To ask the Secretary of State for the Home Department if he will make a statement on the new managed migration points system for work permit holders.

I am today publishing the Government's response to the recent consultation on a new points-based system for managed migration. This is being published as "A Points-Based System: Making Migration Work for Britain", and copies are available in the Library.

I am very pleased to be able to publish our detailed policies for a new managed migration system, which are a result of an intensive consultation process involving face-to-face contact with 1,200 stakeholders, as well as 517 written responses. The United Kingdom needs a world-class migration system to attract the brightest and best from across the world, while being robust against attempted abuse. The new system will give employers and educational institutions a stronger role in the managed migration system, and will introduce a more transparent and objective method of points-based structured decision making, which will significantly improve the quality of decision making and reduce the opportunities for abuse.

I thank my right hon. Friend for his statement and welcome the Government's attempts to simplify a complicated system. However, I remain gravely concerned that the new scheme will not address certain skills shortages in some areas—for example, chefs in south Asian restaurants. There are 10,000 south Asian restaurants in Britain, contributing £3.2 billion to the British economy, and there are 20,000 vacancies. The scheme will not address their problems. Today, the Home Secretary has also abolished the sector-based scheme for certain quotas. I welcome his commitment to EU labour markets, but the people coming to the UK under the EU enlargement process take employment in those areas for only a short period and then move on quickly, creating even longer periods for vacancies in the sector. Will my right hon. Friend give the House an assurance that there will be the longest possible transition time, that the scheme will be monitored carefully and that if there are any problems with it he will report them to the House immediately so that a new scheme can be instituted?

As the House knows, I very much respect my hon. Friend's contribution on these matters and am keen to agree with him on the best way to introduce our proposals, but I have to say that on this narrow question I do not really agree with the substance of what he says. If there are skills shortages in the catering sector, and I certainly believe that there are—my personal catering adviser, Delia Smith, tells me that we are about 10,000 catering staff short—

Is that the right hon. Gentleman personally?

No. Personally, I am well looked after from the catering point of view, including in south Asian restaurants in my constituency.

On a more serious level, there is an important issue to address—skills development for catering. Centres for vocational excellence, including those in my constituency, are doing some strong work on that. The correct route, if there are skills shortages in south Asian catering, is to invest in skills development in that sector. I said so in Leicester some time ago to develop that precise area. We will of course monitor the situation closely, as my hon. Friend suggests, and we will do our best to make sure that if problems arise they are dealt with, which is why the skills base panel will assess the need for skills throughout the sector.

As I live next door to a south Asian restaurant in my constituency, I am tempted to stick to the fairly narrow point made by the hon. Member for Leicester, East (Keith Vaz), but we should widen the discussion. We welcome the principle of a points-based system for economic migration. We have been calling for one for some time because we believe that a firm, fair, controlled immigration system is best for people who want to come here and best for people who already live here.

The introduction of the new system is an implicit admission that the current system has failed. The Government have no control over our borders and no proper information about the most basic facts and figures. For instance, they thought that about 13,000 people would come here from the new EU member states, but in fact 200,000 come here every year. They also have a history of grand announcements on immigration, such as the plan to remove 30,000 failed asylum seekers a year, which win a day's headlines but are then quietly dropped. I hope that the new system will be an improvement, but I wish to ask the Secretary of State a few helpful questions. First, what is the cost of setting up and running the system—or at least the current Home Office estimate? Does he agree with his predecessor, who said that there was "no obvious upper limit" to immigration into this country? If not, is the new system designed to increase or reduce the numbers coming here to work? Under tier 3 of the system, which applies to low-skilled migration, the document says that there have been concerns that employers should be required to recruit from the domestic labour force first. Do the Government intend to enforce that requirement?

At the heart of the system is the skills advisory board, which decides how many people can come in under tiers 2 and 3. Why are the Government only considering the skills aspect, which means that other vital factors, such as the increased need for new houses and extra pressures on public services, will not be taken into account? There is no discussion of those absolutely central issues in the document. Why not? We may know the answer to that question. There is much common ground on the principles. We all want a civilised and credible immigration system, but there are serious questions about the plan. We wish it well, and we hope it does not go the way of previous failed Government immigration policies. This country needs a properly controlled immigration system and we will support measures that genuinely bring that about.

I am grateful for the hon. Gentleman's best wishes, and I congratulate him on abandoning "Fantasy Island" policies, including withdrawal from the United Nations refugee convention and the absolute ceiling on numbers, both of which were authored by his right hon. Friend the Member for Witney (Mr. Cameron) in the Conservative manifesto at the last election. As for the points made by the hon. Gentleman, the cost will be subject to a tendering process, which is exactly the right way for any Government to proceed. As for whether the measure will increase or reduce the number of people, it is important to acknowledge—I think that the hon. Gentleman does so in his article in The Observer—that migration to work and migration to study are important to our economy and society, so we should welcome and encourage them. Illegal migration, however, is not acceptable, which is why the system is in place.

On the proposal that employers should be required to recruit from the domestic work force first, our straightforward position is that we encourage people to work, both from this country and from the European Union. If people come from outside that area to work, they should do so on the basis of this country's national priorities. It is therefore right to set skills as the top issue. It is because skills are absent in this country that we need to say that we should draw in people with the skills to fill the gaps. That is why the skills advisory board plays an important role. It does not decide what happens in tiers 2 and 3 but, none the less, it is an important advisory board.

Can my right hon. Friend say more about the basis and procedure for determining what counts as a skills shortage? In relation to his argument that we ought to be training people in the United Kingdom to fill vacancies, does not that argument apply equally to all areas of skills shortage? Can he therefore give me an assurance that south Asian catering workers—would-be chefs—will be treated no less favourably than anyone else?

I can give my right hon. Friend that assurance, and I agree with him completely. We should look at skills in the round, and if there are particular sectors where there are skills shortages, for example, south Asian chefs—I cite that example because our hon. Friend the Member for Leicester, East (Keith Vaz) raised it—that is the area where we need to develop the skills capacity to deal with it. In his role in developing skills in the economy over recent years, my right hon. Friend made a major contribution in that regard. It is precisely because that work has been done that we can, in the document published today, talk about a skills advisory body based on that knowledge, which enables us to take it forward. That is the central issue that we must address, as we will do. It is important that we monitor it throughout because the way in which the skills advisory bodies will work is based on the sector skills councils, each of which has an analysis for its sector of the strengths and weaknesses of labour supply in its part of the economy. That will inform the judgments that are made about migration into the UK and points to be allocated on that basis.

