To ask the Secretary of State for Environment, Food and Rural Affairs if she will make a statement on the Rural Payments Agency.

In my written statement to the House on 16 March, I told the House that the Rural Payments Agency had advised me for the first time on 14 March that it would no longer be possible to make the bulk of single payment scheme payments by 31 March, and that in the light of this unacceptable situation a new chief executive would be appointed. I fully understand and share the anxieties that these events will cause to the farming community, and deeply regret that this unacceptable situation has arisen.

I received an initial report from the acting chief executive, Mark Addison, on the situation at the RPA on 21 March. There are substantial problems facing the RPA in getting SPS payments out to farmers—much greater than had previously been reported to Ministers. As I know the House and the farming community would expect, speeding up those payments remains the overwhelming priority of Department for Environment, Food and Rural Affairs Ministers and of RPA staff. However, it remains essential that actions taken now in response to these problems are carefully considered but also sure-footed, to avoid making the problems still worse in the future.

Mr. Addison's report identified some initial steps to take, which should enable us to speed up payments without losing sight of the need to manage properly the disbursement of a large sum of public money. These are the initial steps that I have sanctioned: focusing resources in the RPA on making the 2005 payments as fast as is legally possible; removing disproportionate checks from the payment authorisations system to speed up the flow of payments once claims have been validated; prioritising work on the validation of claims to release the maximum value of payments as quickly as possible as opposed to the maximum number of claims, which is an action that will mainly benefit historical customers; centralising key mapping work at the most productive office, Reading; reviewing what further steps can be taken to simplify the process to allow decisions to be made later this week; strengthening the RPA's capacity in key areas; and changing the RPA's structure to streamline command and control.

The Minister with responsibility for sustainable farming and food—my noble Friend Lord Bach—and the RPA's acting chief executive have invited senior representatives of the industry to weekly meetings, the first of which took place on 22 March, so that close contact can be maintained. They will also urgently engage with the banks and other key stakeholders. The team at the RPA is central to the success of those steps. I am confident that with Mark Addison at the helm we have the right people in place for the job, and their work and commitment remain key to delivery. The staff of the RPA have worked with absolute dedication throughout, often in the face of considerable difficulties, and I know that the whole House hopes and expects that they will continue to do so.

I remind the House of my entry in the Register of Members' Interests, and I thank the Secretary of State for her answer. In a newspaper produced by the Department for Environment, Food and Rural Affairs that landed on the doorstep of every farmer in the country just six days ago, the headline stated, "Full payments on track for farmers". I hope that the Secretary of State is ashamed that that happened.

As the Secretary of State has rightly said, the first priority in this debacle is to get the money to the farmers who desperately need it. Tens of thousands of decent, hard-working family farmers were promised their payments, which in many cases cover up to one third of their income. In time they will need to stop relying on such payments to support their businesses, but this is the first year of painful transition. Will the Secretary of State tell us how many payments will now be made by the end of March? Exactly when will all the outstanding payments be completed? What is she doing about all the non-validated entitlements, and will she confirm that they will be paid on the same time scale? Will she consider making an interim payment for everyone who cannot receive the full amount by the end of March? That could be done manually, even if the computer cannot cope. The delays are costing the industry £10 million to £12 million a month. Will the Government repay the interest on any related loan until the RPA issues the payment? Will the Secretary of State seek a derogation from the EU to delay the 15 May deadline for next year's applications? The RPA should not be sending out next year's forms instead of last year's money.

We also need to know how the crisis arose. Given the continuing mapping problems and other issues, the crisis was obvious to us all, yet throughout those months the Government told us that we were scaremongering and that the targets would be met. In January Lord Bach told the Oxford farming conference that 96 per cent. of payments would be made by the end of March. In the same month, the Environment, Food and Rural Affairs Committee report stated:

"The Committee is dismayed at the complacency of Defra Minister, Lord Bach, who refused to admit that any mistakes had been made or that anything could have been done differently to avoid the problems."

Lord Bach called that report "shoddy" and said:

"I am deeply disappointed with the timing of this report which could create unfounded alarm and uncertainty in the farming community."

On 2 February the Secretary of State told this House that the 96 per cent. target would not be met. Three days later, Lord Bach told me in a letter that he still expected "the bulk of payments" to be made, although he went on to tell Farmers Weekly that "the bulk" meant more than 50 per cent. Just a month ago the Secretary of State told the National Farmers Union conference:

"Having demonstrated last week that its systems are working as planned, the RPA is now in the process of authorizing payments".

That is some plan!

If Ministers were misled by the chief executive of the RPA it is right that he should go, but that does not absolve Ministers from this catalogue of incompetence and ministerial denial. This House and the industry are entitled to an apology, because the chain of accountability reaches the top. It was the Secretary of State who decided, rightly, to introduce a complicated hybrid scheme, but then opened it up to 48,000 new applicants, with 360,000 new parcels of land that had not previously been receiving support. Then, to make it worse, she rammed it into place in the first year of the three-year window—and that is where the problem began. But even Germany and Denmark, which also have hybrid schemes, paid almost all their farmers months ago.

