutinise the legislation that we are introducing. We want to get it right because we have obligations to our own people and to our international requirements. If we can get it right, we will have managed to sweep away some of the nonsense that has been found in recent weeks to exist in our system. I appeal to our judiciary to work with us to ensure that democracy in all its guises can operate fairly and openly, rather than be held up to ridicule by those who should be upholding it.

I am sure that all sensible people will welcome any new measures intended to make our dealing with terrorism more effective, but I should like to underline the point made by the hon. Member for West Dorset (Mr. Letwin): there is a long history of anti-terrorism legislation being introduced in haste and repented at leisure. We will need time properly to scrutinise whatever measures my right hon. Friend puts before the House. I welcome the fact that the measures are being introduced after mature consideration and not in the immediate aftermath of the terrible events of 11 September.

On the new definition of terrorism proposed by the Commission, has my right hon. Friend noticed that, under proposed article 5.3, sanctions such as community service for alleged terrorists are listed? The EC may be proposing to cast the net a little wide. Will he ensure that whatever definition is finally agreed is robust, watertight and confined to dealing with terrorists and not with the other people who might, from time to time, get up the noses of the established order?

My right hon. Friend mentioned the need to deny asylum to those suspected of having terrorist associations. What level of evidence will be required and who will assess that evidence? Finally, he said that he was examining additional powers in relation to conspiracy. Will he give us a clue about what is in his mind in that respect?

I welcome my hon. Friend's approach of wanting to ensure that we get it right, and not just quickly. I am a great enthusiast for active citizenship, but I had not envisaged engaging terrorists in good works in our community as a suitable punishment in Sheffield or Sunderland. I am therefore happy to affirm that we shall take appropriate and proportionate measures, and press them on our European partners.

We are looking with the Crown Prosecution Service to examine ways in which those who are not directly engaged in fundraising, organising or inciting by pronouncement may be involved in conspiracy by supporting or succouring those who are engaged in terrorism. The question of conspiracy would come into play in the case of people who had been engaged, as is alleged about some of those who are currently held throughout the world, in facilitating terrorism through training, providing goods and services or engaging in communication networks with those involved in terrorist activity. I am working with the Attorney-General and the Lord Chancellor on the best way of tackling that.

I thank the Home Secretary for his statement and briefings. He can rest assured that the Liberal Democrats will support the Government when they introduce well considered legislation, which is necessary in the current emergency, and targeted specifically at tackling terrorism. However, if the legislation is not immediately necessary and has nothing to do with terrorism, Liberal Democrats will defend the liberties of the individual citizen robustly. I anticipate that that applies to other quarters in the House as well.

Let me ask about process. Will a draft Bill be presented as early as possible? If so, we can ensure that we try to get it right as soon as possible. Will the Home Secretary undertake to consult the Joint Committee on Human Rights early to ensure that there are no breaches of our human rights obligations, not only in the Government's view but in that of all parties in both Houses? Will he follow the provisions in previous legislation for emergency powers to have limited time effects whenever possible, and to continue only if Parliament agrees?

The statement contained a surprising element: the implication that European legislation could get through both Houses of Parliament, without proper debate and scrutiny, simply on the basis of an affirmative order proposed by the Government. It is most important that the Home Secretary confirm that he did not mean that. It is not acceptable to any hon. Member, even ardent Europeans, because legislation should come through this place, not by a Minister putting a yes or no question to Parliament.

On human rights, will the Home Secretary confirm that he will try to avoid derogation from the European convention whenever possible? Does he seriously propose to bring back internment throughout the United Kingdom? One of his suggestions could be interpreted to mean that.

On asylum, will the right hon. Gentleman make it absolutely clear that he will uphold the 1951 convention and that all who have a right under it to seek asylum and put their case here will retain it after the legislation is enacted? Will he make sure that, on controversial matters such as human rights and asylum, there will always be the opportunity for a judicial review of Ministers' and officials' decisions, and that no one will be precluded from going to court to challenge a decision by the Executive?

Incitement to racial hatred is an important issue. I share with the Home Secretary and others the view that its prevention should not restrict the right to criticise other faiths or people and views of other faiths. What has happened to the Government's proposal to introduce an equality Bill to guarantee equality of all faiths? Legislation on incitement to racial hatred has existed for 15 years, but barely a prosecution has occurred. Will the right hon. Gentleman reflect on the fact that legislation is pointless if it is never implemented?

Lastly, the Home Secretary rightly paid tribute to the emergency services. We join him in that tribute, but can he assure police services and police authorities throughout the country that they will have the resources that they need to implement the additional measures, and that the civil defence measure s are sufficiently resourced and in place? If there is a nee d to deal with the threat of weapons of mass destruction, are we safe between now and the end of the legislative process or will he introduce other measures to ensure that action is taken immediately against any such terrorist threat?

My right hon. Friend the Chancellor and I will discuss the question of resourcing, but I can make it clear that all necessary practical measures will be in place before the legislation reaches the statute book.

The human rights questions that the hon. Gentleman raised can be answered in the affirmative. Yes, we shall consult the Joint Committee. Yes, we are party to the 1951 convention, as I spelled out. We do not intend to introduce internment, although if a major crisis arose from the terrorist threat, other specific measures would have to be introduced, as has born the case since the second world war. Governments have always held that in reserve.

On the question of secondary legislation, I did not know that it had ever been Liberal Democrat policy that every single measure agreed at European level required primary legislation in the House. It certainly has not been since we joined the European Union and signed the treaty of Rome in 1972. Affirmative and negative orders as well as the European Scruff my Committee have been used for such measures. I ha I thought that affirmative orders, which offer the opportunity for debate on the Floor of the House, provided a much more positive way to deal with such matters than do other measures.

I ask the hon. Gentleman to think again, because we shall grind our own legislative procedures to a standstill and make a nonsense of our partnership in Europe if we do not accept that secondary legislation is required. The matter involves the specific terms that I have laid down, not any old issue at any time, and it is important that we reaffirm that.

I have dealt with the question of seeking co-operation. I cannot guarantee that we shall be able to publish a draft Bill, because of the speed at which we are trying to act, but I shall engage the opposition parties and those in the House with a particular interest as quickly and effectively as I can.

rose—

Order. The House will understand that there are three other statements to be made. Short questions will allow the Home Secretary to give a short reply, which would be a great help.

I broadly welcome the proposals that the Home Secretary has brought to the House, but may I press him further on the nuclear, biological and chemical issues to which he referred? Does he intend to provide a statutory basis for emergency planning, and will he consult the Chartered Institute of Environmental Health on how the measures will be drawn up before the legislation is debated here?

I am happy to give the assurance that we shall consult. My right hon. Friend the Minister for Police, Courts and Drugs has been doing sterling work on the civil contingencies side of our operation and we want to ensure that we consult such groups.

On my hon. Friend's first question, it came as a surprise that although the Chemical Weapons Act 1996 gives substantial powers in relation to the movement, possession and use of chemicals, we have not done the same in the areas that I have outlined, in particular radiological aspects. Irrespective of what happened on 11 September, it is time that we had those powers in place. We have the opportunity to move quickly on the measures, some of which were in preparation, and they can be put in place speedily at this timely moment.

While we all wish to reserve the right to scrutinise in detail this massive legislation, may I welcome the Home Secretary's announcement about tackling the problems of extradition? I well remember expressing my frustration about them when I held his office because of the archaic procedures and protracted litigation that often occurs.

Although the right hon. Gentleman may have to confine fast-track emergency legislation to terrorist offences, does he accept that there is an extremely good case for tackling the problem of extradition in almost all serious offences? There is no good reason why people accused of serious violence or serious organised crime should not speedily be returned to the jurisdiction of any country that respects the rule of law to face serious charges. Will he try to maintain progress on a Europe-wide arrest warrant, so long as all member states have satisfactory safeguards on personal liberty and the due process of law?

Finally, does the right hon. Gentleman propose to remove the Home Secretary's role in extradition cases? Although that sounds attractive, in practice it encourages people to raise political issues and bring political lobbying to bear on him and those who hold similar office in other jurisdictions, which can have most unfortunate and delaying consequences.

I thank the right hon. and learned Gentleman for his supportive words. I hope that the European arrest warrant will be dealt with by the beginning of December at the Laeken Council. It will then be possible to make sense of something that is not always operated in the best interests of speed or justice. That will iron out some of the issues that I have read about—Julian Knowles' article in, I think, The Daily Telegraph was about a case in Portugal—and enable us to deal with these matters sensitively and sensibly.

I agree that there is a good case for examining the withdrawal of the Home Secretary's role from areas where, otherwise, judicial review would be used as a deliberate delaying tactic, without new evidence or new presentation but with the ability to challenge at each stage of the process. As a former Home Secretary, the right hon. and learned Gentleman will know how difficult it is for a Home Secretary to give up any power.

The whole House welcomes the burden of the Home Secretary's statement. As a Hackney MP representing a large Muslim community. I welcome the thinking behind the proposed legislation against incitement to religious hatred, which is designed to check the disgusting and racist attacks on individual Muslims and the Muslim faith. Does my right hon. Friend accept that, because others in Hackney take their religion—or even their lack of religion—extremely seriously, such legislation must not cut across genuine debate?

