I am pleased to inform the House that on 24 November 2005 I formally issued the New Opportunities Fund (NOF) and the Community Fund—now operating jointly under the name of the Big Lottery Fund—with policy directions to enable the fund to launch its new programmes.

The policy directions and the programmes which will be launched as a result have been subject to an unprecedented level of public consultation and input from stakeholders. Underpinning all the programmes will be the fund's mission to improve communities and the lives of people most in need.

The planned programmes include up to £155 million to support voluntary and community sector infrastructure; £155 million for children's play; up to £354 million for environmental projects; and up to £165 million for well-being programmes. These initiatives will benefit communities the length and breadth of the UK.

I have placed a copy of the policy directions in the Libraries of both Houses.

The Office of the Deputy Prime Minister has today announced new financial arrangements for firefighters' pensions.

The firefighters' pension scheme is currently financed on a pay-as-you-go system. This means that employees' contributions are paid into Fire and Rescue Authorities' operating accounts, from which pensions awards are made. At present, as part of formula grant, authorities receive funding from central Government to support pension payments.

The current system for financing firefighters' pensions can cause volatility in pension expenditure as a result of lump-sum retirement payments. It can also be difficult to establish what proportion of budget and council tax increases is the result of rising pension costs as opposed to the cost of running the service. Further, over time the forecast growth in pension costs would see pension expenditure rise as a proportion of authorities' budgets.

The new financial arrangements are based on employer contributions and are similar to those used for other unfunded public service pension schemes such as those for teachers, civil servants, NHS staff and the armed forces.

The new arrangements will mean that employee contributions and a new employer's contribution will be paid into a new local pension account, from which pensions payments will be made. Government will make up the shortfall. At the outset, appropriate adjustments will be made in the level of grant so that neither local nor national taxpayers will be disadvantaged.

The new arrangements are for both the existing and proposed new firefighter pension schemes, but have no impact on the terms and conditions of either scheme.

ODPM conducted a thorough consultation on the proposals for new financial arrangements for firefighters' pensions between 8 February 2005 and 3 May 2005. The proposals were broadly welcomed by Fire and Rescue Authorities. A formal and detailed ODPM response to the consultation can be found in the Libraries of both Houses.

Home Office Ministers, having considered responses to a parallel consultation with Police Authorities, have today announced a similar reform of the financing of police pensions.

The new financial arrangements for Fire and Rescue Authorities will be introduced in April 2006 and, subject to parliamentary approval, will take affect immediately. Fire and Rescue Authorities have been provided with detailed guidance, copies of which can also be found in the Libraries of both Houses.

My right hon. Friend the Deputy Prime Minister will publish for public consultation on 29 November, a paper discussing security of tenure for residential boats.

During the passage of the Bill which became the Housing Act 2004, the Government received representations that the Bill should be amended to provide similar protection for those living on boats as the Bill provided (and the Act now provides) for owners of park homes.

The Government agreed to explore possible options with stakeholders and publish a consultation paper in 2005.

In the consultation paper we have examined how residential moorings are managed particularly with regard to security of tenure; highlighted some problems that exist with these arrangements; and outlined possible solutions.

Copies of the paper are being sent to a wide range of interested parties including local authorities, trade and resident associations, and others with an interest in this issue. The closing date for responses is 21 February 2006.

Copies of the paper will also be placed in the Libraries of both Houses, and will be available on the Office of the Deputy Prime Minister's website at www.odpm.gov.uk.

A summary of the responses to the consultation will be published on the ODPM website and copies of the responses will be made available for inspection through the ODPM library.

I would inform the House that the Learning and Skills Council for England has today published its annual report and accounts for the period to 31 March 2005. Copies have been placed in the Libraries of both Houses.

DEFRA is today publishing an initial regulatory simplification plan.

In its March 2005 report "less is more", the Better Regulation Task Force recommended that by September 2006 all Government Departments, in consultation with stakeholders, should develop a rolling programme of simplification to identify regulations that can be repealed, reformed and/or coordinated. DEFRA's plan is a public statement against which our stakeholders can measure progress.