Sacking a civil servant is not the end of the matter. Ministers knew that there was a problem because they reduced the targets, but they appear to have done nothing until I challenged the Prime Minister two weeks ago. What questions were asked? How many Ministers actually went to the RPA to see what was happening? Did nobody have the gumption to ask why farmers were reporting so many problems? The Government's usual "blame somebody else" line will not wash. Lord Bach criticised others for saying what was abundantly clear to everybody, but he was wrong. A Minister who truly had his finger on the pulse of farming would have seen this coming and prevented it from happening. He has lost all credibility in the industry for which he is responsible, and he should go. This House and, more importantly, the farming industry deserve better.

There are rather a large number of questions there, Mr. Deputy Speaker, but I will do my best to answer as many of them as I can— subject to your wish to make progress.

First, yes, I am embarrassed and dismayed by the issue of the newsletter to which the hon. Gentleman referred. There is no doubt that when it was produced we were on track, payments were being produced on the date that we had been told—20 February—and validations were being issued to farmers, just as had been foreseen. It was anticipated, and continually reported to Ministers, that once that process had begun it would be speedily ramped up. Of course, that was the part that was not fulfilled.

I cannot give the hon. Gentleman answers on time lines and dates at the moment, but I assure him that I will keep Front Benchers and the House as informed as I can with reliable information. I am sure that the whole House will recognise the strong wish of the new acting chief executive not to be pinned down to proposals for the future until he has more information, because he does not wish to repeat what he views as previous over-promise and underperformance. The hon. Gentleman will know, as will the House, that the payment window ends at the end of June 2006, but I cannot give him a pattern of payment between then and now.

The hon. Gentleman asked about non-validated interim payments. We are looking at that whole issue. We are not ruling out the potential for interim payments, but we are reluctant to make interim payments if there is any possibility of their jeopardising the time scale for making full payments. I think that the whole House will understand that, and understand, too, our wish to keep the rest of the scheme on track.

The hon. Gentleman said that the situation was obvious to all. I genuinely think that he was quite unjust to my noble Friend Lord Bach, who has spent not just hours but days working on this over many, many months. [Interruption.] I say to the hon. Gentleman, and to the House, that when the scheme was initially being considered and the arrangements were being put in place, a substantial contingency of time was of course built in to allow for any hiccups and difficulties. Over time, that contingency was gradually whittled away. My noble Friend has maintained the closest possible interest, and I, like him, continue to reject any charge that there was complacency on the part of Ministers. Ministers are dependent, as is everyone in the House, on the information that they are given and the confidence that they can place in it. [Interruption.] I simply repeat to the hon. Gentleman what the proposal to us was. We published this more than a year ago; I cannot now recall exactly when, but it was a long time ago. The proposal to us was that the first payments would begin to flow in the week of 20 February, and they did. It was after that that the scheme began to break down.

There were repeated challenges by Ministers, and repeated demands for harder information about the number of payments that had been made. As a result of those challenges and demands the chief executive conveyed to me, on the evening of Tuesday 15 March, that he could no longer say that the bulk of payments would be made by the end of March—although he continued to insist that 96 per cent. would be made in the payment window, by the end of June. That is why we took the steps that I outlined. We will continue to keep hon. Members and the industry as fully informed as possible, and I anticipate a further report on the situation later this week.

The Secretary of State talks about using up margins of contingency, but surely there is no way of describing the matter other than as a botched introduction of the single farm payment scheme in England. That is worrying for many tens of thousands of farmers who rely on the payments for their cash flow, and for maintaining their obligations.

I have no doubt that there were problems at the Rural Payments Agency of which Ministers were not aware. There can be no other explanation for the extraordinary contrast between the assurances of the Under-Secretary of State for Environment, Food and Rural Affairs, the hon. Member for South Dorset (Jim Knight), at Question Time on 9 March and the sacking of the RPA chief executive only a week later. However, DEFRA Ministers must take their share of the blame.

First, Scotland and Wales have almost finished payments on the simpler historic basis, yet DEFRA Ministers decided to implement the more fancy scheme and they must surely bear responsibility. Do they accept that their decision to abandon the historic basis of payment has been a major cause of the difficulties in England in comparison with the relative success in Scotland and Wales?

Secondly, the new scheme could have been introduced with a delay, as happened in the Netherlands. Do Ministers accept that they made a mistake in trying to run before they could walk?

Thirdly, do Ministers accept that the scheme's implementation has been botched from the start, and that the evidence for that is not only in the delays that farmers are now suffering in the payments that they were promised but in the spiralling cost—from £18.1 million to £37. 4 million, as revealed by the Select Committee—of the IT system procured for the single farm payments?

The Secretary of State has given no assurances about the timing of the payments that are due. We must press her for assurances for farmers who expected the bulk of the payments to be made by the end of March about when they will be made. If she cannot give them, will Ministers authorise interim payments so that farm businesses can maintain their obligations to their suppliers and creditors? Will Ministers assure us that they have contacted the principal lending institutions to the farming community and accepted full responsibility for any delays in farmers' payments that may arise through DEFRA's broken promises?