On the speeding up of extradition and related matters, the House welcomes the legislation in outline. However, I represent many people who have genuinely fled from torture and oppression, and the burden of proof in these matters will be very important. We would not want the process to be so speeded up and robust that people were returned to torture and perhaps death.

It certainly would not be my wish, either, that we returned people to torture and death. That would contravene the conventions that were mentioned a few moments ago. I can give my hon. Friend the assurance that she seeks in relation to free speech, dialogue, debate and attitude. What we are dealing with, in changing the law on race and religion, is hatred. I take the inference of her intervention, so I shall examine carefully the question of atheists and—I say this wryly—consider whether unpleasant and unhelpful comments about atheists could be included.

Can the Home Secretary tell us today whether the new legislation on incitement to racial hatred will include either a definition of religion or a list of those religions against which it will be illegal to incite hatred?

It is not our intention to include in the Bill a definition of religion, for all the reasons that many in the House will be familiar with. The Attorney-General and I would wish to assure ourselves that we were handling the matter sensitively, bearing in mind the fact that the existing law in relation to race provides for those religions that have a direct relationship with the race of the individual concerned. We want to extend that facility to people who follow Islam and Christianity. The measures will also enable us to deal with those who deliberately use the current law to stir up dissension and hate, which we would all find unacceptable.

I am examining why existing law has been used so infrequently—in the past decade about four prosecutions a year have been successful—and whether, in conjunction with the police and the Crown Prosecution Service, we should be slightly more robust in what we do about those who, in writing or in speech, deliberately cause hate in our community.

Is not this the wrong end of the equation? We have a law against racial discrimination, which was followed by a law against incitement to racial hatred. Perhaps the best way to deal with this issue is to prohibit religious discrimination rather than start with a prohibition on incitement. Has my right hon. Friend considered doing that?

A long debate about discrimination as opposed to incitement to hatred arose under the Public Order Act 1986. This legislation and the measures that we are taking are designed to deal with specific circumstances regarding the threat of terrorism and the development of protection against terrorists. We want to avoid the exploitation of the situation domestically. My statement about the proposal was made in that context. We are endeavouring to unify our community, and to avoid divisions and conflict at the very moment when we need that unity most of all.

The Home Secretary said that persons who come here from dictatorial and oppressive regimes but who nevertheless promote terrorism will face the option of being detained or going to what he called "a third country." Will he explain how third countries will be approved and selected? Will the Government publish a list of countries that they think are appropriate for housing terrorists?

That was very entertaining. [HON. MEMBERS: "It needs a serious answer."] If hon. Members want a serious answer, I can tell them that we do not need a list of third countries. A person who is not facing extradition from a specific country because of action taken but whom we want to eject from the country would have a choice. He could be deported to a country of his choice or to a country prepared to take him, or he could be detained in this country under the appeals process. Such people would not be charged with a specific terrorist act overseas: they would be suspected of working with and supporting terrorists. We are proposing measures to protect this country from those people. We are interested in ideas about safe third countries if that choice is not available to an individual. If anyone has a smart answer, I should be grateful to hear from them in the morning.

Like all Members of the House, I welcome my right hon. Friend's statement. He will be aware that, as he was speaking, people in the civil liberties lobby were unpicking every word that he said. I ask him to resist that strongly. In a free society, we must take on not only our rights but our responsibilities. Although there must be due scrutiny by the House, some of us believe that there should be an even more robust approach, particularly on judicial review. Will that happen? Most people in this country would agree to sacrifice some of their liberty if it meant greater security.

It is precisely that balance that we intend to secure. Debate in the House and the securing of freedoms through political action must always be preferable to falling back on those who are not elected, who are not accountable and who often cannot respond quickly or sensitively to a particular threat. That is why parliamentary and participatory democracy is the better safeguard, rather than relying on jurisprudence.

Will the Home Secretary explain why he has not taken this opportunity to legislate on mercenary activity? He will recall that we were promised a Green Paper in November last year, and that in April this year the Government regretted that they had not got around to it. Now we see young British men recruited by British citizens to fight for the Taliban, possibly against British service men and women. Should not the Home Secretary now take the opportunity to legislate?

I have known the hon. Gentleman for many years in opposition, so let me be frank with him. No, I did not know that we were thinking of producing a Green Paper, but I will go back and read the material, along with all the other tomes that I have been reading over the past five weeks.

I have visited various mosques in my constituency on recent Fridays, and I have heard from the Muslim community overwhelming condemnation of acts of terror. At the same time, however, there has been a free and frank exchange of views with that community, which has not always been in complete agreement with the Government's tactics. Can the Home Secretary reassure me that the measures will be used in the fight against terrorism and religious hatred, and not against that free and frank exchange of views?

Yes, I can. On my own visits, I too have encountered both support and concern from constituents. We are all in this together, as has been said over and over again in the House by the Prime Minister, the Foreign Secretary, the Secretary of State for Defence and Opposition Members. We are in it together because we are all threatened by terrorism. It is indiscriminate—it singles out no religion, no colour, no creed. That is why everyone in this country will need to back, and should back, the measures that we are taking—we are protecting them and their families as well as our own.

Does the Home Secretary agree that the main lesson from the terror attacks on America was not that existing laws are inadequate, but rather that the security and intelligence services failed to use the existing laws and their powers? Will he be very sceptical about Government agencies and others that demand new intrusion and surveillance powers, and also about the European Union, which has a declared aim of using the existing emergency as a pretext for centralising and advancing its own powers? In presenting his proposals for new laws, will he in each case show that they are required specifically for the struggle against terrorism, that their absence was significantly inhibiting, and that they will be used only in that war on terrorism?

I certainly agree with the first of those three propositions. There would be no point in measures that were not specific to, and helpful in, combating terrorism. I cannot guarantee the implication of the second question, which was, "Would these measures have materially helped to prevent the attack on the World Trade Centre?" Hindsight is a wonderful thing; what we now need to do is learn the lessons—what went wrong, what measures were not in place, what scrutiny had not been carried out and what failures may have existed following the bombings in Dar-es-Salaam and Kenya in 1998—and thereby ensure that we establish measures and facilities that will prevent such terrorist attacks from occurring again. We should not wait until they do occur again, and then say that perhaps we should have taken measures, including being ready to co-operate with free democracies in the European Union rather than suspecting them of somehow being prepared to use this moment to centralise power. I assure the right hon. Gentleman that what I have encountered in the meetings that I have attended since 11 September is the need to encourage and speed up their processes, not to slow them down.

Is my right hon. Friend content that the list of proscribed organisations in the Terrorism Act 2000 is appropriate, or does he intend to review it?

The list will be kept up to date. The 14 original organisations, and the additional 21 that my right hon. Friend the Foreign Secretary introduced earlier this year when he was Home Secretary, will be reviewed. What is more, we need to ensure that those who fragment within those organisations, change their name and reconfigure themselves in new forms are dealt with adequately and speedily.

I support the Home Secretary in his intention of getting it right rather than merely acting quickly. How does he square that with the use of affirmative orders? A 90-minute debate on the Floor of the House is hardly an appropriate form of scrutiny of matters that touch on the relationship of citizens to the state and the competence of the state over judicial arrangements.

I am not proposing simply to have 90-minute debates. I am proposing that we have a debate about the nature of the orders that would be consequent on the parent legislation, and that each aspect should then be debated on the Floor of House in a way that has not always been the case for such measures adopted under secondary legislation. We intend to give every opportunity, at a later date, for people to be able to review whether the measures have been effective. The fact that they emanate from co-operation across Europe should be seen as a plus, not a minus, because we want other European countries' co-operation, as much as they need ours, to combat a threat that knows no national boundaries.

I welcome my right hon. Friend's aim of outlawing incitement to religious hatred, but in our headlong rush to protect our democracy there is a real danger that we will forgo basic civil liberties. What, specifically, does he mean by retaining data? I am sure that many businesses are very concerned about what that will involve. Personally, I am concerned about whether it means nosing through private e-mails or steaming open letters.

It explicitly does not mean ferreting through people's private e-mails or steaming open their post. The Regulation of Investigatory Powers Act 2000 is the greatest safeguard that exists in any democracy in the world in its updating of earlier provisions for protecting our rights. Having had this job for four months, I am well aware that that is the case. Great care is taken in these matters.

Being able to find out from service providers—just as we can from telecommunications agencies—whether a phone call was made at a certain time, when we are investigating terrorism, makes sense. Holding that information for a longer period than would otherwise be commercially desirable—it is not information that does not already exist—and reaching agreement with the industry on achieving that, through a code, threatens no one except those who are up to no good.

Given the recent history of legislation on issues such as asylum and extradition being taken apart by the courts, why is the Home Secretary waiting before deciding whether or how much to amend the Human Rights Act 1998? Is not the history of Home Office legal advice on such matters that if officials think that it might possibly be necessary, it almost certainly will be necessary—so why not do it at once? Could we hear a little more of his thinking on that subject?

Delphically put, if I may say so. I use the word "might" because we want to be absolutely sure when we introduce the legislation that it will be absolutely necessary, in order to achieve our goals, to derogate in the way that I described. I am pretty certain that it will be, given the advice that we have already received and the views of the Attorney-General—but precisely for the reasons that the hon. Gentleman outlined, I want to ensure that we have taken every possible step to get the best legal advice before committing ourselves.