The plan is fully in keeping with DEFRA's strategic objectives set out in our five-year strategy. Measures in it will help to improve outcomes and compliance rates while recognising the need to protect the environment and enhance animal health and welfare.

The plan identifies some significant progress that has already been made in helping to reduce red tape and improve outcomes across a number of sectors. The whole farm approach, which goes live in 2006, will offer farmers integration in the delivery of regulation and advice so that those who sign-up will be able to reduce time spent form-filling and having inspections undertaken on their farms. It also looks forward to other simplification work, such as amending the Waste Management Licensing Regulations 1994 which, it is expected, will result in cost savings of around £10 million from June 2006.

An updated plan, which will include further information on steps that DEFRA is taking to regulate more effectively, will be formally scrutinised by a Cabinet Committee and the Better Regulation Commission in the New Year. It should be viewed as an evolving document which will be updated on a regular basis. It is a major contribution to DEFRA's aim of reducing the overall administrative burden imposed on the business sectors we cover by 25 per cent. by 2009.

Copies of the plan are available in the Libraries of both Houses.

The Government remain committed to the Organisation for Security and Co-operation in Europe arms embargo against both Azerbaijan and Armenia, which we interpret as covering all goods and technology controlled under entries in part III of schedule 1 to the Export of Goods (Control) Order 1994 (commonly known as the military list).

In November 2005, the Government approved an export licence application for bomb disposal clothing and equipment for the special state protection service in Azerbaijan.

The decision was made in accordance with our practice occasionally to make an exemption to our interpretation of the embargo by approving exports of non-lethal military goods where it is clear that the embargo was not intended to prevent those exports. The Government believe that this export is justifiable on humanitarian grounds.

I am pleased to announce that the Department is publishing a guide today entitled "Commissioning Children's and Young People's Palliative Care Services".

The provision of palliative care for children and young people has often been raised in both Houses of Parliament. We have made it clear that we want improvements in the choice and quality of services available to children with life-threatening or life-limiting conditions and their families.

Children's palliative care needs are different from those of adults. Their conditions often entail much longer-term provision, often intermittently throughout their lives, and their needs can be complex.

The new guide provides important information about the key aspects of children's palliative care which will stimulate improvements in quality of provision and commissioning. It also aims to promote choice for children, young people and their families, for example whether to receive palliative care at home, in hospital or in a hospice.

Standard eight of the national service framework for children, young people and maternity services (NSF) has set very high standards of services for disabled children and young people and those with complex health needs, including palliative care. The new guide will help primary care trusts and practice based commissioners and their local authority and voluntary sector partners to implement the NSF standards as they develop and deliver children's palliative care, bringing together a range of providers to achieve a seamless service for children with life-limiting or life-threatening conditions and their families. It promotes the choice to die at home that so many children, young people and their families want.

Copies of "Commissioning Children's and Young People's Palliative Care Services" will be placed in the Library.

After considering the responses to the consultation document published earlier this year I am pleased to announce the introduction of a reformed system of financing police pensions with effect from 1 April 2006.

The new arrangements will cover both the existing police pension scheme and the new scheme to be introduced next April, but will not affect officers as members of those schemes. The new system of financing pensions will benefit police authorities by keeping the pension payments they make to retired officers separate from their operating costs. The new system will facilititate operational budgeting and planning based on the real cost of serving officers, including the cost of their accruing future pensions. The new arrangements will also prevent any future rises in the cost of pensions in payment, as more officers retire, from impacting directly on police operating costs thus helping to keep council tax precepts to a minimum over the coming years.

Currently the police pension scheme, which is administered locally by the police authority for the force concerned, is financed on a pay-as-you-go basis. Police authorities do not hold specific pensions accounts and officers' contributions are therefore paid into their operating accounts, from which the pensions of retired officers are paid. This means that police authorities have to meet the cost of the pensions of retired officers from the same source that funds operational policing. Although authorities currently receive an element in their police grant to support these pension payments there can be volatility from year to year in pensions expenditure, depending on the number of officers who retire, which can have an impact on operational expenditure.