The hon. Gentleman drew on the experience of Scotland and Wales, and he is right to say that they have adopted a different system—although initially they made partial payments, and I am not certain whether Scotland is yet making full payments. Wales has begun to do that. However, those systems are not only different but involve a much smaller number of claimants. The hon. Gentleman described the scheme that we introduced in England as "more fancy"; a more accurate term would be "more sustainable".

The hon. Gentleman spoke as if it would always be better to pursue the historic system. He is new to the portfolio and will not therefore have the subject at the front of his mind, but under the historic system, people continue, now and for the future, to be paid on the basis of what was received by someone farming the same land between 2000 and 2002. That appeared to be neither beneficial in driving farming forward to be receptive to the market, nor something with which taxpayers or farmers would be content for long. There are already rumblings in member states that have maintained the historic system about how unsatisfactory it is. This is not, therefore, a simple black-and-white question of why we did not do what it is claimed would be easier.

The hon. Gentleman made a further point, and I was not sure whether it was based on information from the Select Committee report. If it was, I regret that. There is a misunderstanding that the cost of the information technology system is somehow evidence of things going wrong. The RPA was already set to undergo a programme to provide it with new IT. That was the £18 million scheme that was initially intended to be put in place. However, that was agreed before the common agricultural policy reform proposals, which obviously resulted in the need not only for a new IT system but for one that would perform a different task. That is why there is a difference, and the two sums involved are not comparable. We are not talking about twice the money for the same scheme changes.

The hon. Gentleman also asked about interim payments. I can only repeat what I said earlier to the hon. Member for South-East Cambridgeshire (Mr. Paice), which is that we continue to keep that matter under review. I shall not be drawn into making forecasts, other than to draw attention to the scale of the payment window. The hon. Member for South-East Cambridgeshire referred to the speech that I made to the National Farmers Union annual conference, at which I said that payments had begun to flow on 20 February—as they had—and that I had been advised that, very shortly, some £350 million would already have flowed.

When I saw the chief executive of the RPA on the evening of 14 March, however, he told me that only about £60 million had been paid by that date. That was the first intimation that DEFRA Ministers had had that those were the figures involved. However, that sum was disbursed over about three and a half weeks. In the period since that date—just over a week of payment days—some £75 million has already been disbursed. That is obviously not enough, but it is certainly a big improvement on the previous figures.

rose—

Order. I seek the help of the House. There are two ministerial statements to follow, in addition to the resumed Budget debate, and I would very much appreciate single brief questions and short answers.

The Secretary of State has made it clear that she regards the situation as unsatisfactory. Will she assure the House that the right approach is being taken in moving from production subsidies to payments for public goods? Is not the important thing now to ensure that farmers and landowners have a good idea of the new timetable for when payments will be made before June?

My hon. Friend is entirely right to say that the key issue now is to give farmers as much certainty as we can. Nothing would be worse than to give them information that was less than reliable. I would also say to my hon. Friend, as I should have said to the hon. Member for Eastleigh (Chris Huhne) a moment ago, that we are in touch with the banks. They understand that the payment window runs until June, and they have hitherto given us no indication of any difficulties that they had not anticipated.

In the light of the fact that the Select Committee, which I have the honour of chairing, has twice warned of the potential failings of the RPA and its computer system, may I seek an assurance from the Secretary of State that all reasonable requests from my Committee for full disclosure of information about this debacle—this failure of communication between officials and Ministers—will be complied with in any subsequent inquiry that we might hold to try to unearth what has caused this complete mess?

I can certainly give the right hon. Gentleman that assurance. He knows that I have sought to keep him, as well as those on the Opposition Front Benches, fully informed of developments as they have unfolded. Hon. Members may not realise that we had already planned a long-term review of the RPA, or that it was scheduled to begin as soon as the bulk of the payments had been disbursed. I have now announced that review formally, to make it public, and we shall proceed with it as fast as we can.

As has been said, Scottish farmers have already received their single farm payments. May I assure my right hon. Friend, however, that they derive no satisfaction whatever from the situation in England? They understand, as she does, how vital those payments are to the incomes of working farmers in England. Indeed, she has pointed out that failure to receive them could result in people being pushed above their bank borrowing limit. She has undertaken to keep the House informed of developments. Will she make a statement on the matter after the Easter recess?

I do not rule that out; it will, of course, partly be a matter for the House.

Is the Secretary of State aware that under the old integrated administration and control scheme introduced by the previous Government, each form was dealt with by a single official in a single payment centre? Is she aware that under the new system each form is divided into tasks, so it is not merely shuffled between officials but between centres—at the mercy of a failing computer system, which has managed to wipe off all the hill farm allowance payments for my constituency? Can we not revert to a system that gives the farmer accountability and the official efficiency, and liberates us from the tyranny of the computer?

I always listen with great care to the right hon. Gentleman's observations, and frequently find great wisdom in them. I assure him that one of the reasons Ministers decided to commission a long-term review of the RPA—although we had not announced it—was our considerable concern that although there is no doubt that the organisation is customer-focused in that the staff care about their customers and are working hard and trying to do their best, its systems are not remotely customer-focused. That is one of the issues that I hope that we will address, perhaps even in the short term.