In respect of the Proceeds of Crime Bill, may I ask my right hon. Friend about offshore bank accounts, especially in respect of their access and transparency? It is of widespread concern that the proceeds of crime and drug smuggling—therefore, the funding of terror—are funnelled through offshore bank accounts and, indeed, Swiss bank accounts. I wonder whether he would take a fresh look, in consort with the rest of the international community, at achieving such access.

There are many times when I am very pleased to have my right hon. Friend the Chancellor alongside me, and this afternoon is one of them.

On behalf of the Scottish National party and Plaid Cymru, I welcome the Home Secretary's statement. We want to work with the Government and assist them in ensuring that the right legislation is put through the House. To that end, will the right hon. Gentleman agree to work with all parties in the House, not only on the details of the legislation but on the timing and the amount of debate that we will have on the crucial questions that will be asked, such as those that have been asked by many Members today?

The Home Secretary made some important announcements on extradition. Nevertheless, will he now rule out the extradition of individuals from this country to places where they will face the death penalty? Instead, will he work within multilateral agreements to ensure that such individuals can be extradited, but with a different result? Finally, does he accept that despotic Governments use accusations of terrorism against their genuine opponents who are not guilty of terrorism? What safeguards does he envisage in his legislation so that this country still provides a safe haven for genuine refugees and for people who oppose terrorism and terrorist Governments?

No genuine refugee has anything to fear from the proposals that I have introduced this afternoon. Those who claim that specialist status, having been picked up on suspicion of terrorist acts or who are in transit through our airports, will still be entitled to go to the Special Immigration Appeals Commission and to appeal to the Court of Appeal, so there is no question of taking away their rights. Speeding up the operation of those rights and not suffering fools gladly is how we intend to proceed. We will consult the minor parties as much as possible on the way in which we proceed in the months ahead.

I think that I have missed one the hon. Gentleman's questions—

The death penalty.

The USA.

The hon. Gentleman asked about the death penalty, and the hon. Member for Castle Point (Bob Spink) says "the USA". Where we have specific extradition treaties—we would seek to extend them—they already apply in that way. We have had an extradition treaty with the United States since 1976, and only last Thursday we extradited a man called Qadar, who was wanted in the state of New York. The treaty has been working well. There have been no difficulties with it, and I have agreed with the Attorney-General in the US that we will update it—but as with all extradition treaties with other countries, the provisions that we have in place will safeguard that basic acceptance which the House has affirmed on numerous occasions.

Can I press my right hon. Friend a little further on his answer to my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley)? Clearly, his statement is very important in relation to the chemicals sector, whether we are dealing with major hazard sites in manufacture, with transport or with chemicals that could be made for an innocent use but misused in the production of chemical weapons. Will he clarify the situation in relation to the movement of and trade in chemicals? Is he satisfied that his right hon. Friend the Chancellor, who is sitting bedside him, is affording him sufficient resources to address those very serious problems, especially for those who represent the chemicals sector?

The answer is yes, of course, but the industry has an obligation to ensure security and safety—the two go hand in hand—as has the Health and Safety Commission. However, on this occasion the legislation will be primarily intended to prevent those who should not have access to, possess or move such products from being able to do so. I am surprised that we are catching up with such matters late—but of course, as I said earlier, hindsight is a wonderful thing.

Has the Home Secretary detected the widespread support for his general determination to deal with terrorism? However, has he also detected the real unease across the House about the measure dealing with incitement to racial and religious hatred? Will he bear in mind that hasty legislation—one can cite the Dangerous Dogs Act 1989 and the legislation introduced after the Omagh bombing—is often bad legislation? Will he please consult very widely, not just in the House but with Christian, Jewish and Muslim leaders, before he comes forward with specific proposals?

I can assure the hon. Gentleman that the leaders of all the denominations and faiths with whom we have spoken over the past five weeks are enthusiastically in favour of this measure. We do not, of course, intend to take any freedom away. The freedom to hate and to use that hate to incite others to take actions that destroy our community cannot be in the best interests of democracy. I also believe that it is crucial, for the reasons that have been referred to earlier, that those who face or have experienced religious hate know and feel that we are on their side and are listening and responding to them. We want them to be part of the anti-terrorist drive and the development of a unified voice here and across the world.

On that point, will my right hon. Friend accept the real concern about some sort of special protection for religion as it might make his task much more difficult? Of course, religious belief generally is of great benefit to our society, but some religious tenets actually promote hate. For example, in Leviticus and Revelations, homosexuality is called an abomination and people are enjoined not to touch a woman at the time she is unclean. It is important that my right hon. Friend understands that although those beliefs have now been marginalised in St. Mary's church in Hemel Hempstead, they are often not marginalised elsewhere. It is vital that those who do not support them speak out against them and are given the freedom so to do.

I have answered one or two questions over the past four and half years during which I have been a Minister but, for once, I am speechless. Suffice it to say that I think that few terrorists have engaged with Leviticus.

The Home Secretary began his statement by saying how important it was to balance the respect for our liberty with the need to prevent its exploitation. Given that fine balance, will he explain to the House his plans for the exchange of information—often private information—within Government agencies? In particular, what safeguards will he put in place to ensure that law-abiding citizens will have nothing to fear?

We have a formidable Data Protection Registrar and we have set in place protections unequalled anywhere in the world in terms of ensuring—correctly—people's right to privacy. We have, of course, to ensure that the methods we use are commensurate with the threat that we face. That is the crunch in terms of getting the balance right. In addition, those who seek to protect us and have information at their disposal which, at present, they may be unable to transfer so that it can be used effectively against that threat, need to know that we are unlocking that barrier. That is what we are seeking to do, and if we do not do it future generations will simply think that we were fools.

Is my right hon. Friend aware that had my hon. Friend the Member for Hemel Hempstead (Mr. McWalter) been on the receiving end of religious hatred, he might take a less academic view of it?

Is my right hon. Friend also aware that his decision to introduce legislation to turn religious hatred into an offence will be welcomed not only by Muslims, Sikhs and Hindus, but by Jews as well? He may well be aware that even in this fevered situation the story has been circulating that the attack on the World Trade Centre was a Jewish plot, with Jews who were working there advised not to go into work on 11 September. Does he therefore accept that if the Bill is to be introduced—I am glad to hear that it will be—the decision to prosecute should be that of the Attorney-General and not that of the Crown Prosecution Service, which recently admitted to institutionalised racism within its ranks?

My right hon. Friend puts his finger on issues as quickly and carefully as ever. The Attorney-General will want to lay down key principles in terms of action, but we will want the CPS to be able to take more decisive action at a local level than has been apparent over the past 17 years.

With permission, Mr. Speaker, I wish to announce measures that seek to cut off the supply of funds to terrorism.

Those who finance terror are as guilty as those who commit it, so our response to the funding of terrorist acts must be every bit as clear, as unequivocal and as united as our response to the terrorist acts themselves. The action plan that I am placing in the House of Commons Library, which is now available in the Vote Office, arises from concerted work across Governments, and in particular from decisions of the G7 group of Finance Ministers and Central Bank governors on 6 October. It proposes to tighten our law, further empower the police and strengthen co-ordination across the world.

I can report to the House that having already fully implemented UN Security Council resolutions on the Taliban and on Osama bin Laden, the United Kingdom has now frozen 35 suspect bank accounts, immobilising more than £63 million of suspect terrorist funds. I can also report that by Order in Council, following the latest UN resolution 1373, we have frozen all UK bank accounts associated with the individuals and organisations named in the US Treasury's suspects lists and have already seized in total £180,000 held by those identified in Friday's updated list.

Our UK domestic controls are already among the best in the world, but as part of the emergency anti-terrorism Bill announced this afternoon by the Home Secretary the Government propose a new power to freeze funds when suspicious transactions are under investigation. That will be backed up by new reporting requirements on financial institutions so that they must disclose not only known transactions destined for terrorism, but transactions where there are grounds for suspicion.

Clearly, a balance has to be struck between individuals' right to privacy and their security at a time of increased risk, but we believe that there is a case for new powers for the police to monitor accounts that may be used to facilitate terrorism; for Customs to be allowed, where there are suspicions, to seize cash not only at our borders, as it can now, but within the UK as well; for the Inland Revenue and Customs where applicable to share information and co-operate more effectively with the police; and for the Treasury to freeze assets where there is a clear risk to safety and security.

We do this not least because of the weight of evidence concerning the finances of bin Laden and the al-Qaeda organisation, which is complex but becoming clearer daily. It is not primarily bin Laden's personal wealth that supports the Taliban and active terrorist operations, but the profits from the drugs trade and other businesses, and from individual and company sponsors. That money is channelled through a range of financial centres across the globe, with evidence already pointing to centres in the Gulf, Pakistan and central Asia and to money laundering through an established underground banking system. The cells that form part of the wider al-Qaeda network are often self-financing, possibly using business fronts and crime to sustain themselves. Unravelling that relies on first-rate co-ordination.

Since 11 September, the security services, police, special branch and Customs and Excise—co-ordinated by the National Criminal Intelligence Service—as well as our armed forces, have worked together to track down terrorist finance, and I believe that the whole House will wish to express its gratitude to them.