In 2001, a working party from the Treasury, the Home Office and the Department of Transport, Local Government and the Regions completed a joint review of arrangements for the financing of police and fire pensions. Following the recommendations of the Joint Review, a Home Office-led working group of officials drew up the consultation document "Report of the Working Group on Police Pensions Finance Reform" which we published on 24 March. We have now considered the responses to the consultation document and the outcome is that all respondents wish the new system to be introduced next year essentially as proposed. Support for the proposals was subject to specific comments and I am placing in the Library a copy of a summary of the results of the consultation exercise and of the Home Office response.

The new arrangements for financing police pensions will be based on officers' contributions and a new employer contribution that will be paid by the police authority into a separate pensions account. Any shortfall would be made up by a central Government grant and any surplus in the account recovered by central Government. To facilitate a smooth transition adjustments will be made in the level of Government funding through the police grant to ensure that there is no disadvantage to either the local or national taxpayer as a result of the change in the financing system.

The new arrangements are similar to those currently being used by other unfunded public service pension schemes, for example those for teachers, civil servants and NHS staff. The changes are also very similar to the changes being made to the financial arrangements for firefighters' pensions, also announced today.

We are in close touch with the Association of Police Authorities and the Association of Chief Police Officers about the changes and we will shortly issue police authorities with detailed guidance on the new arrangements.

The biennial Commonwealth Heads of Government meeting (CHOGM) took place in Valletta, Malta from 25 to 27 November.

Her Majesty The Queen attended the meeting in her role as Head of the Commonwealth. She also paid a state visit to Malta where she was most warmly welcomed by the Maltese people. The outgoing Commonwealth Chairman-in-Office, President Obasanjo of Nigeria, paid tribute on behalf of all Commonwealth members to the Queen's commitment and dedication to the Commonwealth.

This year, for the first time, Commonwealth Foreign Ministers met in advance of CHOGM to receive reports from Commonwealth bodies and to prepare the communiqué. The UK was represented by my right hon. Friend the Secretary of State for International Development and my noble Friend the Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs.

Commonwealth Heads of Government last met in Abuja, Nigeria in December 2003. At Valletta, Heads reviewed developments since then.

As in 2003, Heads issued a separate statement on multilateral trade. This highlighted the contribution that international trade makes to global prosperity, poverty elimination and sustainable development. They reaffirmed their commitments to the objectives of the Doha development agenda of the World Trade Organisation and to its conclusion by the end of 2006. While they welcomed the progress achieved since 2003 they stressed their deep concern about the pace of negotiations. The Commonwealth pledged its global influence to correct this and Heads committed to inject urgency into their negotiators at the WTO, encouraging them to be flexible and place priority on a genuinely development-oriented outcome for the round.

The importance of agriculture to developing economies was highlighted, with a call for the end of export subsidies by 2010 and time-bound commitments for substantial reductions in trade distorting domestic support and significant improvements in market access.

The importance of differential treatment for developing countries was highlighted in this context. Heads of Government also called for phased adjustment and other transitional measures to help vulnerable states, including small states and those traditionally dependent on preferential market access arrangements, to meet the trade and development challenges facing them. This was noted with particular reference to the impact on some Commonwealth members as a result of the liberalisation of the EU sugar regime. The G8 initiative on "Aid for Trade" was applauded as a means for meaningful market access.

Heads discussed other development issues, including the millennium Development Goals, where there is mixed progress in the Commonwealth. Heads welcomed the G8 proposals for debt cancellation and commitments by many developed countries to achieve the 0.7 per cent. target. Heads confirmed their commitment to root out corruption. There was particular concern for vulnerable small states, which need help to diversify their economies. Some small states have been very badly affected by natural disasters. Heads endorsed a proposal from Bangladesh for the Commonwealth to develop proposals to address how it can help with disaster risk-reduction and responses.

Heads also discussed terrorism, incitement and tolerance and reaffirmed their condemnation of all acts of terrorism. They emphasised that targeting and deliberate killing of civilians through acts of terrorism cannot be justified or legitimised by any cause or grievance. They commended the various initiatives to promote dialogue, tolerance and understanding among civilisations.