I, too, on behalf of Liberal Democrat colleagues give a cautious welcome to the announcement. Anything that takes the politics out of the immigration system and introduces a degree of objectivity to a system that has too long been plagued by subjectivity and arbitrary criteria is welcome. However, I have questions about two aspects. If I had been longer in my present position, I would probably have a longer list of question, but as I have not been, my questions are blissfully short. [hon. members: "Oh."] I thought that might elicit a positive response in all parts of the House.

First, the credibility of the system will necessarily hinge on the operation of the skills advisory board. Could the Home Secretary provide more detail on the composition of the board? An assumption has been made in the past that employers' organisations, trade unions, the public sector and the private sector would all be represented. The composition of the board is essential to ensure the right balance in an assessment of skills. Is it the right hon. Gentleman's expectation that the skills advisory board would try to pin down quotas—a specific quantification—for the skills in each sector? If so, that would have a great effect on the operation of the new system.

The second aspect on which I seek clarification is the effect that the system will have on the immigration of unskilled labour. If the purpose is to make the immigration of skilled labour more organised, we hope that that will not have an unduly restrictive and punitive effect on sectors that still need unskilled labour. In certain parts of the country fruit pickers are short of unskilled labour and, as we saw in Morecambe Bay last year, excessive amounts of unskilled labour going under the radar would lead to exploitative behaviour by employers.

First, I welcome the hon. Gentleman to his role. The longer he is in the role, the shorter his questions will be, in contrast to the way some parties operate. I look forward to working with him.

On politics and subjectivity, we will never remove politics from this area of national life, but I agree that objectivity and transparency in the system are exceptionally important. The system is intended to raise the quality of decisions. I hope that we can work together to ensure that the national debate on these matters is conducted in constructive and positive terms, rather than in the terms in which it has sometimes been conducted in the past.

On the hon. Gentleman's particular questions, the skills advisory board will be directly related to the sector skills councils and therefore the Sector Skills Development Agency, which organises and develops those councils. It will also directly involve trade unions and business in a wide variety of sectors that will report directly to the board. I think that many hon. Members are still not fully aware of the developing role of the sector skills councils and the way in which they are drawing in employers, vocational trainers and employees in each area. As they develop their work, they will be able to give detailed assessments of the skills shortages in their sectors. That is unlikely to lead to quotas in the sense of specific numbers, but it is likely to lead to information that will help the system to decide how many points should be allocated to people with particular skills in certain areas.

That, too, will be the principle on the unskilled labour side, which will particularly inform tier 3 of our five-tier system. It will address the lack of skills in those sectors just as in all the others. As a former Secretary of State for Education and Skills, I would say that the right response to unskilled labour is to develop the quality of our skills training across the whole range.

Will the Home Secretary, in conjunction with the Secretary of State for Work and Pensions, take a hard look at employment agencies that are recruiting and importing large numbers of workers from eastern European states, exploiting them by charging them for every conceivable service, leaving them with very little of their own money, and suggesting that there is an enormous pool of unskilled jobs to be filled in the United Kingdom? That is not in anyone's interests and does this country's reputation enormous harm.

I am rather shocked to say it, but I agree with every word of my hon. Friend's remarks.

I will not tell anyone.

My hon. Friend is notable for her reticence, so I am sure that we can be confident that nobody will discover this unaccustomed level of agreement.

It has been a scandal in many parts of our national life that people have been able to work illegally in a system where people are drawn in from across the world to work in the most appalling and exploitative circumstances. My hon. Friend is right to say that that needs to be addressed. It was a central theme of the five-year strategy that we published last year. The gangmaster legislation has also been important in this regard, and we have published proposals jointly with the Department of Trade and Industry, the TUC and the CBI. The system is working better now, and we have had a significant number of arrests and convictions in precisely the areas that my hon. Friend describes. However, she is entitled to press still harder to ensure that we enforce the existing law in the most rigorous way. As she suggests, there is still a long way to go.

The Home Secretary will be aware of the importance attached by large areas of the agricultural and, in particular, horticultural industries to the role of unskilled seasonal workers in the harvesting of perishable crops. Can he assure me that those arrangements, which have worked successfully under the seasonal agricultural workers scheme, will not be materially affected by his proposals?

I cannot give that absolute assurance. I have discussed the matter at length with my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs, and we have agreed that by 2010 the scheme that the hon. Gentleman mentions would be wound up and the system that applies everywhere else would be in operation. I can give him the assurance that he seeks until 2010—[Interruption.] I am advised that we will not be in government then, to which I would say, "Wait and see." Beyond that, I can give the hon. Gentleman the assurance that we continue to monitor the situation closely in conjunction with the farming communities and the agricultural industry, and that my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs and her colleagues keep it under review.

The whole House welcomes the Government's efforts to improve the system and to bear down on abuse. However, I return to the point made by my hon. Friend the Member for Leicester, East. The south Asian restaurant sector, which is only tiny, has the particular problem that even top-quality chefs on the sub-continent are unlikely to have paper qualifications the like of which this scheme turns on. Equally, they are less likely to be in large sector-based organisations to make their case. All that we asking is that the Government pay particular attention to that sector so that our Indian, Thai and Chinese restaurateurs may be assured that the Government understand the significance of their sector and the contribution that they make to the quality of life in our big cities.

I can give two assurances. First, the Government understand the importance of the sector. My hon. Friend the Member for Leicester, East gave some important figures about the economic contribution of its members to the economy. It is fair to say that that contribution is not only to our economy, but to the breadth of our society and culture. I therefore give the assurance that my hon. Friend seeks and stress that we will continue to monitor the position closely. The real answer is investment in people in this country to develop their skills. The Government are committed to making that happen.

rose—

Order. May I say to the Home Secretary that I know that he is trying to make eye contact with the questioner, but it means that he loses contact with microphone?

The House, I am sure, applauded the Home Secretary's comment about the need, in the first case, to train people locally. In the light of the quadrupling of the number of work permits since the Government took office, from approximately 40,000 a year to about 160,000, will he answer the question of my hon. Friend the Member for Ashford (Damian Green) about what that means for overall numbers?

I am delighted to have eye contact with the hon. Gentleman. I cannot and will not answer the question because it derives from a proposition that, somehow, migration to work and study here is undesirable. I do not accept that. If one were to talk to people from many sectors of the economy, they would say that they welcome and need migration. I accept that it is necessary to tackle illegal migration and people who try to evade the system in various ways. The new system is designed to address that. It does not signpost a specific number—up or down—of people who migrate here to work or study. One of the reasons for the country's opposition to Conservative party policy at the general election was that people clearly understood that one could not simply pick some arbitrary number, but that the system had to be run well and effectively. The proposals are designed to achieve that.