Obviously, the situation is most regrettable, and I am grateful to the Secretary of State for the measures that she has announced this afternoon. Will she consider paying interest or financing costs for farmers beyond the end of March, if those arise because of late payments?

I cannot give that undertaking—although, as I said, we are keeping the whole position under review, not least because the official payment window runs until the end of June. Although I understand the concerns and anxieties of farmers, my hon. Friend will know that extensive discussions have been held with people's banks, more are due, and there has been more than a year's notice that there would be some delay and payment would be made later in the window.

Does the right hon. Lady agree that it might take a long time to recover from this managerial collapse and put the Rural Payments Agency on a sound footing? The most immediate problem is the hardship that will undoubtedly be suffered by many blameless farmers, who have no idea what they will do about the loss of this vital income over the next month or two? Does she accept that it is not good enough to say that interim payments will be kept under review? Her first priority must be to try to put in place some manual system that will get out interim payments as quickly as possible to people who will otherwise probably be forced to abandon their farms.

I assure the House, and the right hon. and learned Gentleman, that that is being carefully considered. He will understand that there is no wish to do anything that will disrupt the likelihood of the majority of payments going out. I have instructed the acting chief executive that the large number of people who have an almost minuscule entitlement—on the whole, new claimants—should not be his priority. In so far as possible, he should perhaps worry slightly less about some of those for whom the level of the payment might not be a matter of immediate desperate concern. The whole focus of the RPA's attention should be on those who need the money, about whom the whole House is concerned.

What steps are being taken to reduce the welfare dependency that seems to be exhibited by many farmers? Does she agree that we have not seen the Tories so excited for quite a long time, and that only when they are trying to get their snouts and those of their friends in the trough do we see them so motivated?

My hon. Friend has long been a critic of the system of farm support in this country. I know of his concern for ordinary people facing difficulties, however, which he will extend to people in any circumstances. In the longer term, the purpose and effect of the overall reforms of the common agricultural policy introduced in 2003 will be to link farmers more closely to the market and, as my hon. Friend the Member for Sherwood (Paddy Tipping) said a few moments ago, to put public money in payment for public good—things that the market will not reward.

I think that the right hon. Lady will know that the entitlement statements being sent out do not show the methods of calculation. That means that the individual farmer cannot check whether the final figure is right or wrong. Will the right hon. Lady please examine the position?

Yes.

Will the Secretary of State agree to meet a delegation of farmers from Shropshire? Is she aware of the suffering that has been caused over many months by the Government's dithering, delay and incompetence?

As I have said, regular meetings are scheduled with stakeholder representatives of the farming community. I hope the hon. Gentleman will understand, however, that the priority of Ministers and officials is to concentrate all our efforts on making payments. Of course we will keep the House and all Members as well informed as we can, but getting the money out is the priority.

When the south Staffordshire farmers who were reassured by Lord Bach's Oxford speech talk to me of Crichel Down, and ask what has happened to the doctrine of ministerial responsibility, what do I tell them?

The hon. Gentleman can tell them that a bold move was made in the 1980s: the setting up of such things as agencies, which are at one remove from Government and carry out executive tasks. It is an agency that is carrying out this work.

But the Secretary of State designed the scheme herself; she did not have to introduce it. She announced it more than a year ago. Now she is saying that it was not until 14 March that she was aware of how badly wrong it was going—although many of us had been writing to her for weeks telling her that exactly this was going to happen. If she thinks that her Minister has been doing a good job she had better get a grip on the issue personally, or the payments will not even be made by the end of June.

May I ask the Secretary of State specifically whether the Government will compensate farmers who have had to incur loans and pay interest because of the late payments? May I remind her how fast the Government are to extract interest from their debtors when they are late in paying their taxes?

The hon. Gentleman is right to observe that Members were saying that the scheme was going badly wrong. Members were saying that payments would not begin on 20 February. They were saying that entitlement notices would not be sent out. [Interruption.] I am not sure whether those who are groaning attend agriculture questions very often.

Let me simply say to the hon. Gentleman that undoubtedly there were real concerns and anxieties, and that those were reflected at ministerial level. That is why the Minister in particular, and my officials, spent so much time working with the RPA. The fact is, however, that payments did begin when they were intended to, and notices did begin to go out when they were intended to. What did not happen was the dramatic ramping up of the speed of payments that was expected to follow. As late as 10 March, the RPA was still insisting to Ministers that more than 51 per cent. of payments would be made by the end of March, and 96 per cent. would be made by the end of June.

The issue of compensation has been raised before. I have already told the House that the payments window closes in June 2005—[Hon. Members: "2006."] I am sorry, I meant 2006. Farmers are probably even more aware of that than Members. They know perfectly well that payments are made throughout the window; that is why the question of interest does not arise.

The Secretary of State has attempted to slough off any ministerial responsibility, but if she looks at the report of the debate in Committee on the statutory instrument that set up the Rural Payments Agency she will find that I—along with many others, including some of her hon. Friends—questioned whether the agency's computer system would be able to handle what was being proposed then, let alone now. Given that that was five years ago, and most of her Ministers are still in place, where does the buck stop?