Heads discussed how to use information and communications technologies to support development, reduce poverty and contribute to the attainment of the millennium Development Goals.

During the summit, I met with the leaders of sugar producing Caribbean states and a number of other leaders, including the Prime Ministers of Malta, Mauritius, Pakistan and Singapore.

The Commonwealth expressed its concern about recent developments in Uganda, including the detention of Kizza Besigye. As Secretary General McKinnon said on Sunday 27 November, Uganda knows what must happen between now and 2007 when it expects to host the next CHOGM. I also raised our concerns directly with President Museveni.

It was agreed that the United Kingdom should return to the Commonwealth Ministerial Action Group (CMAG), the body charged with monitoring Commonwealth nations' compliance with the Harare principles.

I participated in the Commonwealth sports breakfast and thanked Commonwealth leaders for supporting London's Olympic bid. Heads of Government looked forward to the Melbourne Commonwealth games in 2006 and I presented Glasgow's interest in hosting the games in 2014.

Copies of the concluding communiqué, the separate statements on trade and small states and the declaration on networking for development have been placed in the Libraries of both Houses.

The 2005 Euro-Mediterranean Summit took place in Barcelona on 27–28 November. I co-chaired the Summit with the Spanish Prime Minister. My right hon. Friend the Foreign Secretary also attended for the Government.

The summit delivered a five-year work plan with a substantial package of commitments towards political, economic and social reform in the southern Mediterranean region. A code of conduct on countering terrorism was also agreed. There was also agreement on a chairman's statement, reiterating the overall political commitments of the Euromed partnership. I have placed copies of these texts in the Libraries of both Houses.

The commitments agreed included:

a code of conduct on countering terrorism: this is the first time that Europe, Israel and Arab countries have agreed to condemn terrorism in all its manifestations, as well as practical commitments to act together against terrorism;

a governance facility: a substantial EU "incentive fund" to reward Mediterranean partners who make progress on good governance;

a commitment to raise standards in conduct of elections. This will be supported by EU technical assistance and observers;

agreement to liberalise trade in agriculture and services: A first wave of regional negotiations should start before the end of 2005 with the aim of concluding them before December 2006. This is a major step towards the agreed goal of establishing a Euromed free trade area by 2010;

targets on education including a commitment to ensure that all children (boys and girls) have access to quality education and to halving current illiteracy rates in the region by 2015. The EU and Mediterranean partners have committed to increasing significantly resources devoted to education; and to developing a "benchmark standard" university education qualification transferable within the EU and the region;

a commitment to develop co-operation between the EU and southern Mediterranean countries on migration policy, including fighting illegal migration;

in addition 1 billion euros in further lending to private investment in the southern Mediterranean region was announced by the European Investment Bank.

The Government are committed to the full and early implementation of the commitments agreed at the summit. We shall also continue to work towards further economic, political and social reform in southern Mediterranean countries.

The Prime Minister and I are pleased to inform the House that we have asked the Minister for Energy, the hon. Member for Croydon, North (Malcolm Wicks) to lead a review of UK energy policy and to bring forward policy proposals next year.

The review will assess progress against the four goals set by the 2003 energy White Paper:

to put ourselves on a path to cut the UK's carbon dioxide emissions—the main contributor to global warming—by some 60 per cent. by about 2050 with real progress by 2020;

to maintain the reliability of energy supplies;

to promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and to improve our productivity; and

to ensure that every home is adequately and affordably heated.

The review has a broad scope and will consider aspects of both energy supply and demand focusing on medium and long-term policy measures beyond 2010. The review will consider all options including the role of current generating technologies, such as renewables, coal, gas and nuclear power, and new and emerging technologies, for example carbon, capture and storage. The review will also consider transport and the role of energy efficiency. The terms of reference for the review are annexed to this written statement.

The review will be taken forward by a cross-departmental team based in the DTI, with officials drawn from key relevant departments and the Prime Minister's strategy unit. The review team will develop energy policy proposals during 2006.