The Home Office expects the largest number of people who come here to do so under tier 2. The document states:

"Applicants will need to have a job offer from an employer who is registered with the Home Office on a list of approved sponsors".

How will that system of approving sponsors work? One could envisage many small organisations and companies, such as the restaurants that have already been mentioned, wanting to bring in a skilled employee. I hope that the system will be neither bureaucratic nor without an appeal mechanism for someone who is refused inclusion on the list of approved sponsors.

I can strongly assure my hon. Friend that the proposal is not intended to be bureaucratic. Indeed, the reverse is true. We want to work in partnership—perhaps a new word for the Home Office in the context that we are considering—with large and small employers and universities, who ask people to come here to study and get much of their business from it, to administer and run the system in a non-bureaucratic way, thus resolving many of the problems of people needing to extend or change matters, sometimes using 80 different lists of migration routes into the country. I give my hon. Friend an absolute assurance that we will guard against a bureaucratic approach and work with large and small employers to make the system work effectively.

Does the Home Secretary accept that there must be some limit on the overall number of economic migrants every year because of the pressure on water resources, transport capacity, housing and land, or will he tell us how those problems can be solved so that we can have unlimited economic migration?

A similar argument could be made for limiting by state diktat the number of people born every year. The country will operate on the basis of the number of economically active people who are in this country. Migrants fall into that category and they should and will contribute to the country's economic development, rather than the opposite. I know that the right hon. Gentleman acknowledges that that is the case in general. I hope that he agrees that our focus should be to stamp out abuse of the system rather than simply stopping people migrating here.

Speaking as one who represents an inner-city seat in Leeds, may I offer the Home Secretary a warm welcome for his proposals? I also congratulate the Home Office on the extent of the consultation that has taken place on these measures. In the document, it is suggested that applicants will start at the first tier and move through the tiers. Will the Home Secretary tell the House how long it might take someone to go through that process and finish the scheme? What will happen to applications in the meantime?

I am grateful to my hon. Friend for his support. I know that, from his knowledge of Leeds—one of the great cities to have benefited from migration over the years—he will agree with what we are trying to achieve. We envisage a time scale of between 18 months and two years for implementing the whole process. We will simply go through the process stage by stage, steadily implementing the proposals, if they get the support that will enable them to be carried through in every part of the country, as I believe they will.

Does the Home Secretary acknowledge that no sane plan can work unless we curb the activities of illegal gangmasters, snakeheads and organisations such as 14K? Does he also acknowledge that that will require better security and intelligence at our regional ports and airports?

The House will be shocked to hear that I agree that the activities of gangmasters and snakeheads are antisocial and should be driven out. The answer to the hon. Gentleman's question is that we will go through this whole approach policing rigorously the system to deal with organised crime. As I said to my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody), measures to deal with people trafficking are a central priority in the system, and we shall carry that proposal through.

The Governor of the Bank of England, among others, has stated that immigrant labour has been essential to maintaining the buoyancy of our economy. Will the Home Secretary ensure that those workers who come here and make a contribution can stay for as long as possible? Will he also take the opportunity to work with vice-chancellors to ensure that people from China and India who can provide graduate skills can stay here, perhaps using a similar system to the American green card, to make a contribution to our economy?

Yes, I can give my right hon. Friend that assurance, provided that the contribution continues to be made. The important thing for everyone who migrates here is that they should continue to make a contribution. Working together with businesses and universities is the best thing for us to do, because they are best able to guarantee that that contribution is being made.

As the Home Secretary knows, the Council of Europe Migration Committee, on which I am happy to serve, is looking at these issues in considerable detail. I warmly welcome what he has said—these are some of the most challenging issues for the Government, and it represents a great step forward that we have all-party consensus on these proposals. I particularly agree with the comments of the hon. Member for Crewe and Nantwich (Mrs. Dunwoody). Sadly, there is a great deal of evidence of abuse of migrant workers, not only irregular migrants but those who are here legally. Will the Home Secretary give the House an assurance that, across Government, those abuses will not be tolerated, and that these people will be given the welcome that they deserve?

First, may I pay my respects to the work that the hon. Gentleman has done in this field? I strongly agree that achieving cross-party consensus on this matter is the best way to proceed, and I am grateful for what he said on that. I can absolutely give him the assurance that he seeks. I had a press briefing earlier today with the TUC and the CBI, both of which are utterly committed, with the Government, to maintaining precisely the civilised standards of employment that are a requirement that should operate for everyone in this country. I acknowledge, as I did to my hon. Friend the Member for Crewe and Nantwich (Mrs Dunwoody), the fact that there remains a great deal of work to be done in this area. However, we are all committed to moving in the same direction.

I want to add my welcome to the new proposals, not least because they will enable us to crack down on the abuse of the immigration system in this country, just as past and present measures have enabled us to crack down on the abuse of our asylum system. The new proposals will involve the reintroduction of embarkation controls, which the Tories abandoned in 1994. How does my right hon. Friend propose to reintroduce embarkation measures in busy ferry ports such as Dover without interrupting the essential flow of traffic and people?

There are two things to say about this. The first is that one of the effects of the scheme will be that it will be much easier to make applications internationally, so that many people seeking to enter the country who might previously have arrived at Dover will not need to go anywhere near it, because they will already know where they stand, the decision having been properly made in the country from which they come. The second, more substantive, answer to my hon. Friend's question is that our e-borders proposals, which we have already published, and the development of biometric documentation will enable us to address these questions at ports such as Dover much more effectively.

I warmly welcome the move to a points-based migration system. Paragraph 111 states that the UK skills advisory body will publish

"a Scotland-wide Shortage Occupation List."

Given the recognition of specific problems in Scotland and the comments published by CBI Scotland, would it not make more sense for the Scottish shortage occupation list to be developed fully by the Scottish Parliament? Will the Home Secretary consider that during the passage of any legislation?

If the hon. Gentleman is suggesting, as I think he is, that we should change the law to devolve migration issues to Scotland, I am afraid that I cannot agree. We believe, I think rightly, that this is a UK-wide issue. I am glad to say, however, that we are working closely with our colleagues in the Scottish Executive. We consider its fresh talent initiative to be a positive contribution that sits within the frame of the document. However, I think that it would be a grave mistake to establish key labour-market issues simply on a Scotland-England, or indeed a Scotland-England-Wales, basis. It should be done on a UK basis, and we will ensure that that continues.