If that was five years ago, it was long before the negotiations on CAP reform, for a start. Once the decisions had been made about the form and nature of the scheme, Ministers and stakeholder representatives of the industry spent time with the RPA seeking information and assurances on whether it could indeed handle the scheme within the time frame. Those assurances were given, and given categorically—to the extent that stakeholder representatives and Ministers came back immensely reassured and full of confidence that the RPA could handle the issues.

That was the position at the start. It has to some extent been asserted that the Government were warned from the beginning that the RPA could not handle the scheme. No, we were not: the RPA gave every assurance that it could indeed handle it. As for whether Ministers take responsibility, I am taking responsibility, which is why I removed the chief executive.

I refer to my entry in the Register of Members' Interests. The Secretary of State will wish to apologise for the full answer given by the Minister with responsibility for farms, the Under-Secretary of State for Environment, Food and Rural Affairs, the hon. Member for South Dorset (Jim Knight), at Environment, Food and Rural Affairs questions on 9 March. He has apologised to me in person, but for the benefit of the House it should be placed on the record that his answer was incorrect and misleading in every particular. He said on 9 March that most of the payments had been made and that Scottish and Welsh farmers had been paid in full, when in fact no payments had been made to English farmers. Will the Secretary of State take this opportunity to show her awareness of, and willingness to take action on, two related issues? The market in England has been distorted, in that Scottish and Welsh farmers have the cash in hand to pay more for farm animals than English farmers can possibly pay. Secondly, tenant farmers are suffering particular hardship because they have no assets against which to borrow.

It was graceful of the Under-Secretary, my hon. Friend the Member for South Dorset (Jim Knight), to say what he did to the hon. Lady—outside this Chamber, no doubt—but knowing her as I do, I am sure that she is not implying any wrongdoing on his part.

indicated assent.

I am pleased to see that the hon. Lady is not. Obviously Ministers must give correct information to the House, but they can do so only if the information that they have is correct. When my hon. Friend the Under-Secretary spoke to the House, at that stage he had no cause to think that what he was saying was in any way incorrect. There is perhaps a slight misunderstanding about the position in Scotland and Wales. Obviously I do not have responsibility for payments there, but I think that the hon. Lady will find that not all payments have been made in full, although they are doubtless proceeding. I entirely take her point about tenant farmers, and I am mindful that they are likely to be the most vulnerable people. I can assure her that if there were a way to single them out, I would look for it; however, the best thing to do is to try to get everybody's payments out as fast as possible.

I have repeatedly asked the Secretary of State questions about this issue at Environment, Food and Rural Affairs questions, and I am not a bit surprised at the muddle that she finds herself in. Will she undertake to come to the House in a month's time to give us an update—and so that she does not have to eat further helpings of humble pie, will she guarantee that all valid claims will have been paid by then, or, if that it is not possible, that a substantial amount will have been paid on account? Finally, I should have declared my entry in the Register of Members' Interests before asking this question.

The hon. Gentleman is right: Members did repeatedly ask such questions, and as has always been the practice in any Department of which I have been head, when Members ask awkward questions, Ministers do the same. The answers that Ministers gave to Members were those that Ministers got, no matter how hard they probed. The hon. Gentleman asked whether I would give the House an update in a month's time. I do not necessarily rule that out, but what I can say is that I will keep the House informed by whatever means exist as fully and speedily as I can. If I can give the House a quantified update in a month's time I will, and if I can do so earlier, I will.

Will the Secretary of State put back the deadline for the 2006 applications, or give a firm assurance that no farmer will be penalised for repeating an innocent mistake in his 2005 application, which, of course, he has had no opportunity to correct, not having had the result of that application?

The hon. Gentleman makes an interesting and valid point and I undertake to look into it.

Farmers in my Kettering constituency are as concerned about this disgraceful situation as any other farmers in the country. By what date are farmers guaranteed to receive these payments?

As I have repeatedly explained to the House, I am not in the business of giving Members guarantees that I cannot substantiate, but I do guarantee to keep the House informed. I can tell the hon. Gentleman that the payment window expires at the end of June, and it will be the earnest endeavour of everyone in my Department concerned with this issue to make the maximum number of payments as early as we can; we do not want to approach the payment window with payments still to make. But at the moment I cannot give the hon. Gentleman the firmer, clearer or more reliable answer that I know he wants.

I am grateful for what the right hon. Lady said in answer to my hon. Friend the Member for Kettering (Mr. Hollobone), but does she realise that not just farmers but the agricultural supply trade and many hauliers are also dependent on receipt of the payments? Does not she think it important that she gives a date by which, unless a substantial proportion of payments have been made, there will be interim payments? Many of those businesses simply cannot survive until 30 June.

I am grateful to the hon. Gentleman for raising the issue that a wider community depends on farming. He is absolutely right, and we are extremely mindful of the pressures on those business. At this moment I cannot give him a date of the kind that he seeks, but I can certainly tell him that that is part of the consideration. When I told several hon. Members that we did not rule out making interim payments, that was one of the reasons why—so I can assure him that we shall keep the matter very much under review.

What would the Secretary of State say to Mr. Lonsdale, an elderly farmer in my constituency, who rang me this morning and said, "Without payments, I cannot pay my rent"?