This review is part of our ongoing commitment to reviewing progress against the goals and, if necessary, taking steps to ensure we stay on track. It will be taken forward in the context of the Government's commitment to sound public finances and will take account of all short-term, medium-term and long-term costs and liabilities both to the taxpayer and energy user. The review is taking place against a background of strengthening evidence on the nature and extent of climate change and increasing concerns about the future security of UK energy supplies.

Given the substantial challenge posed by climate change, Sir Nicholas Stern has already been asked to produce a report to the Prime Minister and Chancellor by autumn 2006 on the economics of climate change. The work undertaken as part of the stern review will be closely co-ordinated with, and complementary to the energy review.

ANNEX—Energy Review Terms of Reference

The Government will review the UK's progress against the medium and long-term Energy White Paper goals and the options for further steps to achieve them. The aim will be to bring forward proposals on energy policy next year.

The review will be informed by analysis and options drawn up by a review team led by the Energy Minister. This will be a team of officials drawn from key relevant departments and the Prime Minister's Strategy Unit. In drawing up the analysis and options, the Energy Minister will undertake extensive public and stakeholder consultation. The review will be taken forward in the context of the Government's commitment to sound public finances and will take account of all short-term, medium-term and long-term costs and liabilities both to the taxpayer and energy user. The review team will report to the Prime Minister and the Secretary of State for Trade and Industry in early summer.

I will be chairing the Telecoms Council of the UK's EU Presidency in Brussels in the afternoon of 1 December 2005.

The first item on the agenda will look at the important theme of better regulation, focusing specifically on the 2006 review of the regulatory framework for electronic communications markets and on the future of EU spectrum policy. I will chair a policy debate on these issues and we have produced a Presidency policy paper to help guide the debate. This discussion is important in the wider context of EU economic reform. I hope to achieve a steer from the Council on the key issues that need to be addressed within the 2006 review and on the role of market based mechanisms in EU spectrum management.

I will then introduce a policy debate on the i2010 Strategy which I believe can play a key role in achieving the Lisbon goals of economic growth and productivity. With the help of a Presidency paper, I will ask my colleagues to explore the key issues that need to be the focus of attention in the area of information and communication technologies over the next five years and to discuss how best to ensure that ICT policy is appropriately reflected in wider national economic discussions both at EU and national level. I also hope that as part of this agenda item, we will be able to agree the set of Council Conclusions responding to the Commission Communications on the i2010 strategy and on e-accessibility.

The third agenda item will look at the transition from analogue to digital broadcasting, focusing specifically on the spectrum gains from digital switchover and on a timetable for digital switchover in the EU. I hope that we will be able to agree the Council Conclusions responding to the Commission Communication on this issue, but I do not anticipate a substantive policy debate.

Finally, together with Viviane Reding, European Commissioner for Information Society and Media, I will report back on the outcome of the world summit on information society which took place between 14 and 18 November and parts of which I attended.

I will be chairing the Energy Council of the UK's EU Presidency in Brussels in the morning of 1 December 2005. My right hon. Friend the Member for Cardiff, South and Penarth (Alun Michael) will occupy the UK seat.

The first item on the agenda will be better regulation: implementation and outcomes of the internal market for electricity and natural gas. This item will include presentations from Commissioner Piebalgs on the Commission's report on progress in creating the internal gas and electricity market and from Commissioner Kroes on the initial findings of the Commission's sectoral inquiry into the European gas and electricity markets. I will then chair a policy debate. In order to guide the discussion, we have prepared Presidency questions focusing on implementation, enforcement and transparency; the power of regulatory authorities; market integration; and the need for improved third party access to networks. We hope the debate will help influence the future direction of EU energy market liberalisation within a better regulation framework and will make an effective contribution to the emerging findings of the DG Comp inquiry.

The second item will be Climate Change and Sustainable Energy, on which we hope that Ministers will adopt draft Council Conclusions. I will chair a policy debate, which aims to give impetus to the ELPs contribution to international efforts to address climate change and to promote sustainable, cost-effective energy supplies. Again, the Presidency has prepared questions to guide the debate, which will focus on the interaction between the energy, climate change and competitiveness agendas; the role of sustainable energy sources and technologies in helping to achieve climate change objectives; and, following publication of the Commission's Green Paper on energy efficiency, member state priorities for measures to be taken forward in the forthcoming EU energy efficiency action plan (EEAP) to be adopted in 2006.