I share many of the concerns raised by my hon. Friend the Member for Leicester, East (Keith Vaz), among others, about the effect of the scheme on south Asian restaurants. The Home Secretary seems to be suggesting that the problem will be solved by the provision of more training, but Milton Keynes has a dynamic local economy in which plenty of other jobs are available, providing much more attractive hours and conditions than those in the catering trade. I fear that if the supply of labour from the sub-continent is not allowed to continue many restaurants in my city will close, to the detriment of those in my constituency, including me, who enjoy them as part of a range of restaurants there. Will my right hon. Friend assure me that he will keep the matter under review and will be able to act quickly if the fears raised by my hon. Friend and others prove to be justified?

I can certainly give that assurance. As I said in answer to my hon. Friend the Member for Leicester, East (Keith Vaz), we will indeed keep the matter under close review. As I have said, however, what we want in all our productive industry—including the service industry, which involves catering—are high skills, high wages and high productivity. That is what we should seek to achieve, in those sectors as well as others. Individual businesses and shops that keep going on a basis of low skills, low productivity and low pay do not represent the future of this country in the most effective way. That is why I have returned consistently to a central theme of the points-based system, namely, the skills basis for assessment of skills shortages.

That said, I accept my hon. Friend's point completely. We certainly do not want to cause serious damage to a very important sector of the country's economy and society. That is why we will keep the matter under close review.

Given the new responsibilities that the policy will place on Her Majesty's diplomatic service, will the Home Secretary be having words with his colleagues in the Foreign Office to stop the closure of British diplomatic missions and embassies across the world?

We have worked extremely closely with our colleagues in the Foreign Office, and I have discussed the issue with my right hon. Friend the Foreign Secretary on a number of occasions. The main agency, UKvisas, is a Foreign Office agency, but works closely with the Home Office in providing a service throughout the world.

I was in some north African countries last week, discussing precisely this question. It is possible to outsource some of the work in certain circumstances. It is also possible, by means of the distance approaches established by the points-based system, for many applications to be made online in a very direct way. My answer to the hon. Gentleman's question is yes—we will continue to work closely with the Foreign Office to ensure that the service is available as widely as possible.

I beg to move,

That leave be given to bring in a Bill to exempt small and medium-sized enterprises from regulation; and for connected purposes.

Small business makes an immense contribution to the economy. Small enterprises—those with fewer than 50 employees—make up over 99 per cent. of all businesses and half all employment. As the economy moves toward higher, value-added activity, the share of it taken by small firms will only grow, so the weight of regulation now pressing on small businesses and hindering their wealth creation is an issue for us all. The Better Regulation Commission has estimated that the total cost of regulation facing the economy is now some £150 billion. The Hampton review found that national regulators alone send out 2.6 million forms a year.

Inevitably, this burden falls disproportionately on small businesses. Large companies are able to employ people to deal with regulation; small businesses simply do not have that option. Academics from the London School of Economics have found that regulatory costs per employee are five times higher for small firms than for larger ones, that small employers spend five times as many hours per employee dealing with regulation, and that they spend almost 5 per cent. of their annual turnover on compliance. Equally, the Federation of Small Businesses has shown that the administration of pay-as-you-earn costs a business with fewer than five employees £288 per employee per year, yet for a firm with 5,000 employees, the cost is just £5 per employee. The Government's Carter review concluded that

"there is no doubt that the weight of payroll obligations falls disproportionately on small businesses".

Other regulations of particular concern to small businesses include the quarterly VAT return, the very frequent inquiry forms from Government Departments and the Office for National Statistics, and the new employment regulations, of which there have been 17 since 1997. The growing weight of regulation strongly suggests that the deregulation efforts of successive Governments have not been sufficient. Over the last two decades, the Enterprise and Deregulation Unit has been replaced by the Better Regulation Task Force, which, in turn, has been replaced by the Better Regulation Commission, but still the red tape has grown. The Regulatory Reform Act 2001 has had less than half the predicted impact; the total cost of regulation has increased by 50 per cent. in less than nine years. The Legislative and Regulatory Reform Bill now before the House does not actually refer to deregulation. My hon. Friend the Member for North-East Hertfordshire (Mr. Heald) tabled an amendment to it proposing

"specific provision to reduce the regulatory impact on small businesses where appropriate".

I regret that his amendment did not pass, which helped to persuade me that an entirely new approach is needed.

My Bill would confront the problem of regulation in three ways. First, it would give Ministers a duty to consider alternatives to, and exemptions from, existing regulations affecting small and medium-sized firms, and a power to create those exemptions. Secondly, because the impact of regulation on microbusinesses—those with nine employees or fewer and an average annual turnover of just £130,000—is particularly disproportionate, the Bill would create a presumption that microbusinesses are exempted from any future regulation. That would protect over 4 million businesses from future regulation. Thirdly, in respect of all future regulations the Bill would impose a statutory requirement to carry out a regulatory impact assessment—surprisingly, that is not a current requirement—and to consider alternatives to regulation in doing so.

Many precedents already exist in terms of exempting small businesses from legislation. There are small business exemptions of one kind or another relating to tax and VAT returns, statutory audit requirements, trade union and employee representation, stakeholder pensions and Sunday opening hours. Other developed countries have also adopted the practice of exempting small businesses from regulation. Last year, France deregulated firms with fewer than 20 employees in order to encourage higher youth employment. In Italy and Germany, there are small business exemptions relating to statutory audit requirements, and trade union and employee representation. There are also numerous examples of small business exemptions in many states of the United States of America.

This idea would be popular with businesses themselves. Last year, a Federation of Small Businesses survey found that 80 per cent. of small businesses support regulatory exemptions for the sector. The federation is in favour of the principle of exempting small businesses from regulation wherever possible, and it is particularly supportive of the idea of placing a duty on Ministers to consider alternatives to regulation. However, it is not just commercial enterprises that would benefit. Small charities, which often rely on voluntary help, find coping with regulation particularly difficult. My right hon. Friend the Member for Witney (Mr. Cameron) has proposed social enterprise zones with lower regulation, in order to assist in the development of the voluntary bodies that can play such an important part in delivering support to our most deprived communities.

The Bill is a balanced measure that would not automatically abolish existing regulations for small and medium-sized businesses such as those affecting the rights of disabled people in the workplace, or, indeed, other employment rights. It would simply give Ministers a duty to consider alternatives to regulation, and suitable exemptions. They would then have a power to create such exemptions, subject to proper parliamentary approval. Similarly, in relation to microbusinesses, Ministers and Parliament would still be able to override the presumption of exemption from regulation if they so wished.

The idea of exploring alternatives to regulation is simply to ask whether its benign objectives could be achieved by other means. For example, we should be anxious to maintain strong standards of health and safety, but we should be ready to examine whether they could be achieved through insurance mechanisms for the smallest firms, where the risk to employees is low.