As I said a little while ago, we have been in touch with banks and with those who deal with the financial interests of the farming community, and so far they have told us that they do not anticipate a greater measure of difficulties than normally arise at about this time of year. They are mindful of the situation and will keep it in mind, but we are holding further talks with them to ensure that that continues to be the case.

Two of my farmer constituents, Messrs Caley and Leake, were refused any single farm payments because they were days late with their application. When they wrote to Lord Bach he replied that as they had failed to get their forms in on time they should properly receive nothing, and that was the price they should pay. What price will Ministers pay for failing to get payments to farmers throughout the country?

I have already made it plain that Ministers are extremely concerned and dismayed about the position. The system is in the hands of the RPA and as the hon. Gentleman knows, the chief executive of the agency has been removed from his post.

With permission, Mr. Deputy Speaker, I should like to make a statement about the European Council that took place in Brussels last Thursday and Friday. As the House is aware, my right hon. Friend the Prime Minister normally makes the post-Council statement to the House. I have been asked to convey his apologies because he is on an official visit to Australia and New Zealand.

The Hampton Court informal summit in October during our presidency set the framework for the spring Council in Brussels. The economic challenges for many, though not all, member states of the Union are severe. Despite significant progress since the Lisbon agenda was launched, there are still about 20 million out of work in the EU. In some states, in contrast to the United Kingdom, unemployment is about 10 per cent. and almost one in five young people are without a job.

The British Government know that there is only one way to get Europe back to work and to deliver social justice in a global economy. We base that not on theory but on solid evidence. As my right hon. Friend the Chancellor of Exchequer pointed out in his Budget speech last Wednesday, in 1996 we had the lowest income per head of any of the G7 countries; today, we are second only to the United States. We have grown more quickly, created more jobs and provided more social benefits than most other member states. We have done so by liberalising markets, increasing our competitiveness and investing in the future, including in our public services. The European response to globalisation must emphatically not be a return to old-fashioned protectionism, whether by that or any other name.

Specific elements of the Hampton Court agenda were energy, research and development, and universities. The case for a more liberal energy market is overwhelming. Gas and electricity prices in the UK in the period between 1996 and 2004 fell much faster than they had done in EU states as a whole, which have kept their energy markets closed. Consumers in those countries will thus gain from a functioning internal market, but so too will consumers in this country. We currently do not have the access to gas that we would have in a more sensitised market. One of the first achievements of the Lisbon Agenda back in 2003 was the decision to liberalise energy markets by 2007. Last week, the European Council reaffirmed that timetable.

Completion of the internal market is one of four elements in a new approach to European energy policy. At the summit, we also agreed the programme relating to the other three areas, which are to intensify diversification of supply, to promote environmental sustainability and, by the next European Council, to develop a strategy for dealing with countries outside the EU. The Council asked the Commission to present a strategic energy review on a regular basis, starting in 2007.

On research and development, rising economies, such as China and India, are investing heavily in science and technology. The way for Europe to compete is to be ahead of them and to lead the knowledge economy, rather than protecting old and uncompetitive industries, so the summit agreed the establishment of a European Research Council. That body will be run by scientists and its purpose will be to promote excellence in European research. We expect universities and research communities in Britain to benefit.

Linked to research and development is the third area: increased investment in universities, where currently only two of the top 20 universities in the world are European—both, I should say, are in the United Kingdom. The European Union has to produce enough graduates of the right calibre and improve links between business and universities if we are to open up and prosper in new global markets.

In addition to the Hampton Court agenda, the British presidency had taken forward valuable work on better regulation and on the services directive. There was further progress on both those areas at the Council. The summit tasked the Commission to report by the end of this year on measurable EU targets for removing administrative burdens on business, particularly small and medium-sized enterprises, and to press ahead with the reforms undertaken during our presidency, including more simplification of existing EU legislation, further withdrawal of unnecessary or outdated legislation, and more effective use of impact assessments.

The summit also agreed a way ahead on the services directive. That directive will be of great assistance to British service companies and to opening Europe up properly to a single market in services. The current proposals are not everything that we wanted, but a year ago, some European leaders were declaring the directive dead and buried. It is not and it will represent a significant advance in the process of making Europe globally competitive.

It is customary that the spring Council concentrates largely on the economic agenda of the European Union. However, all member states shared a deep concern about the recent elections in Belarus and a declaration relating to those elections is attached to the conclusions. We agreed a statement that condemned the actions of the Belarusian authorities in arresting peaceful demonstrators early in the morning of Friday 24 March. We restated our view, based on the assessment by the Organisation for Security and Co-operation in Europe, that the elections were fundamentally flawed. The European Union is now deciding on the restrictive measures that it will take with respect to the Belarusian authorities. The statement makes it clear that President Lukashenko should not escape responsibility. The European Union applauds those who stood up for democracy against the odds and is determined to support civil society and the Belarusian people.

The situation in Belarus stands in stark contrast to the situation in Ukraine. The OSCE said that yesterday's elections there had

"enabled voters to make informed choices between distinct alternatives and to freely and fairly express their will"

and that they therefore

"further consolidated the breakthrough in the conduct of a democratic election process".