To enhance those efforts, we now propose to establish and fund within NCIS a new multi-agency terrorist finance unit, fully supported by additional special branch investigative resources. To improve financial intelligence further, a new taskforce will bring to the anti-terrorism effort the best of academic, financial and commercial expertise, using in particular the best skills of forensic accountancy in tracking assets. It will also investigate underground banking, which is often used for legitimate purposes such as remitting earnings to families and communities far away, but is also known to provide very easy means for criminals and terrorists to conceal the laundering of money and its movement around the world.

Bureaux de change are another network by which money can be laundered and transferred. In the past 18 months, Customs and Excise has charged 89 people in connection with laundering £590 million. That is just a start. In the consultation document that we are publishing today, we therefore propose the implementation from 12 November of a new regime of supervision to ensure the compliance of bureaux with money-laundering regulations, and we will consult on a registration charge. To make easier the tracing and tracking of criminal and terrorist assets, we are also consulting on a new requirement for proper disclosure of beneficial ownership of companies.

Large financial centres all over the world have an important part to play in cutting off the supply of terrorist funding. I am able to tell the House that many of the measures that we are bringing forward are to be replicated throughout UK Crown dependencies and overseas territories. They will be announcing their own plans to introduce appropriate equivalent measures.

The G7 Finance Ministers and Central Bank governors met in Washington on 6 October and concluded that a special plenary of the international financial action taskforce would meet later this month to agree the imposition, enforcement and monitoring of new international standards to combat terrorist finance. Our Government are also pressing for the UN to establish a permanent monitoring and enforcement unit for those standards; for the International Monetary Fund to provide the expert help that many countries need to set up economic crime units; and for the early ratification of the European Union second money-laundering directive and the international convention on the suppression of the financing of terrorism.

At international meetings, G7 Ministers also had a chance to review the current state of the world economy. We expressed solidarity with the United States Government and the whole of the USA after the tragic events of 11 September and agreed that the global economic challenge demanded a global response.

Not only have interest rates been brought down worldwide, but the central banks of America, the euro area, Japan and Britain have made clear their determination to take any necessary further action. Oil prices, which have previously risen in times of trouble, have fallen in the past month. We will continue to work with the oil-producing countries to ensure steadiness of supply and prices. Where markets have failed, as in airline insurance, Governments throughout Europe and America have acted together, with a new short-term insurance guarantee.

These remain uncertain and testing times. As Governments and Finance Ministers work together, every one of us is conscious of the human consequences of economic uncertainty, especially concerns about employment. Since 11 September, the world has acted together decisively to seek to maintain the conditions for stability and growth. The Government's assessment of the current state of the economy and our forecasts for next year will be published next month in the pre-Budget report for full discussion in the House.

If fanaticism is the heart of modern terrorism, finance is its lifeblood, and I believe that the whole House will agree on the need to move expeditiously to cut off the supply of terrorist finance. Once again, the House is demonstrating its unity and determination, standing firm, as one, to cut off all means of support to terrorism.

First, I express my gratitude to the Chancellor for the advance indication that he gave me of the contents of his statement.

I welcome the statement and the measures that the Chancellor has described. Draining the financial lifeblood of terrorism is as important a contribution to its defeat as any other measure we can take. The Chancellor will therefore have the full support of the Opposition for any appropriate action that he takes to achieve that aim.

We particularly welcome the recognition that whereas money laundering is bout making dirty money clean, much of the financial support for terrorism comes, as the Chancellor made plain, from business activity of one kind or another—some of it apparently legitimate. Does he agree that a recognition of that distinction should be at the heart of our approach, and that simply building on existing laws against money laundering may not prove to be the right course?

Although we welcome the inquiry that the Chancellor has announced into what he described as underground banking, does he accept that any problems caused by that system will not be limited to this country? What assessment has he made of the extent to which the use of the system in other countries has implications for the financing of terrorism? What action, if any, is being taken in respect of that activity in those countries?

Will the Chancellor assure us that any new requirements that he intends to introduce will be straightforward and comprehensible to those who have to implement them? Does he agree that there has too often been confusion about what the banks are supposed to do? Does he agree that, if his approach is to be effective, there can be no room for ambiguity about the responsibilities of the banks?

This morning's edition of The Times says:

"The Home Office and the Treasury were unclear yesterday as to precisely how their responsibilities for the anti-terrorism measures were divided."

Has clarity now been introduced into that confusion? Finally, what progress, if any, has been made in the investigation of share movements in the days leading up to 11 September, which caused such widespread concern?

We shall scrutinise the detail of the Chancellor's measures when they become available, with a view to ensuring that Britain has legislation that does not merely adorn the statute book, but works effectively to make a real difference in our efforts to protect those to whom we are accountable, and others across the world, from the appalling consequences of terrorist acts.

I welcome the shadow Chancellor to his new responsibilities. From his experience as Home Secretary, he brings to the post a knowledge of terrorist activities and how to deal with them. I am grateful to him for what he has said this afternoon. I should have preferred to have this debate with him under different circumstances, but I am pleased that he has been able to support the measures that we have announced today.

The right hon. and learned Gentleman is right that the financing of terrorism is distinct from simple money laundering. Money from legitimate sources can go to an illegal destination to support terrorism. It is precisely for that reason that we have called back into action the international financial action taskforce, which made 40 recommendations on how to deal with the issues of money laundering.

We are now asking the taskforce to deal with the vexed question of the financing of terrorism. I believe that it will introduce an international standard that all countries will be asked to follow. I also believe that international institutions will be prepared to help countries that do not immediately have the resources or expertise to implement such measures, particularly through the creation of economic crime units. I therefore assure the right hon. and learned Gentleman that we are taking seriously the distinction between money laundering and the financing of terrorism.

On the investigation into underground banking, the right hon. and learned Gentleman is absolutely right to point out that such banking is not exclusive to Britain. Indeed, it is more prevalent in many other countries. Once the taskforce has examined the issue, with the expertise that we hope can be brought to bear from not just the public but the private sector, we will share with other countries the results of that review We are determined to co-operate with other countries in asset tracking, so that we can identify the sources from which terrorism is financed.

My right hon. Friend the Home Secretary will be introducing the legislation. The economic crime unit will be part of NCIS, which is under my right hon. Friend's authority. The measure in the Bill that will be of interest to the banks and financial institutions is the obligation to report to the proper authorities any reasonable suspicion that funding could be used for terrorist activities. As the right hon. and learned Gentleman, a former Home Secretary, rightly said, previous legislation left some grounds for ambiguity. There can be no doubt now that any financial institution which has a reasonable suspicion that money is being used to fund terrorist activity is under a clear obligation to report that to NCIS. Investigative action will then be taken as a result.

Finally, the right hon. and learned Gentleman asked about the review of share movements in the period before 11 September. He will have noted that the Financial Services Authority has investigated the matter and issued a statement, but investigations are taking place throughout the world. I have spoken to the head of the Bundesbank in Germany, to the Federal Reserve bank and to the Bank of Japan; all are investigating the matter. Any conclusions that can be made will be brought before the House. The matter is obviously serious and we are determined to investigate it fully.

When my right hon. Friend gets back to his office in the Treasury, will he ask his officials to produce a file—a very long file—which resulted from the Inter-Parliamentary Union's 1999 visit to Peru? The file is on drugs money laundering, in particular the immensely complex issue of anonymous numbered bank accounts. No one in their right mind thinks that there is any simple answer to that problem, but it has gained added importance, especially in view of the pressure—to which my right hon. Friend referred—on the United Nations in respect of a permanent monitoring unit. Such a unit—I cannot imagine who is resisting it—might give us some hope that the problem of anonymous numbered bank accounts will be addressed.

Yes, I will ask my officials to show me the papers to which my hon. Friend refers. He is absolutely right: the laundering of drugs money is a major problem on all continents and we need far better enforcement. I believe that the events of 11 September have given new urgency to efforts to deal with the problem.

My hon. Friend might have seen the performance and innovation unit report, published through the Cabinet Office a few months ago, which identified the scale of the money lost as a result of the drugs business. I assure him that we shall deal with those issues and that we shall continue to press for the UN monitoring unit.

The whole House agrees that those who choose to finance terrorism are as loathsome as, and perhaps even more cowardly than, those who undertake terrorist acts of the kind that we have witnessed in the past month. We strongly welcome the Chancellor's attempt to tackle, to track down and to prosecute such individuals both here and internationally, but I have some questions relating specifically to his proposals.

Will the Chancellor make it clear that the laws on monitoring and freezing of bank accounts and extending new powers to the police will require reasonable grounds linked specifically to suspicion of terrorism or other illegal activities, and that court approval will be needed, perhaps in accordance with rules similar to those that already cover phone tapping?

NCIS already has a substantial number of disclosures, but I understand that currently few are investigated owing to lack of resources. Is the Chancellor confident that there will be—and is he able to tell the House about—increased resources for NCIS? Also, as it is not an executive body, will similarly increased resources be given to the Metropolitan police anti-terrorism unit so that it can pursue prosecutions? The PIU in the Cabinet Office has already identified that this country carries out a far smaller number of prosecutions than other countries such as the United States and Italy.

Can the Chancellor outline the Government's position on any action against non-compliant countries following the recommendations of the financial action taskforce, which said that members—compliant countries—should apply counter-measures to non-compliant countries by 30 September 2001? Were any measures applied and—perhaps more important—do the Government intend to apply any measures to non-compliant countries?