It might be argued that the Bill would create a disincentive for businesses to expand. The Better Regulation Commission considered that question and concluded that there was little evidence to support it. I believe that we should be looking to reduce the regulatory burden on all businesses, but the disproportionate impact on small businesses justifies special measures to help them.

The Prime Minister has argued that

"excessive regulation . . . impairs wealth creation as well as corroding welfare."

The Chancellor has said that much current regulation is "ridiculous", but words are not enough. As CBI deputy director general John Cridland says in a letter to The Times today,

"What business asks is that we begin delivering on deregulatory promises from all parties."

If we are going to be serious about lifting the regulatory burden, a new settlement is needed, creating a presumption of deregulation for the smallest businesses, placing the burden of proof on the regulator, while maintaining proper parliamentary scrutiny of the process. That is the purpose of this Bill.

Question put and agreed to.

Bill ordered to be brought in by Nick Herbert, Mr. Richard Benyon, James Brokenshire, Greg Clark, Mr. David Gauke, Mr. Greg Hands, Mr. Adam Holloway, Mr. Nick Hurd, and Mr. Shailesh Vara.

Small and Medium-sized Enterprises (exemption from Regulation)

Nick Herbert accordingly presented a Bill to exempt small and medium-sized enterprises from regulation; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 16 June, and to be printed [Bill 140].

I beg to move,

That the Order of 25th January 2006 (Merchant Shipping (Pollution) Bill [Lords] (Programme)) be varied as follows:

1. Paragraphs 4 and 5 of the Order shall be omitted.

2. Proceedings on consideration shall (so far as not previously concluded) be brought to a conclusion two hours after the commencement of proceedings on the motion for this Order.

Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings on the motion for this Order.

Given the expedient way that we dealt with this Bill in Committee, I have no doubt that we can do equally well in the two hours that we have allowed for the small number of amendments selected, and the hour for Third Reading.

I share the Minister's confidence, but want to put on the record that it is an extraordinary testimony to the Government's control-freak tendencies that we should have a programme motion when there is so little business to get through. However, I do not oppose it.

Question put and agreed to.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss amendment No. 5, in page 3, line 2, clause 2, after 'ships)', insert

'and any subsequent review of Annex VI agreed by the International Maritime Organisation subject to an order in Council laid before and approved by resolution of each House of Parliament.'.

Annex VI of the MARPOL convention extends pollution control of shipping to include air pollution for the first time. Although it is admitted that pollution from ships is small compared with other sources—with 4 per cent. of sulphur dioxide emissions and 7 per cent. of nitrogen oxide emissions—it nevertheless has a significant effect on our environment.

Aside from the Malacca straits, the waters around the UK are the busiest in the world. It is predicted that by 2020, the size of the merchant fleet will have doubled and the size of ships is steadily increasing. It is also estimated that the provisions contained in the annex will save £3 million a year in damage to buildings and structures from SO 2 emissions, and the reduction in ozone emissions will result in 20 fewer deaths and savings of £26 million a year.

The official Opposition have little problem with new clause 1. The MARPOL convention is a cornerstone of international maritime regulations and we welcome being provided with more information on it. We should remember that shipping is arguably the greenest method of transport. In ball-park terms, goods going by sea in a typical bulk carrier cause one tenth the emissions of CO ₂ of an equivalent crate of goods going by land. Abiding by the MARPOL convention will make that difference even greater.

The publication of the report will add an incentive to ensure inspections are carried out regularly and will essentially name and shame any offenders. I hope that the convention will also encourage shipping companies to follow the example I gave on Second Reading of P&O's The Pride of Kent—I approve of the name, as I am sure does the Minister, given that he represents South Thanet—which has seen its sulphur emissions slashed to zero and its nitrogen oxide emissions down by four fifths since the introduction of a newly invented water scrubber. The more technology is encouraged in this area, the faster we will see our emissions fall.

As far as I can tell, the hon. Member for Rochdale (Paul Rowen) has got into a bit of a muddle with amendment No. 5. The intention is to ensure that revisions to the treaty cannot be incorporated without an Order in Council following a debate in the House. That is not, in fact, what the amendment would do.

The advice that I have been given is that the amendment would allow the Government to amend the treaty without recourse to a full Bill. I see the Minister nods in agreement. When even the Government who proposed the Legislative and Regulatory Reform Bill, which is designed to bypass parliamentary scrutiny on a range of issues, do not require further extra parliamentary powers on this issue, I am strongly disinclined to give such a power. I cannot believe that that is what the hon. Gentleman intended, and I am certain that he will not want to press the amendment to a vote.

I am grateful to the hon. Member for Rochdale (Paul Rowen) for his interest in the Bill, and I assure him that I understand what he is trying to get at. The Government take every bit as seriously as he does the need to enforce the national legislation that implements the MARPOL convention and its annexes.

We take any breach of the MARPOL convention very seriously. Of course, when we find that someone has breached the convention, we prosecute them, and information on all successful prosecutions are put on the Maritime and Coastguard Agency's website. What the hon. Gentleman is asking the Government to do in the new clause represents a disproportionate response—we are already doing what he suggests. It would be much more efficient if those people who were interested in such information simply referred to the MCA website, where successful prosecution are always listed. Of course, unsuccessful prosecutions, where they do occur, would not be listed there. However, since 1997, no such prosecution has been unsuccessful. With the reassurance that the information is put in the public domain, that we take all breaches seriously and that we will ensure that they continue to be put in the public domain, I hope that the hon. Gentleman will agree that making another report to Parliament would not be a good use of resources and therefore that he will be happy to withdraw the motion.

The hon. Member for Canterbury (Mr. Brazier), who is my parliamentary constituency neighbour, was absolutely right about amendment No. 5. I obviously do not know what was in the mind of the hon. Member for Rochdale when he proposed the amendment, but it would make it unnecessary for us to introduce primary legislation to implement any future revision of annex VI of the MARPOL convention. I certainly do not want to quarrel with his aim in any way at all—I certainly would not want that to be done by primary legislation—but he is probably not aware that, by virtue of clause 2, an entry for the protocol that adds annex VI to MARPOL is inserted in the list of agreements covered by section 128(1) of the Merchant Shipping Act 1995. Consequently, the amendment is redundant, because the Bill—in combination with the 1995 Act—will achieve the required effect. I hope therefore that the hon. Gentleman will be happy not to press the amendment to a vote.

I should like to respond to a couple of the points that have been made. The Minister rightly says that successful cases are published. My noble Friend Lord Bradshaw quoted some statistics when speaking in the other place to show that there were about 500 instances of pollution from ships in UK waters last year, yet only 10 of them went to court. Obviously, we are dealing with a new issue—airborne emissions, which have not been subject to controls previously. I will happily withdraw the motion, following the Minister's assurance, but in proposing the new clause, I was seeking to ensure that there would be some measurement of the extent of pollution and the number of pollution cases that were successfully brought to a conclusion.