That is a testament to the remarkable progress made in Ukraine since the orange revolution of 2004.

Finally, as I am on my feet on European business, the House will wish to be aware that earlier today I issued a written ministerial statement in respect of the successful conclusion of the Gibraltar constitutional reform negotiations on 17 March. The new constitution, which will be put before the people of Gibraltar in a referendum, strengthens the links between Gibraltar and the United Kingdom and thoroughly modernises the relationship between us, which I hope will be as welcome to the people of Gibraltar as it will to the people of the United Kingdom.

Last week's summit was a further step towards a more outward looking European Union that delivers concrete benefits to its citizens. There is still a long way to go. The British Government are in no doubt that Britain's best interests lie in a European Union that is open to the world, competitive and confident. We will continue to pursue that agenda vigorously.

I warmly welcome the European Council's declaration on Belarus—in particular, the call to release those already detained—and we welcome the announcement that measures will be taken against those responsible in the regime. Can the Foreign Secretary tell us more about the measures being considered against Europe's last dictatorship? Does he agree that the free flow of information is a sure way to undermine tyranny? What more can be done to ensure that the people of Belarus are better able to learn what the outside world is really like and hear an alternative view to that of their Government?

I welcome the conclusion of talks with the Government of Gibraltar and the commitment to hold a referendum. Will the Foreign Secretary confirm whether all this means that his previous commitments to share sovereignty with Spain are now entirely null and void?

Can the Foreign Secretary tell us about some other important matters that were meant to be discussed in the margins of the Council? Will he confirm whether the Government are advocating a new round of talks between Iran, Britain, France, Germany, Russia and China? What would be the conditions for such talks? What approach to aid and funding will be taken by the EU if the Hamas-led Palestinian Authority does not the meet the criteria set by the Quartet?

On economic reform and the Lisbon agenda, does the Foreign Secretary agree that it is now clear that the EU is regrettably not on course to become the world's most dynamic and competitive economy by 2010 and, since the Prime Minister started to admit mistakes over the weekend, that it was a mistake for him to describe the Lisbon agenda six years ago in the House as a

"sea change in European economic thinking",

with

"concrete measures with clear deadlines"?—[Official Report, 27 March 2000; Vol. 347, c. 21]—

just as the Prime Minister now thinks that it was a mistake for him to take the concrete measure of setting a date for his own resignation, albeit without the clear deadline long favoured by the Chancellor of the Exchequer?

Will the Foreign Secretary acknowledge that the EU is now locked in a pattern of relative economic decline? Can he tell us why the Italian-led joint memorandum against protectionism did not go forward, whether the Government intended to sign such a memorandum and why the British Government did not press ahead with their own version? Does he not think that Britain can give a still stronger lead on such an important issue?

Is it not alarming that the figures hidden away in annexe 1 of the Council conclusions show that we are investing a smaller share of our national wealth in research and development than the Scandinavian countries, France, Germany or Belgium and that, far from closing the gap, Britain's R and D spending is falling?

Does the Foreign Secretary agree with the Chancellor that

"it is unacceptable that fifty per cent or more of regulations come from the European Union"?

Can the Foreign Secretary tell us what specific EU regulations the Chancellor has pressed to be cut or blocked and what representations the Foreign Secretary and the Prime Minister made in that direction at the summit?

As for targets to reduce the burdens on business, which were also talked about at the summit, is not a rise in the burden of regulation on business of £50 billion since 1997 a poor way to convince our partners that the Government believe in making business more competitive?

On the services directive, will the Foreign Secretary now state a clearer view by agreeing with me that the removal of the country of origin principle was a grave mistake and that we need a strong liberalising directive with the freedom to provide cross-border services in the Commission's modified proposal? Is not a free market in services one of the things that the EU was supposed to be about?

We welcome the emphasis in the conclusions on a real, liberalised single market in energy, with better co-operation between national energy regulators. Will the Foreign Secretary confirm that the proposal for a European energy regulator has been rejected? Does he agree that the Commission's priority must be to ensure that the associated single market rules are enforced? On powers to negotiate energy supply agreements with third parties, although increased co-operation may bring benefits in some areas, does he agree that member states must retain the right to make their own arrangements? I welcome the insistence in the conclusions that energy mix is for member states to decide, but can he tell us how the energy policy for Europe will affect the Government's domestic energy review?

The EU constitution was also discussed at the summit. Did Ministers make it plain to our partners that it is the Government's view, as the Foreign Secretary has often tactfully expressed it to the House, that the constitution is dead, so that others are not tempted to try to revive a deeply flawed idea that has already been rejected by two of the founding member states of the EU? Will the Foreign Secretary now admit another of the Government's mistakes? Their lack of leadership at the time let others put forward a constitution that the Government did not really want. Will he accept that, if that mistake is not to be repeated, the Government must set out their view and their vision soon, and plainly, or others will again make the running?

Let me try to rattle through that long list of questions. On Belarus, the statement of conclusions spells out that the EU will consider restrictive measures against those responsible. I cannot anticipate precisely what will be decided, but there could be a range of measures, including travel bans and asset freezes. As the right hon. Gentleman said, it is a disgrace that Belarus remains a dictatorship—the last in Europe—and it cannot continue in that way.