These two items will take up the bulk of the Council's time.

The third and last item consists of information from the Presidency and the Commission, and comments from Ministers, on the EU's international energy relations—the EU-Russia energy dialogue, the South East Europe energy treaty, the EU-OPEC dialogue and the energy charter treaty. Although discussion may be brief, we hope it will underline the importance of this subject for the EU's security of energy supply. The UK can point to some successes in this area during our Presidency. We hosted an energy Permanent Partnership Council on 3 October, which gave impetus to the EU/Russia energy dialogue; progress on the South East Europe energy treaty was such that it was signed by Ministers in Athens on 25 October; an EU-OPEC ministerial meeting will be held on 2 December and negotiations on the transit protocol to the energy charter treaty are continuing. All these initiatives help to promote producer/consumer understanding and enhance energy transit and market opening.

The Highways Agency has an important role in delivering the successful management and operation of the strategic road network. It fulfils this role on behalf of the Secretary of State and the Agency's relationship with the Department for Transport is covered by a framework document.

The framework document sets out the roles and responsibilities of the Highways Agency, its chief executive and how he will work with the Secretary of State and the Permanent Secretary of the Department for Transport. The previous framework document dated from 1999 and was due for revision.

The framework document has been revised in accordance with Cabinet Office guidelines and has been approved by the Chief Secretary to the Treasury. Today I have placed copies of the new Highways Agency framework document in the Libraries of both Houses.

The professionalism and dedication to duty of the British Transport Police (BTP) was illustrated to the full by their response to the terrorist attacks in London on 7 and 21 July. The Government appreciate the highly professional capability demonstrated by the BTP.

Following discussion with the chief constable and the chairman of the BTP Authority, it is clear that the BTP incurred substantial costs as a result of their response to the attacks. I have therefore agreed to make a contribution of £3.6 million to the funding of the additional costs incurred. This sum covers the costs of overtime, accommodation and other overheads. It will also contribute to the costs of CCTV viewing equipment for speedy analysis of CCTV images.

BTP have confirmed that further additional costs associated with the failed bombing attempts of 21 July and other operations directly related to the July attacks are to be absorbed within BTP's existing budget.

However, this one-off payment does not prejudice the general principle that it is the rail industry that is responsible for funding the BTP. Any future request for central funding will only be considered on the merits of the case.

In July 2004, I took the decision to withdraw funding for the South Hampshire rapid transit (SHRT) scheme because of excessive cost increases. Since then, the scheme's promoters, Portsmouth city council and Hampshire county council, have put revised proposals to the Department.

I have considered very carefully all the new information provided by the promoters. The promoters have succeeded in reducing the cost of the tram schemes below last summer's level. However, costs remain significantly higher than those the Department approved.

The latest tram proposals are still very expensive—costs are nearly 50 per cent. higher than originally planned. This is for a reduced scheme which places more of the risks with the public sector. I therefore cannot support requests to re-instate the SHRT proposal.

The scheme was given full approval in 2001 with a cap on the public sector funding of £170 million, present value terms at 2003 prices. Following receipt of bids that greatly exceeded the approved public sector cost, the promoters put forward an alternative proposal in late 2003 removing the proposed cycle shuttle and introducing revenue risk sharing. But the public sector funding remained £100 million more than we had approved.

The promoters' latest proposal requires public sector funding of £214 million in 2003 present value terms. Cost savings were achieved by removing the short loop proposed for Fareham and changing the proposed procurement, with less risk transfer to the private sector. This is a 26 per cent. increase above the previously approved amount. However, this simple comparison does not give a full picture because:

These figures are the total value in 2003 of the required public funding, at 2003 prices. In 2005, at current prices, the value would be £253 million—nearly 50 per cent. above the approved cap. And this is still a present value figure, so it understates the cost increase in cash terms over the life of the scheme.