With regard to amendment No. 5, the National Environment Protection Council at its 53rd session in July last year agreed that there would be a review of the nitrogen oxide technical code of annex VI, with a view to taking account of revisions and improvements in technology, further to reduce emissions from ships, including particulate matter, and to look at extending emission controls to ships adopting fuels alternative to diesel. That will result in a report in 2007, and as the Minister says that he already has the enabling legislation to let a revision be adopted after that report, I am happy to beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 1 — Power to give effect to revisions of the international arrangements relating to compensation for oil pollution from ships

I beg to move amendment No. 1, in page 1, line 9, at end insert—

'(c) "international agreement" means any agreement adopted by the International Maritime Organisation.'.

With this it will be convenient to discuss amendment No. 2, in page 2, line 26, at end insert—

'(e) make such provision only in concordance with an international agreement.'.

When the sacred chickens failed to eat their grain and give Appius Claudius Pulcher the omens he desired when commanding the Roman fleet against the Carthaginians, he had them thrown into the sea, proclaiming, "Let them drink if they will not eat." I say that not just to suggest that he might have made a good new Labour Cabinet Minister, but to remind people that discharges of one kind of another go back a long way.

The amendments are intended to prevent the use of the wide powers delegated to the Minister by Orders in Council under the Bill to incorporate EU directive 2005/35/EC into British law, or indeed to prevent future Governments from having the ability to incorporate into law by secondary legislation any international treaty that does not enjoy the blessing of the International Maritime Organisation.

There are two issues. First, the directive is highly dangerous to our maritime interests. Secondly, the Conservatives, and much of the shipping industry, from the British Chamber of Shipping to the unions, are strongly opposed to the development of regional agreements instead of proper, IMO-approved international ones. I am aware that the Government are themselves suspicious of the directive, and I am sure that I will receive reassurances in a moment from the Minister that the Government have no intention of adopting it. The amendments are intended to ensure, however, that no future Government—we may have a less maritime-friendly Minister in post at some point—can misuse the term "international agreement" to apply to an agreement between member states of the EU alone.

I am glad my hon. Friend has tabled these amendments. Is not the danger of the EU directive that it introduces the concept of serious negligence? Conservatives believe that people should not be prosecuted for something that they did not intend to do.

Indeed. My hon. Friend is exactly right and echoes the lengthy debate we had on that matter in Committee. We are not allowed to cover exactly the same ground on Report, and Mr. Deputy Speaker would rightly restrain me from doing so, but my hon. Friend is right to say that one of the problems with the directive is that it suggests that criminal sanctions should be brought against people guilty neither of intentional discharge nor of reckless disregard in that matter.

For the benefit of Members unaware of issues behind the amendments, I may say that the European Commission passed the directive last year, and it seeks to criminalise the accidental discharge of oil in the way mentioned by my hon. Friend in cases of "serious negligence". That term is so far undefined in law but major shipping companies fear it will be interpreted strictly, as has already started to happen in France, where it has already been incorporated into law. The consequences of including it in UK law would be grave. Hans van Rooij, president of the International Salvage Union, representing the salvage boats that act as the last line of defence against the kind of catastrophic pollution for which the Bill seeks to compensate, said:

"If a directive introduces the 'serious negligence' concept, salvers will have no choice but to seek immunity before intervening in the waters of EU states with a reputation for aggressive behaviour in maritime accident situations."

That is surely an unintended consequence.

The directive would have a serious negative effect on rescue efforts when ships sink in EU waters and create considerably more pollution in the event of an accident than the Bill will ever prevent. It would also undermine the Government's effort to recruit and retain merchant seamen. Indeed, a joint press release from a coalition of interested parties, which includes the largest cargo and tanker firms, Lloyd's of London and the International Salvage Union, declared:

"The Directive already has had a detrimental effect on the morale of seamen, and this will have adverse implications for the retention and recruitment of high quality crews."

indicated assent.

I am grateful to the Minister for nodding, but he knows that I must put that point on the record in Hansard. I am aware that he swears that the legislation will not be used to implement the directive, and I believe him, but future Ministers will not necessarily share his scruples in similar situations, and the amendment would make it doubly certain that the porthole is locked and bolted.

As I said to my hon. Friend the Member for Kettering (Mr. Hollobone), we are not against criminalising intentional discharge. Appius Claudius, to whom I referred earlier, was condemned to death for impiety. However, accidental discharge does not demand punishment or prohibition unless it is the result of deliberate recklessness, which is especially true of punishment or prohibition conducted by one part of the world without reference to the other maritime states. I commend the amendment to the House.

Britain has a proud maritime history. We were founder members of the IMO and have played a great part in the IMO's development and the adoption of many of the conventions that we now take for granted. I agree with the hon. Member for Canterbury (Mr. Brazier) that in this particular case an EU directive, which is only a regional agreement, should not be allowed to take the place of any international agreement that may come into force. If there is such an EU directive, it should be subject to normal IMO procedures, which is the soundest way to ensure that unilateralism is not exercised by the US or other states. I hope that the Minister will support the amendment.

I am always impressed by the ingenuity that hon. Members use to secure an opportunity to make a specific point that is completely irrelevant to the business on the Order Paper. The hon. Member for Canterbury (Mr. Brazier) should be proud of the ingenuity that he has shown on this occasion, but I do not think that he seriously believes that the Government would use the Bill to put the European directive on the statute book. I am fairly sure that he knows that we could not, even if we were minded to do so. However, he has taken the opportunity to make some important points about the failings and weaknesses of the directive, and I share his view on those.

I assure the hon. Gentleman and the hon. Member for Rochdale (Paul Rowen) that the Government are wholly committed to the IMO and to having maritime agreements agreed internationally. We made that clear during our presidency of the EU in the last six months of 2005, and we are continuing to do so now, as we assist Austria on maritime issues during its presidency—for obvious reasons, Austria's resources in relation to maritime issues are limited. We have made clear our belief that such agreements should only be agreed internationally.

A few weeks ago, when I attended a ministerial conference in Copenhagen, I found unanimity among the maritime nations of Europe on the necessity of such agreements being not regional, but international. One of the pleasures and honours that I have had in the past 10 months as a Minister has been meeting the Shipping Ministers of pretty much every partner state in the European Union. I have found absolute unanimity on that point—complete agreement that we should not impose restrictions on our European fleet that would make it uncompetitive, that we should seek international agreement wherever possible, and that only in the most extraordinary circumstances should we impose in the Union an agreement that has not been agreed by the rest of the international maritime sector.