The Government have already said that they will take action on bribery of foreign Governments. Will similar action be taken against bribery of non-Government individuals and bodies? That is a route through which organisations that may ultimately engage in terrorism may raise funds.

Having promised action on money exchanges, do the Government intend to examine other routes through which such money is often laundered? The FSA has identified spread betting, financial advisers, online broking and credit unions as examples of those. It will be a difficult task, but if the Government are planning to tackle one or two routes, they must tackle them all if action is to be effective.

We shall support Government measures and I hope that the Chancellor will be able to reassure the House on the issues that we are considering.

I am grateful to the hon. Gentleman. I talked to him this morning, as I did to the shadow Chancellor, about the detail of the measures that we are proposing.

In his first set of questions, the hon. Gentleman rightly spoke of getting the balance right between the civil liberties that it is our duty to defend in advance, and the need for security felt by people in the United Kingdom. I believe that the proposal that we are bringing forward gets the balance right. There will be every opportunity to debate the issue of police powers to investigate bank accounts. We intend that this will be done only where there is reasonable suspicion. We intend also that, where possible, this should go through the courts. I can assure the hon. Gentleman that we intend to work closely with the financial institutions in implementing this procedure.

The hon. Gentleman is right about NCIS. Thousands of reports are produced each year, which are passed on for further investigation by the police. It is generally accepted, not only in Britain but in America and elsewhere, that so far we have lacked the asset-tracking skills that would allow us to get to the source of funding for those who are engaged in terrorism. We intend to give NCIS and the economic crime unit that particular expertise and additional funding. We intend also that a taskforce will be set up that will bring in private and academic expertise where that is applicable. We have already had discussions with some private sector organisations. Special branch investigative resources will be increased.

The hon. Gentleman asked about tax reliefs. I should point out that it is illegal to claim tax relief for corrupt activities. The problem has been that in other jurisdictions subsidiary companies that are not British companies have claimed tax relief for the payment of bribes to officials. I can assure the hon. Gentleman that the new legislation that we propose will extend the requirement that no tax relief can be given not only to Government or public officials, but to anybody in the private sector and to anyone else who receives money for corrupt activities. The law will be improved and cleaned up in that way.

The hon. Gentleman also asked about spread betting and a range of other activities that may be the subject of money laundering. What those activities have in common is that usually they involve cash transactions, which are difficult to monitor. The FSA takes responsibility for examining the betting industry. I can assure the hon. Gentleman that as a result of a recent report that it has produced, the FSA intends to take further action. I can assure him also that in all the areas that he raised with me both this morning and now, we shall take whatever action is necessary.

I welcome the initiatives that my right hon. Friend has so quickly taken in the past few days. Has he any proposals to strengthen the oversight powers of the FSA so that it can find and publicly name individuals who are involved in money laundering? May I seek reassurance that there will remain the closest contact with the Channel Islands, the Isle of Man and the British dependent territories to ensure consistency of approach so that they do not act in any way differently from the United Kingdom?

I am grateful to my hon. Friend, who chairs the Treasury Select Committee. I welcome him to his new post.

The FSA assumes all its powers in a month's time. In my view, it will have powers to deal with the matters that he has raised. If it needs additional powers to do so, we can consider that.

My hon. Friend referred to dependent territories and overseas dependencies. It has been a source of concern for many years that there are gaps in the law in those countries that prevent us from dealing with money laundering and, in this case, the financing of terrorism. I am pleased that, particularly over the past few weeks, there has been far greater contact with those countries, which are now willing to introduce laws similar to ours. Many of them have money-laundering laws, but they will now introduce laws that will enable them to do as we are doing and try to cut off the supply of funds for terrorism. I therefore believe that we will be able to take further action in that area.

As for naming countries, which was the second point made by my hon. Friend, the financial action taskforce will name countries that it do not meet the regulations. In reply to the point made by the Liberal spokesman, the hon. Member for Truro and St. Austell (Matthew Taylor), it will consider what action to take when it meets on 29 October.

Will the Chancellor confirm that the legislation will apply to Northern Ireland? Does he accept that a series of measures, which were meant to deal with the funding and financing of paramilitaries, both republican and so-called loyalist in the Province, have singularly failed? What assurances can he give the House that on this occasion it will be different?

In many ways, the legislation that has been applied to Northern Ireland is now being applied to the whole mainland to deal with the finance of terrorism. The right hon. Gentleman raised issues which I know are of concern, particularly in the United States of America, which has said that it is introducing new laws to tackle the finance of terrorism. However, it is for its authorities to administer them. As for the United Kingdom, we continue to do everything in our power to cut off the supply of funds to terrorist organisations, whoever they are.

I am sure that the whole House welcomes the measures outlined by my right hon. Friend. Is he aware that at a recent meeting of the NATO Parliamentary Assembly the deputy director of Interpol's agency on organised crime told delegates about the bin Laden connection in the financing of the KLA, before and during the war in Kosovo, and before the war in Bosnia, via the Balkans route and the trafficking of arms, women and drugs. Can we have a full inquiry into the activities of the KLA, now renamed the Kosovo Protection Corps, where it gets its finances from and the organised crime in which it is currently engaged?

I am grateful to my hon. Friend, who asked about a particular organisation. I can assure her that we shall get the authorities to look at it. On her more general point about bin Laden's funding and the funds that the al-Qaeda organisation amasses from a number of activities, we shall continue to examine in detail how those funds are acquired and try to cut them off at source.

When the Chancellor said that our recent interest rate cut was co-ordinated with other countries, did he mean the Treasury requested the Bank of England to take that action or that the Bank of England decided independently to go beyond its normal remit and timing for those changes? I am not against the change; I would just like to know the process by which it took place.

I am grateful to the right hon. Gentleman for raising the matter of interest rates so that I can put him right. The individual authorities—the Bank of England, the Federal Reserve bank and the European Central Bank—make their own decisions about interest rates. I know that many Opposition Members resisted our decision to make the Bank of England independent, but it is independent and makes its own decisions.

I was referring to what I thought and feel able comment on; everybody here should be able to do that. Following the decisive action by the relevant authorities, there was a boost to the world economy at a most difficult time. There have now been nine interest rate cuts in the USA, three by the European Central Bank and six by the Bank of England in the last few months. All those institutions have made statements in the pass few weeks that they will not hesitate to take further action if necessary. I am therefore grateful to the right hon. Gentleman for allowing me to put the record straight.

The measures announced mean that it will be easier to tackle underground banking, money laundering conducted nationally and, with the G7, that practised in overseas financial institutions. Will the provisions be extended so that problems can be tackled in countries like Nigeria, where the Abacha regime salted away masses of money under the dictatorship? Surely the fact that there is nothing internationally to stop the Tobin tax has been finally established. A tax on currency speculation is of great importance in tackling terrorism because it will get at the problem of global poverty.

My hon. Friend wants to draw me into a very wide debate. May I answer him on the first point about Nigeria? I believe that under the measures that are being embedded in law and have been over the past few years, to which we are adding today, banks have an obligation to report suspicious transactions and we have the power to freeze the money involved. That makes it possible to say that what happened in the past should not happen in the same way again. We are determined to root out the sort of practice that caused us problems in the past. As for the Nigerian case, it is a matter of judicial review, so my hon. Friend would not expect me to comment further on that.

With regard to the Tobin tax, two issues are involved. The first is the volatility of the international financial markets, and the second is the need for finance for development. On the volatility of the financial markets, it has not been shown that the Tobin tax would make the difference in a liberalised set of capital markets. Interestingly enough, Professor Tobin himself now takes that view. On the financing of development, however, a powerful case has been made for all of us to do more, not just in terms of emergency aid in Afghanistan and Pakistan. My right hon. Friend the Secretary of State for International Development has made additional money available—and further money will be necessary—to feed people there during these difficult times, but more is needed for the general financing of development, so that education, health and anti-poverty programmes move ahead. We stand four square behind all those who want to see a better international approach to securing finance for development.

Further to the question asked by the hon. Member for Dumbarton (Mr. McFall), the Chairman of the Select Committee on the Treasury, the Chancellor will be aware that many billions of dollars move through the banks of dependent territories. In recent months the Cayman Islands, Gibraltar and Bermuda have been highlighted. Could the Chancellor amplify his earlier answer and say specifically what measures are being taken to encourage the dependent territories to introduce new laws rapidly, and what time scale he envisages for the introduction of such laws to dry up money laundering in those countries? Legislation there is every bit as important as it is here in the United Kingdom.

The hon. Gentleman is right. Those are big financial centres: the Cayman Islands is the fifth largest financial centre in the world, Bermuda is a world leader in insurance, ranking alongside New York and London for the insurance trades, and more than 300,000 international business corporations are registered in the British Virgin Islands, so what happens in those offshore centres is important. That is why their accepting anti-money laundering legislation and control systems based on the UK model is important. They have done so, and they are not named in the financial action taskforce list of countries where further action must be taken, because they have introduced anti-money laundering legislation. However, they will have to do more. That is why we have been in discussion with them about their adopting the same regulations and laws as we are adopting, or similar regulations and laws, to deal with the sources of terrorist finance. We remain determined to move ahead on all fronts. That means that we can only be as strong as the weakest link, and action must be taken in the dependent territories.