But it is the cash costs that count. The current proposal would require £93 million of capital grant and a total of £581 million in annual payments, associated with the PFI credits, up to 2036. The original proposal required grant of £75 million, and £244 million in annual payments to 2033. The cost to Government have therefore more than doubled, from £319 million to £674 million, over 36 years.

I appreciate that the promoters have made every effort to reduce the costs of the scheme. However, it is clear that costs remain significantly higher than those that I previously approved. In the light of all the information, I cannot support requests to re-instate the SHRT proposal.

On 13 June this year, I said that the £170 million Government funding that had originally been approved for Merseytram remained available if the scheme could be delivered at that cost.

Since then we have had regular discussions to secure the necessary funding commitments from the Merseyside districts, over which Merseytravel has powers to levy funds, to give confidence that the scheme would be delivered without further requests for Government funding. Unfortunately the required assurances have not been forthcoming. I have therefore decided that this scheme cannot proceed.

Merseytram Line 1 was given provisional approval in December 2002, at a public sector cost of £225 million, and with a cap of £170 million on central Government contributions. Costs subsequently increased, and Merseytravel advised the Department in May 2005 that the total public sector cost was £315 million—an increase of 40 per cent. This was for a scheme that was smaller in scope than the one we had approved.

This led to my announcement on 13 June 2005 that the Government would not increase its contribution to the project. However, our position has remained clear that the previously committed £170 million was available if the scheme could be delivered at that cost.

Since June, the Department's key concern has been to ensure that there would be no further requests for Government funding. To this end, the Department needed assurance that the districts, as the ultimate flinders of any shortfalls, had properly considered the risks, and accepted the consequences of the Government's contribution being capped. This logically meant that there should be no cap on the contribution from local sources. We made clear in July 2005 that we would need written undertakings from the Merseyside districts to this effect.

Since then, the Department has tried to help the authorities find a way forward. In September 2005 it became clear that not all of the Merseyside districts would be prepared to give such undertakings. We agreed to consider a proposition that Liverpool and Knowsley, as the principal beneficiaries of the project, would provide assurances that they between them would meet any cost overruns or funding gaps. We have also agreed to requests to extend the deadline for a decision.

We have also said that our requirements would be satisfied by an arrangement under which the two districts would enter a back-to-back agreement committing Merseytravel to take the risk above a certain level, as long as the districts' commitments to the Department were unconditional. This approach could address district concerns about the prudence or lawfulness of providing unconditional commitments to the Department, provided that they satisfied themselves that they could rely on the agreement with Merseytravel.

The Merseyside authorities have now had four months to deliver these commitments, but they have not been prepared to do so. What the districts have offered is a capped commitment, whereby Liverpool and Knowsley would bear costs up to £24 million. Above that level, they have asked us to rely on assurances from Merseytravel.

However, Liverpool city council has recently received written legal advice that it would not be prudent or lawful for Liverpool to rely on Merseytravel assurances about the risk of cost overruns without a proper independent due diligence exercise.

If Liverpool's own legal advice is that it cannot currently rely on Merseytravel assurances, then clearly it is not reasonable to expect the Department to do so.

Liverpool's advice is consistent with our view that there is nothing inherently unlawful in an unconditional district undertaking. What is preventing the districts from providing the commitment letters we have requested is that they cannot be confident in Merseytravel's assurances.

Our requirements have been clear since July. We have now had months of discussion with Merseyside. They have had plenty of time to undertake the necessary due diligence work. However, it is unfortunately clear that the districts are not prepared to give us the assurances we need; so we cannot be confident that there will be no further requests for funding. I have therefore decided that the scheme cannot proceed.

I recognise that transport investment is needed in Merseyside to support future growth in the area. We have committed over £200 million to transport improvements in Merseyside over the last five years, and we intend to continue to support good value schemes in the area. The Department stands ready to work with Merseytravel and Merseyside authorities on a package of transport improvements for Merseyside, especially improved public transport in the areas that would have been served by Merseytram. Funding will be there for the right proposals.