To put our view on the record, the powers in clause 1 are restricted to the implementation of the supplementary fund protocol and the implementation of instruments that revise or replace the civil liability convention, the international oil pollution compensation fund convention, or the supplementary fund protocol. Each of those instruments was adopted through the IMO and it is inconceivable that they would be amended other than through the IMO. There is therefore no need for the suggested definition of an international agreement in amendment No. 1.

Amendment No. 2 would provide that an Order in Council would only make provision in accordance with an international agreement. Combined with amendment No. 1, that would mean an international agreement adopted by the IMO. I hope that I have already made it clear that there is no scope in clause 1 to give effect to anything other than an international agreement and that such agreements will inevitably be adopted by the IMO.

I hope that I have given the hon. Member for Canterbury the specific reassurance that he seeks. More generally, I assure him that I share his concern that the European maritime sector should remain competitive and that maritime issues should be dealt with through the IMO and not unilaterally.

I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Order for Third Reading read.

I beg to move, That the Bill be now read the Third time.

I thank the House and the Opposition parties for the constructive and helpful way in which they have approached the Bill. It was deliberately made a short and focused Bill to speed its passage through Parliament. The whole House agrees that we urgently need the protection of the legislation. Once it is on the statute book, it will improve greatly the compensation available for oil pollution and give us powers to introduce measures to reduce air pollution from ships.

The international oil pollution compensation fund currently provides up to £168 million of compensation, but, unfortunately, in the case of major incidents such as the Prestige, that amount is not always sufficient. During our consideration of the Bill, the hon. Members for Canterbury (Mr. Brazier) and for Scarborough and Whitby (Mr. Goodwill), for example, noted that compensation payments in respect of the Prestige were for a long time limited to just 15 per cent. of the amount claimed. The IOPC funds have now arranged for payments to be increased to about 30 per cent. of the amount claimed, but, unfortunately, there is no more money available and we know that those claims will never be paid in full.

Even when the overall costs of an incident do not exceed the limit of the IOPC fund, full payment of claims has often been delayed until the full extent of the damage is known and the final costs of an incident can be accurately assessed. Depending on the incident, that process could take months or even years. We experienced such delays following both the Braer and the Sea Empress incidents. With the Bill, I hope that we will not have to face such a situation again.

In Committee, my hon. Friend the Member for Great Yarmouth (Mr. Wright) drew our attention to an incident that occurred some years ago. The Eleni V ran aground in May 1978, spilling 5,000 tonnes of persistent oil, which affected shellfish areas and recreational beaches. I understand that the local authorities incurred considerable costs in responding to the incident and payment of compensation was delayed for three or four years. The IOPC fund entered into force five months after the incident. Had it been in force, I suspect that those claims would have been settled much more quickly. That incident demonstrates the importance of implementing such instruments as quickly as practicable. A delay of months, or just weeks, can have serious consequences, so I am grateful for the support and co-operation that we have received from both sides of the House as the Bill has progressed.

The Government intend to accede to the protocol as soon as possible. We have drafted the Order in Council that will be used to implement the supplementary fund protocol under clause 1. An advanced draft of the Order in Council was sent to all Members who attended Second Reading. Copies were also placed in the Library. The draft order is now undergoing final checks, which will be completed in the very near future so that the order is ready by the time that the Bill receives Royal Assent. I repeat my grateful thanks to the House for its co-operation and commend the Bill's Third Reading to the House.

I, too, am pleased that we are reaching the end of the legislative process for the Bill and I, in turn, congratulate the Minister on the way in which he has handled the proceedings. He was always open with us in Committee and during the earlier stages. Like any good mariner after a long voyage, I am pleased to see the lighthouse ahead and know that the journey is nearly over—and that we have not had any spillage during the process, accidental or otherwise.

Without wishing to introduce a sour note, it is a pity that we have missed another opportunity to slip the Harbours Bill into port as well. It is uncontentious and both sides would have welcomed it. I hope that we will hear from the Minister shortly that the Government intend to schedule a little time for it. That said, it is important that the Bill is passed into law as soon as possible, and I am delighted to hear that that will happen. The crash in the Suez canal just last week involving a Liberian tanker—it was a relatively small affair compared with the incident that the Minister mentioned, but, nevertheless, involved the spillage of 3,000 tonnes of crude oil—emphasises the urgency of the matter.

The two treaties ratified by the Bill are the product of many years of careful negotiating. They have been agreed by the International Maritime Organisation and, although one is not compulsory, have the blessing of the international community as a whole. For the international law of the seas properly to work, it is essential that all such treaties are agreed to at as wide an international level as possible and that regions do not splinter off and agree their own rules, as we discussed earlier in relation to the amendments. I was glad to receive the assurances from the Minister.

There are some areas in which the Government could have been proactive. We hope that there will be a little action before long on getting the large shipping registers to sign up to the supplementary fund protocol, which is the main subject of the Bill and something on which we spent time in Committee.

Conservative Members are pleased that the Government have heeded the calls that we made in Committee and those of environment groups such as the Royal Society for the Protection of Birds for the introduction of marine environmental high-risk areas, which were recommended 13 years ago by Lord Donaldson. It is one thing to use supplementary funds to provide compensation after an oil spill, but it is much better to prevent a spill in the first place, especially in sensitive areas. Redirecting ships away from areas of outstanding beauty or environmental significance is a sensible way of achieving that.

I disappointed that the announcement on the MEHRAs made them merely advisory. I hope that the Government intend to consult relevant interested parties and, after a suitable period, find out how well the scheme is working. Given the effort that was put into establishing the areas, it would be a tragedy if they were simply ignored by the ships that were most likely to cause a disaster.

Putting those small points aside, I am pleased to support the Bill. The statistics that have been cited throughout our debates need no repeating. Although major oil spills are thankfully very rare, when they do happen they cause untold and often irreversible damage to the environment, wildlife and economy of an affected area. The supplementary fund will of course be used very rarely, but when it is used, it will be needed precisely because the scale of the disaster will be so big.

The incorporation of the latest stage of the MARPOL convention into British law will reduce emissions from ships, especially harmful nitrous oxides. That will make what is already the cleanest major form of transportation even cleaner and help the UK to hit its emissions targets.

On behalf of the Liberal Democrats, I am pleased to support the Bill. I commend the work of the Minister in Committee and on the Floor of the House. Although the Bill is short, it will have an important and wide-reaching effect because it ratifies two important treaties and agreements on oil pollution and controls on air pollution by ships, which are being introduced for the first time.