I believe that the hon. Gentleman will be reassured by the fact that those countries and dependent territories have issued statements to the effect that they are prepared to go in the same direction as we are going to increase the anti-terrorism powers available to them. We also had a debate with them on extending the exchange of information, and I believe that we are making progress on that as well.

Does my right hon. Friend accept that the House will warmly welcome his proposals? Can he tell us whether the G7 countries and the other important international concerns with which he has been in consultation have agreed with the measures that he has announced in the document that he said he would publish this afternoon?

On the subject of Peru, which was mentioned by my hon. Friend the Member for Linlithgow (Mr. Dalyell), can my right hon. Friend tell the House whether the new President, Toledo, is prepared to co-operate in a way that his predecessor, Fujimori, despite his experience of the terrorist organisation Shining Path, was unable or unwilling to do?

I shall write to my right hon. Friend about that point, as I shall write to my hon. Friend the Member for Linlithgow (Mr. Dalyell), who raised it previously, and I shall look at the papers affecting Peru, to which my attention has been drawn.

On international co-operation, there is no doubt that there has been an increased willingness to co-operate to tackle the sources of terrorist finance. That co-operation means that Germany has just set up a economic crime unit; the Americans have an asset-tracking centre, which has been set up since 11 September; France has issued, and will issue in more detail in the next few days, its action plan to combat financial terrorism, and the Japanese authorities have said likewise, so there is a degree of international co-operation that had not been in existence in this area before, and there is a determination that we will exchange information internationally so that we can deal with the problems. It is, of course, important that centres where little action has been taken in the past are the subject of further scrutiny. That is why we want the financial action taskforce to set down at the end of the month new rules on the financing of terrorism that all countries must apply.

On behalf of the Scottish National party and Plaid Cymru, may I welcome the announcement of measures to cut off the supply of funds to terrorism? Clearly, such action is necessary and timely. May I also thank the Chancellor and the Home Secretary for providing copies of their statements?

Does the Chancellor recall that the Financial Services Authority said in March that it had found that 23 British banks had happily handled the money of the late Nigerian dictator General Sani Abacha and reported that 15 of them had significant control weaknesses in their anti-laundering rules? Is he confident that the measures announced today will make such cases, which involve state terrorists and murderous dictators, impossible in future?

That is our intention. As I mentioned in reply to a previous question about exactly the same matter, the power that we now have to require financial institutions to report to the authorities when there are reasonable suspicions about the possible use of funds for terrorist purposes, as well as the power to freeze money, were not available when the authorities were originally dealing with the Nigerian case. I accept what the hon. Gentleman says about the 23 banks that were named. He might also note that we have offered official assistance to the Nigerian authorities to help them in the recovery of money. That is currently a matter for judicial review, so I cannot, of course, comment on the outcome. We are not only taking legislative measures to deal with potential problems but offering assistance to the Nigerian authorities in dealing with their current problems.

I welcome my right hon. Friend's statement, especially as the Select Committee on International Development identified in a report on corruption published in March many of the issues that he has raised. In particular, it dealt with the Abacha issue, money laundering and so on. On money laundering, the Committee concluded on the basis of the evidence given to us that there was gross under-reporting of suspicious transactions among professionals such as lawyers and accountants. Will he reassure us that people who refuse to report such transactions will be caught by the legislation that he is proposing?

As my hon. Friend has shown, one of the problems is that there is currently no international obligation for financial institutions to report suspicious transactions. The tightening up that has occurred in Britain has not yet taken place in other countries, but we are determined that it should happen. My hon. Friend may note that the second European Union money laundering directive is now the subject of debate in the European Parliament. The directive would require lawyers, accountants and other financial practitioners to report suspicious transactions. If it were agreed to, it would represent a tightening up of the law throughout Europe. I urge the European Parliament to introduce it as quickly as possible.

As part of the Government's anti-terrorism measures, does the Chancellor intend to release additional moneys to allow a substantial increase in police numbers? As we all know, any legislation that is passed by the House is worth while only if it can be enforced on the ground. We know that our police forces are overstretched and that crime is increasing. I believe that the additional burden of anti-terrorism measures, together with progress on increasing security—sadly, this will become a fact of life—means that we need a step change in our policing levels.

I did not think that the first call to be made today for more money would come from the Opposition Benches, but indeed it has. We have said that we accept that, where security issues, international development responsibilities and the defence and military requirements of what is happening in Afghanistan cause additional resources to be required, that will be a priority for the Government. The hon. Gentleman may have noted that we said that additional resources would be available for NCIS. We also said that they would be available for special branch and its investigative resources. We are increasing Home Office expenditure and expenditure on the police by around 6 per cent. in real terms this year and next year. Of course, we shall continue to examine legitimate claims.

My right hon. Friend knows that the House is with him when he says that the concealed ownership of bank accounts and companies can hide crime. However, he also knows that NCIS already receives 15,000 reports of money laundering a year and attempts to tickle them with a staff of 30. Each member of a police fraud squad deals with, on average, three to four live cases with a value of almost £1 million. Customs and Excise investigation and fraud teams are considering a major programme of job losses. Will my right hon. Friend assure hon. Members that the capacity will exist to implement the new laws that he proposes?

I shall outline two of the improvements that are being made at the request of the various services that form NCIS. First, there will be greater co-ordination, and the services will be put in the position of being able to work better and more closely together.

Secondly, we want better asset-tracking intelligence to enable us to distinguish between a suspicious transaction report, which, for example, claims that an additional amount of money was put in a bank account for something of no particular consequence, and the alternative—tracking the assets of terrorists. We want intelligence to be available that will allow us to distinguish between the important and the unimportant. After that has been done, it will be possible to say that many of the cases that are passed on for investigation give the police a clear lead about what they need to do. Of course, we will consider the resources that are necessary to ensure that the service is done well.

We all agree about the difficulty of gaining international agreement on sanctions against financial centres that are not prepared to clean up their act. For what measures to sanction those countries will the British member of the financial action taskforce press.

When the financial action taskforce made its original recommendations, it named several countries that had to bring their practices into line with the accepted standard for the international community. We gave those countries until 30 September to do that. Action against them, and appropriate future action will be considered at the meeting in October.

Every financial centre that refuses to operate in a way that fulfils international standard; will increasingly be outlawed from the rest of the international community. We will lead the calls for the behaviour of centres that do not follow the rules, proper procedures and agreed international standards to be perceived as unacceptable, and for them to lose business increasingly as a result.

I welcome the Chancellor's drawing of links between terrorism, drugs, crime and associated problems. However, there is a major omission from the list: tax evasion. It would be helpful if my right hon. Friend extended his powers to cover that. Does he accept that there should be no undue restrictions on the search for financial information and that trawls, which should be carried out, would uncover many links between the different problems?

Would my right hon. Friend also consider amending the current balance between penalties and rewards for those engaged in money laundering? The profits are enormous and the penalties, especially for lawyers, accountants and bankers in the City of London and elsewhere who assist terrorists to hide their money, are slight. Does he agree that publicly hanging a couple of lawyers would greatly assist with concentrating the mind?

We are against capital punishment.

Even of lawyers?

I cannot say that.

My hon. Friend rightly draws attention to the problem of tax evasion. Since 1997, we have increased significantly the legislation that tackles tax evasion. Today, we have announced a change in the law on the ability of the Inland Revenue to pass information to the police. That information could not previously be passed on unless treason or murder was involved. We believe that a range of crimes justify passing information from the Inland Revenue to the police. We will consult on the details of the legislation, but the police will have more sources of information from the Inland Revenue about crimes that are being committed.

We are therefore not only increasing the laws that tighten up action against tax evasion, but making it increasingly possible to deal with financial terrorism through giving the Inland Revenue the ability to pass information to the police authorities in specific instances.

Will the Chancellor ensure that the Secretary of State for Northern Ireland, as well as Ministers in the south of Ireland and the Stormont Assembly, are consulted as the measures are implemented?

As I said earlier, some measures that we are introducing today already apply in Northern Ireland and we are therefore extending them to the rest of the United Kingdom. However, if measures specifically affect Northern Ireland or if there is a general need for discussion on measures that will affect Northern Ireland as they apply to the United Kingdom as a whole, we shall consult.

My right hon. Friend is right to stress that money laundering and other illicit financial transactions are a worldwide phenomenon, so he is also right to stress the importance of co-operative action at European level in framing an international response. However, will he also consider the examples of best practice in other European countries, in particular the experience of a previous Italian Government and the Banca d'Italia in tackling organised crime in that country by making banking procedures more transparent, so cutting off Mafia access to Mafia funds? That example was studied in depth on a trip in March 2000 by the British-Italian parliamentary group to the Banca d'Italia and the Italian equivalent of the Speaker's Office, and I would be pleased to make the report available to my right hon. Friend.

I am grateful to my hon. Friend. We shall examine the successes and the weaknesses of operations across the world in considering what we can best do. I believe that the degree of international co-operation now allows us to share experience about what is working and what is not likely to work. The EU money-laundering directive is on the table and I gather that it is to be discussed by the European Parliament on Wednesday. It is possible to move forward and the directive could be implemented next month. I urge all Members of the European Parliament to join us in getting it through.

With permission, Madam Deputy Speaker, I wish to make a statement concerning Railtrack, to describe to the House the worsening financial crisis facing Railtrack, which led the Government to petition for railway administration on 7 October, and to outline the further measures that we intend to take to put the interests of the travelling public first.

The House will be aware of the history of Railtrack, as will Conservative Members. When the railway industry was restructured following the Railways Act 1993, Railtrack was created by the Conservative Government. In 1996, Railtrack was privatised by the Conservative Government. It was the only publicly floated utility subsidised by the Government. That subsidy made up the majority—in fact, some two thirds—of its revenue.

After the Hatfield train crash nearly 12 months ago, the whole network was urgently reviewed and fundamental safety issues were addressed. That added significantly to costs, with Railtrack claiming that it needed an extra £700 million a year to put the track in a proper condition.

On 2 April 2001, Railtrack asked for help because of its pressing financial difficulties. We brought forward £1.5 billion of investment from the period beyond 2006 to the five-year period starting on 1 April 2001. The first instalment of that deal was paid on 1 October this year in full—£337 million.

However in May, June and July, the company's position worsened dramatically. On 25 July, at a meeting in my office, the chairman said that the position was far worse than he had thought in April. Unless extra financial assistance from the Government was provided, it was clear that on 8 November, when Railtrack was due to give its interim results, it would be unable to make the critical statement that it was "a going concern". The effect of that would have been disastrous. Immediately I ordered intensive discussions with Railtrack.

In August, Railtrack's advisers came back to the Department and said that there were simply three options: restructuring, renationalisation or, as they described it, receivership. Thus it was Railtrack's advisers who first raised the possibility of insolvency if no additional Government funding was available.

I immediately asked my officials to investigate the restructuring option, which involved the provision of yet more funding to Railtrack. Railtrack asked for Government funding to cover all its costs plus a profit and a four-year suspension of the regulatory system. Those were Railtrack's proposals.

Given the company's demands, we began to prepare for the possibility that we might be unable to provide additional funding and that, as a consequence, Railtrack would be insolvent. To protect passengers' interests it was clearly right to explore the need for railway administration on a contingency basis. As a result, preliminary contact was made with Ernst and Young on 23 August.

There were further negotiations and various modified proposals, but it was becoming obvious that the company could not continue unless we offered to fund whatever losses it might have for a period of several years. I took the view that I simply could not responsibly enter into such a guarantee on behalf of the British taxpayer.

We carried on discussions until 3 October, but no way out of the dilemma could be found: either we gave the guarantee on money, or the company became insolvent. So, on Friday 5 October, I reviewed all the relevant papers and considered all the options, including Railtrack's proposed rescue package and the additional Government funding that would be required. Railtrack's proposals were cast in such a way that it was hard to be sure about the precise sum that it was seeking, but it was effectively an open-ended funding request to the Government. I decided that I could not give Railtrack a blank cheque.

That very afternoon, I informed John Robinson, the chairman of Railtrack, of my decision and of my intention to petition the High Court for a railway administration order if the company was insolvent. The order was granted on 7 October. Railtrack was taken into administration because it was, or was likely to become, unable to pay its debts. Our petition to the High Court showed that there would be a deficit of £700 million by 8 December this year, rising to £1.7 billion by the end of March next year.

In granting the order, Mr. Justice Lightman said:

"This is clearly a case where the making of a railway administration order is not only appropriate, but absolutely essential, and I shall therefore make that order immediately."

The press has made much of the position of shareholders. At the time of the April agreement, the Government felt that we should make it clear that our role should be to support the railway network but that we should not be seen as acting as guarantor of individual companies or their shareholders. We therefore agreed with Railtrack a statement of principles. The first point in the statement reads as follows:

"The Government stands behind the rail system but not individual rail companies and their shareholders who need to be fully aware of the projected liabilities of the companies in which they invest and the performance risks they face".

To ensure that that statement had wide circulation in the City, it was released through the stock exchange news service.

The directors of Railtrack have now said that they want £3.60 a share. On our calculations, that would require the transfer of up to £1.5 billion of new money from the taxpayer direct to Railtrack shareholders. We believe that it would be wrong to make new money available, and we will not do it.

In the light of the administration of Railtrack, we believe that we should now consider reshaping the structure of the industry in a way that recognises that the needs of the travelling public must come first. We shall propose to the administrator that a private company limited by guarantee be established to take over Railtrack's responsibilities. Any operating surplus it makes would be re-invested in the railway network. Such a company would have the needs of the travelling public and other users as a priority. As it would have no shareholders, we would remove the conflict between the need to increase shareholder value and the interests of rail passengers.

The company we propose would have responsibility for operations, maintenance and renewals. It would have a small professional board of executive and non-executive directors. Performance targets would be set and linked to levels of service, safety and value for money. The board would work on commercial lines but would focus solely on delivering a safe, well-maintained rail network that is fit for the 21st century.

The company would be able to promote collaboration and co-operation around the wheel and track interface, the absence of which has been one of Railtrack's weaknesses. A private company limited by guarantee would need far less intense regulation. We therefore intend to streamline the existing structure while still recognising that there will be a continued need for some form of independent economic regulation.

We shall discuss these proposals with the industry's key players. We are clear that it is important for the new structure to provide strong strategic leadership; a cut in the burden of day-to-day interference; an end to the self-defeating system of penalties and compensation; clearer accountability; and an end to perverse incentives.

The new company that we shall propose would be able to raise funds in the market. [HON. MEMBERS: "Which market?"] Wait and see. Private sector funding would operate in partnership with Government to deliver the 10-year plan objectives for rail. Under our proposals, we intend to offer all existing lenders to Railtrack plc the opportunity to transfer to the new company with no loss of principal or interest. Any debt transferred to the new company would be financially sound and would have, at the time of transfer, good long and short-term credit ratings.

Many talented and motivated people work in Railtrack. They have worked with dedication, especially over the past seven days, and I thank them for that. I know that they and the rest of the industry want an improved railway system. I believe that, with the demise of Railtrack, that is what they will get. The Government are committing some £30 billion to the network over the next 10 years.

The administration of Railtrack provides us with a golden opportunity to create a railway system that is united and not fragmented; a railway industry with a shared strategic vision; a railway industry that can respond to the needs of our time; and a railway network provider that answers to the millions of passengers and not to private shareholders.

Our decisive action makes all that possible, and I commend it to the House.

I thank the Secretary of State for providing me with advance sight of his statement. I am sure he will be shocked to realise that it arrived only a few moments before the start of the debate. No doubt he will strive to ensure that, in future, statements arrive on time.

I commend the right hon. Gentleman for his power of prophecy. Does he recall saying on 1 July, on "Breakfast with Frost", that the railways

"need a period of stability",

and arguing that nationalisation would

"mean paralysis of the system"?

I congratulate the right hon. Gentleman: that is exactly what has happened today. He was right in saying that it would take a few years to establish the nationalised system, and that the railway network would simply get worse.

The Secretary of State has driven a coach and horses through the Government's 10-year transport plan. The net results of his venture will be higher fares, fewer trains, a reduction in passenger numbers, and a decline in freight. The expansion of the network is now yesterday's agenda; we will return to managing decline.

Interestingly, the right hon. Gentleman said in his statement:

"The company we propose would have responsibility for operations, maintenance and renewals."

So it's goodbye to expansion: the company will clearly have no room for expansion of the rail network.

The right hon. Gentleman also said that the Government would guarantee £30 billion. That is just half of what is due from the Government's plan. Where is the £34 billion of private investment to come from? The best we can hope for is a 12-month delay in investment in such vital services as the west coast and east coast main lines, Thameslink 2000 and the train protection system. For 12 months, nothing much will happen—and who will trust the Government again? [HON. MEMBERS: "Everyone."] Certainly not the City institutions, which will run a mile. If, as the right hon. Gentleman suggests, the new company is able to raise money, it will have to do so at a premium, because the Government, having reneged on an agreement, will not be trusted again.

The Government certainly will not be trusted by ordinary investors. It is all very well for the Secretary of State to talk about what was sent through the stock exchange news service, but what about the signalmen? I do not suppose that many of them consult the stock exchange news service. Why did the right hon. Gentleman not mention this on "Breakfast with Frost"? Was it because he forgot?

Let us consider the plight of the ordinary investor. If the right hon. Gentleman had seen today's edition of The Sun, he would have read about a 33-year-old signalman from Middlesbrough who had worked for Railtrack and British Rail since leaving school at 17. He owns 6,870 Railtrack shares—[Interruption.]

Order. The hon. Gentleman is entitled to be heard.

I am grateful for your protection, Madam Deputy Speaker.

Matthew, the signalman, said:

"I'd saved up hard for many years and, two years ago, decided to buy shares in Railtrack. I knew it was a good company, despite some difficulties, and didn't want to risk my savings".

According to that signalman, what the right hon. Gentleman has done

"is at the expense of the workforce, genuine working-class people like me who've tried to better themselves."

Ninety-two per cent of Railtrack employees participated in the company's share scheme. Many of them exercised their option to purchase additional shares long after the Government had secretly decided to make their savings worthless. They put their trust in the Government, and the Government let them down.