The catalyst for the first aspect of the Bill was the Prestige disaster, and we heard in Committee about its catastrophic effect. Some 64,000 tonnes of oil were spilled and there was a bill of more than $1 billion. Our one worry about the supplementary allowance is that it would not have paid 100 per cent. of the cost of the Prestige disaster, but nevertheless we realise that we have come a long way since the Torrey Canyon disaster in 1967. Remarkable improvements have been made on both the amount of oil spilled each year in international waters and the way in which we have dealt with it. I remember my geology professor, Lord Energlyn, who advised Harold Wilson on how to deal with the Torrey Canyon disaster, talking about the technology used at the time, which included the use of Buccaneer bombers to disperse the oil. The way in which we deal with such disasters and the compensation arrangements available have come a long way since then. We support the provisions of the Bill that will help people much more than was the case in the past.

There are still legitimate worries about flags of convenience and the state of such fleets. It is estimated that at least one in 12 vessels that visit British ports are unseaworthy and that the figures for other ports are much higher. Nevertheless, with continuing pressure, more states will ratify the agreement. It is to be hoped that that will reduce some of the consequences that we had with the Prestige disaster.

I move on to the MARPOL index. It is a start in dealing for the first time with air pollution. It is limited, and the number of signatures to the convention is low. Like the hon. Member for Canterbury (Mr. Brazier), we look forward to hearing what the Government will do with regard to the ports Bill. We would have liked to see an opportunity to tackle air pollution of ships while in port. That is called cold ironing, and it already operates in Los Angeles and Vancouver. When the Bill is introduced, we hope to have an opportunity to consider that process as going one stage further in dealing with pollution, not only on the high seas but within UK ports.

I commend the Bill to the House in recognition of the work that will be done under its provisions.

I welcome the Bill. As the Minister said, a sharpened focus is no bad thing. Perhaps other Departments could draw a lesson from the way in which the Bill made its passage through Parliament. It chimes with the environmental concern of our times and, if it makes our planet a healthier place, that must be a good thing. I have enjoyed listening to the debates on the Bill. Perhaps for the first time in my brief time in the House, I can say that this is a Bill that I can wholeheartedly support.

Question put and agreed to.

Bill accordingly read the Third time and passed.

I beg to move,

That this House takes note of European Union Documents No. OJ C 301, the European Court of Auditors 2004 Annual Report; No. 11216/05, European Court of Auditors Special Report No. 1/2005 concerning the management of the European Anti-Fraud Office; No. 11452/05 and Addenda 1 and 2, Protection of the financial interests of the Communities: fight against fraud, Commission's annual report 2004; No. 12493/05 and Addendum 1, Commission Report: follow-up to 2003 Discharge Decisions–Council recommendations; No. 12494/05 and Addendum 1, Commission Report: follow-up to 2003 Discharge Decisions–European Parliament Resolutions; No. 12712/05, Commission Staff Working Document: follow-up to the 2003 European Court of Auditors Annual Report; and No. 13532/05, Member States' replies to the Court of Auditors 2003 Annual Report; and supports the Government's promotion of measures to improve the level of assurance given on the Community budget.

I am pleased that we can have this debate on the report and other relevant documents that are before us for the first time in a long time. It is an indication of how importantly Parliament regards EU financial management and the protection of EU taxpayers' financial interests. I heard a rumour that the hon. Member for Stone (Mr. Cash) is on his way to join us in the Chamber. I advise all Members that if we can make the debate snappy, we may have half a chance of an early night. However, the purpose of the debate is to secure transparency and scrutiny, even if we have to listen to the hon. Gentleman. It will be interesting to see whether he reflects the new Conservative party's movement to the centre, certainly in terms of domestic policy, and in terms of the EU moving ever further to the right. It is an interesting development and one in which we shall see whether the debate reflects where the Conservative party is at the moment on the EU.

I shall cover three areas in my opening remarks. First, I shall set out the main points that are presented in the various reports that are tabled for debate and the Government's response to these various issues. Secondly, I shall highlight what has been done to address problems identified previously and debated in the House. Thirdly, I will set out what we see as the key next steps.

There have been, and continue to be, improvements in our view in both the quality of financial management of the EU budget and in financial management information. However, we cannot be complacent or satisfied with the status quo. There is much more for us to do.

What are the main issues and what are the Government's views on them? The main issues are presented formally in the annual report that is presented by the European Court of Auditors, the ECA, on how the Commission has implemented the Community budget. The ECA has also been required, since 1994 under the treaty on European Union, to give a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions.

The first part of that statement of assurance has always been positive. The ECA has observed every year that, despite some qualifications, the accounts faithfully reflect the revenue and expenditure for the communities for the year and their financial position at the year end. The qualifications relate to the recording of sundry debtors, assets and liabilities, which the Commission's accounting system was not designed to handle adequately.

The other half of the statement of assurance concerns the legality and regularity of the underlying transactions. Frankly, that is where the problems lie. But it is not all bad news: the ECA audits revenue, commitments and payments and has always given a positive statement of assurance for revenue and commitments. It is in payments where we find the most difficulties.

rose—

I am delighted to give way to the hon. Gentleman, having referred to him earlier in his absence.

I have been absent for only the best part of 30 seconds of the Minister's speech, but he seems to have introduced my contribution rapidly.

Does the Minister agree that the Government's explanatory memorandum states:

"The reservation is that in the absence of effective internal controls the ECA cannot be certain that transactions relating to the sundry debtors item were properly recorded"?

For practical purposes, it is clear that the Government believe that the Court of Auditors is right to say that there should not be a discharge because it does not know exactly what is going on.

Yes. The Government's position is reflected in the statement that the hon. Gentlemen read out, and we continue to have that concern. However, as the debate progresses we need to take a balanced judgment on the true situation, how much progress has been made in recent times and what we can hope to achieve in the near future. I do not disagree with his comment.

I draw to the Minister's attention that I was motivated to come to this debate when I heard him refer to the absence of the hon. Member for Stone (Mr. Cash). Indeed, I was pacing out to arrive here as quickly as I could when I was overtaken by the right hon. Member for Wokingham (Mr. Redwood), who passed me at a rate of knots. I suggest that the Minister refer to other Members who might be brought into the debate.

Had I known what effect my original reference would have, I might not have referred to the hon. Member for Stone, but I am always delighted to see my hon. Friend the Member for Glasgow, South-West (Mr. Davidson) in the Chamber, as well as the right hon. Member for Wokingham (Mr. Redwood), who has a long track record on these issues and who I am sure will want to contribute.

To put this report in the context of a public limited company, were a plc to announce its annual results and have its accounts qualified, there would be a huge impact on its share price. Yet, the European Union carries on from year to year with no effect, and with no real concern from Her Majesty's Government.