The Secretary of State needs to answer some specific questions. On what date did he take the decision to formulate the plan to put Railtrack into administration as the preferred option? Is it true that he had no face-to-face meetings with the chairman of Railtrack for a whole three months during the summer? What advice did he receive from the Rail Regulator or the Strategic Rail Authority? Is it true that the Government blocked a payment of £162 million to Railtrack, which the company should have received on 1 October, under a funding schedule published by the Rail Regulator in October 2000 and agreed by the Deputy Prime Minister in April 2001?

Is it true that on 3 October, shortly before notifying Railtrack management of the Government's intention to push the company towards administration, the Secretary of State spoke directly to the Rail Regulator and warned him to take no action to assist Railtrack? Is it true that the regulator was threatened with emergency legislation to deprive him of powers if he tried to assist Railtrack?

Most importantly of all, what guarantee can the Secretary of State provide that the rail network will require any less public funding than was requested by Railtrack?

Railtrack is bust because the Government decided to make it so, as the letter from Railtrack today shows. That demonstrates the danger of politicians interfering with the rail industry. The Secretary of State sought a political solution when a financial one was needed. He grandstanded when care was needed. What once appeared to be a carefully crafted political coup now appears to be an ill-thought-out mess.

This action has been the most destructive act to the railways since Dr. Beeching. The Secretary of State clings to office with his despised spin doctor. He should do all of us—including the rail industry—a favour, by quitting today.

There we have it.

I congratulate the hon. Gentleman on his position. I am disappointed that it was not the shadow Secretary of State who responded to the statement, but I look forward to crossing swords with her in due course.

The hon. Gentleman is right that on 1 July I appeared on the Frost programme. At that time, we thought that the 2 April deal would finance Railtrack through this year, into next year and for the five-year control period. It was not until 25 July, when John Robinson, the chairman of Railtrack, came to my office, that we were informed of the grave financial circumstances facing the company. From then on, it was clear that we faced a dilemma: either to fund Railtrack with a blank cheque or to put in place a contingency plan in case railway administration was needed. It is prudent and appropriate that we plan on a contingency basis. If we had not done that, Railtrack would have collapsed into receivership and the network would have been in chaos.

Since last Monday, the trains have continued to run and no one has lost their job. We are in a period of railway administration and the company that subsequently emerges will put the interests of the travelling public first. It will be focused on operations renewal and maintenance. We will use special-purpose vehicles for enhancement projects. We are moving in that direction already.

As I said in my statement, I took my decision on 5 October after considering all the relevant documents. The Government have met all our legal obligations regarding payments to Railtrack.

Not to shareholders.

Despite what the hon. Gentleman believes—which is a sign of the Conservative party's priorities—the Government are not here to fund the shareholders of private companies. During privatisation, £700 million was paid in dividends to Railtrack shareholders. It was a company in crisis and came to the Government with a begging bowl month after month. It begged for taxpayers' money while handing out dividends to shareholders.

A sign of Railtrack's conflicting priorities is the fact that, while it faced a deficit of £700 million by this December, it paid yet another dividend to shareholders of £88 million at the beginning of October. That is the reality. Shareholders and investor have a choice. The Government made it clear on 2 April that we would stand behind the industry, not behind individual companies or shareholders.

Interestingly, we did not hear a word from the hon. Member for Brentwood and Ongar (Mr. Pickles) about the problems that Railtrack faced as a result of the very nature of privatisation. He did not even attempt to explain the dogma that led to the privatisation of Railtrack, but we must be very clear about the fact that Railtrack was taken into administration because it could not control its costs. Its overrun on the west coast main line amounted to billions of pounds, and it had hundreds of millions of pounds of liabilities that were due to be paid, so we had to act. We acted in the interests of rail passengers and the public, and we make no apology for so doing.

Is my right hon. Friend aware that the fact that Railtrack was, to all intents and purposes, bankrupt has been an open secret in the industry for many months? Indeed, if it had not been able to keep coming back to the Government for more and more money without any evidence of what it would do with it, it would have been automatically put into bankruptcy. Is he also aware that the real problem has been that, when Railtrack was criticised for not keeping up its maintenance, for not seeking proper funding and certainly for not being able to carry out the costings of the modernisation programmes to which it was committed, it was handing out £1 million in compensation to failed executives?

Is my right hon. Friend further aware that, unfortunately, the people who will suffer are the railwaymen who, instead of being offered bonuses, for which they had worked and to which they were entitled, were paid off by Railtrack with more shares, although it must have known what was going to happen because the City of London had made it very clear what it thought of the company?

Will my right hon. Friend give the House a very simple guarantee that the new company will not, in any circumstances, continue to pour money in without guarantees to the travelling public and to those who need a modern and rebuilt railway system that it will be spent on the railway, that it will be paid to those who maintain and build the railway, that it will not go into contractors' pockets and that it will not be handed over to other companies that have proved, in many instances, that they cannot run their existing operations?

My hon. Friend makes a number of very important points. The report that her Select Committee—the Transport Sub-Committee of the Select Committee on Transport, Local Government and the Regions—published on 29 March showed very clearly Railtrack's failures in terms of renewal and maintenance and how it had simply failed to manage the railway network.

We want a new company, coming out of administration, that will not face the conflict of having to enhance value for shareholders but will have one overriding priority—the interests of the travelling public and the freight industry. As it will be a not-for-profit organisation, any operating surplus will be reinvested in the industry, doing away with the conflict that existed under Railtrack. That will make a real difference for the travelling public. Railtrack's demise offers a golden opportunity to recast the railway industry in our country and to create a railway industry that is fit for the 21st century, which simply is not the case at the moment.

Given the Tories' record on the railways, does the Secretary of State not agree that a degree of contrition from the hon. Member for Brentwood and Ongar (Mr. Pickles) would have been appropriate?

Does the Secretary of State agree that it was vital to end, in a monopoly, the obscene conflict between shareholder profit and passenger safety? Will he confirm that his proposal to turn those parts of Railtrack that relate directly to the running of the railways into a not-for-profit, public-interest company are not only sensible but mirror proposals made by Liberal Democrat Members as early as February this year?

Will the Secretary of State acknowledge, however, that the way in which he has handled this affair over the past few days has led to confusion about who is in charge of what and who owns what? After a botched privatisation, are we not in danger of his botching what is, in fact, a sensible solution?

I agree with the Secretary of State that the public have been rightly concerned that shareholders have received money from Railtrack while, at the same time, the company has been going round with a begging bowl asking for more money from taxpayers. Will he confirm that, even today, Railtrack's website acknowledges that its property portfolio assets are expected to yield a return of £1 billion to shareholders over the next five years? Does he agree that that is the equivalent of £1.80 per share, in addition to the value of all the other assets that have been described elsewhere? Will he confirm yet again, as he has already today, that there will be no more taxpayers' money going to shareholders?

Given that the Secretary of State has at long last accepted the need to start to reintegrate track and train, will he now stop his crazy proposal to do exactly the reverse for the London underground?

We are proposing a sensible alternative to Railtrack. When the hon. Gentleman has had time to study the details, he will realise that it our proposals are not the same as his—at least, I hope they are not.

I gave them to the right hon. Gentleman.

I am conscious that the hon. Gentleman gave them to me; that is why I think they are not the same, but we can discuss that a little later.

Railtrack plc is the body in administration. Railtrack Group is not in administration; it is still being run by the board of directors and it still has shareholders. There will be assets and value in Railtrack Group, and that value can be used for the benefit of shareholders. That is an important point to make, because it shows the need to ensure that we keep the rail network operating—the Government's top priority—and that Railtrack Group, which is not in administration, can find value from its assets. If it can do that, that value can be made available to shareholders. The important point, however, is that new Government money will not be given to compensate shareholders. We feel that to do so would be inappropriate.

The hon. Gentleman's final point was about the implications for the London underground, whose position is totally different from that of Railtrack. The important thing to remember about our proposal for London Underground is that, although it has been portrayed by our critics as a Railtrack on the underground, the reality is that it will continue to be a publicly run company. London Underground will have contracts with the private sector, so the difficulties that the hon. Gentleman mentioned will not be repeated in our proposals to modernise and invest in the tube.

Does the Secretary of State agree that this calamity was prophesied precisely by the report of the Transport Select Committee in 1993? That Committee opposed privatisation, even though it was chaired by a Conservative and had a Conservative majority. Should we not look for Conservative Members to offer a small apology for privatisation?

The model being proposed now is similar to one that Glas Cymru introduced. We have discovered a genuine third way: a combination of the vigour of the private sector and the security of state enterprises.

My hon. Friend is right when he refers to the reservations that many Conservative Members had about privatisation when it was introduced in 1993. At that stage, the proposal was for Railtrack to remain in the public sector, but in 1996 the then Prime Minister, John Major, was desperate for a privatisation and, as there was nothing else left, he went for Railtrack. We are now living with the consequences of that flawed and failed privatisation.

My hon. Friend referred to Glas Cymru, formerly Welsh Water, which provides a similar model to the one that we adopting in this case. He referred to it as a "third way", and it was interesting to hear him say that. It is the first time that I have heard him talk favourably about the third way—long may that continue.

The important point is that Labour Members have made it clear that modernisation and reform of public services are important. We have said that, when we think the private sector can add value, it has a role to play. Railtrack was not adding value; it was destroying the rail network. The Government were therefore prepared to take action to put the public interest first. We have done that for railways and we shall do it for public services as well.