On Gibraltar, both the joint statement between the Chief Minister of Gibraltar, Peter Caruana, QC, and myself—a copy of which will be in the Library—and my written ministerial statement make it clear that sovereignty remains British as long as the people of Gibraltar wish it to do so. Should they change their minds about that, which I do not anticipate for a second, the provisions of article 10 of the treaty of Utrecht would apply.

The right hon. Gentleman asked me about a new round of talks on Iran. There are in hand arrangements that we are trying to make for a meeting of the five permanent members of the UN Security Council and Germany later this week. Of course, I will inform the House once those arrangements are firm.

On aid and funding to Hamas, I have nothing further to add to what we discussed in First Order questions. The Quartet statement earlier in the year set out three principles that we expect Hamas to follow. At the same time—this is an issue for the whole House—we are wrestling with the need to ensure that the people of the occupied territories are not punished, by being deprived of humanitarian aid, for a vote that they freely and fairly exercised in elections that were regarded as free and fair. That is something that we have to work through.

On economic reform, the right hon. Gentleman asked me about the comment made by my right hon. Friend the Prime Minister at the time of Lisbon. As a matter of fact, I do think that Lisbon has involved a sea change in EU thinking. It is true that the sea is very large and rather thicker than the sea that we are used to and the tanker of the EU is so big that it takes some time to turn round. However, let us take the example of better regulation. Until two or three years ago, the European Commission was simply a machine for producing more and more regulation. The right hon. Gentleman asked me about conversations that I have had with commissioners and others. I have had endless conversations. When I first got this job, I tried to have conversations about ending gold-plating in the Foreign Office and doing the same in Brussels and it was as though I had said something indecent, but these days things are changing. Under Günter Verheugen, the commissioner with responsibility for better regulation, there has been a big change. Some 68 pending items of legislation have been withdrawn. There is a rolling programme to repeal, codify, recast or modify 228 further pieces of legislation and more than 1,400 related legal acts over the next three years, and much else besides.

On science, it is important to recognise that up until about 1997—I choose that date with care—the Government's record on investment in science was lamentable, but my recollection is that scientific investment has almost doubled since then. We will see the effect of that flowing through into research and development more widely.

On services, the right hon. Gentleman asked me about the country of origin. It has been replaced by the country of destination principle. Personally, having considered the matter pretty carefully, I am not sure that the country of origin principle was worth dying in a ditch for and I think there are advantages to the country of destination principle. There are no proposals for an EU energy regulator and no changes to the treaty base.

I was very tactful when I discussed our old friend the EU constitution with EU colleagues at a dinner on Thursday night. I repeated the comment that I made in the House a few weeks ago that it was, at best, in limbo. I drew attention to the fact that, at the time at which I said that, I understood that limbo could not take place until one was dead, but was not aware that His Holiness the Pope had abolished limbo in the meanwhile.

May I take the Foreign Secretary back to what he said about the strategic energy review? Apparently it is said in Moscow that it is not so much remarkable that the EU enlarged eastwards, but that Gazprom enlarged westwards. Does he thus recognise that we must secure safety of supply and, in terms of the internal market, ensure that national cartels do not become European cartels and that there is a genuinely free market?

I agree with my hon. Friend on both those points. Ensuring a broader diversity of supply was one of the summit's key conclusions on energy. She is right about national cartels. It is curious that several member states have national energy companies that are highly protective of their own market, while being atavistic when it comes to the acquisition of other energy operators in other markets. That is unacceptable and, ultimately, not in the interests of the European Union.

The House is united in its condemnation of the elections in Belarus, which were a travesty of democracy, in marked contrast to the experiences next door in Ukraine. The Foreign Secretary says that the matters being considered include travel bans, but exactly how watertight will they be, given the way in which people such as Mr. Mugabe have ignored or flouted similar efforts?

We welcome the summit's focus on research and development, universities, the gender pay gap and energy, but will the Foreign Secretary confirm that any future decisions on new nuclear power stations will remain a matter for the United Kingdom Government and not be passed off as somehow the responsibility of the European Union? Given the progress so far, how seriously does he take next year's deadline on energy market liberalisation, bearing in mind the rash of protectionism on the continent and the failures to date?

On Friday, the Foreign Secretary described the summit as workmanlike. Given the limited steps that were taken on energy, the watered-down services directive and the limited advances on the Lisbon agenda, was not the summit actually about missed opportunities, rather than any serious work in progress?

How watertight travel bans are partly depends on their exact terms, but I do not accept the hon. Gentleman's reservations about the travel bans on senior people in Zimbabwe. It is inevitable that the bans cannot prevent leaders of countries from travelling to the United Nations and other international meetings because that is required by international treaties to which all countries of the EU have signed up. We know from Zimbabwe that the bans have been both inconvenient to the leaders concerned and humiliating.

Future decisions on nuclear power stations will remain a matter for the United Kingdom Government. As I said, there has been no change—in the absence of a treaty change there could not be—to the basis for decisions in that respect. We wanted a decision about 2007 energy liberalisation in the conclusions to test, in a sense, whether European Heads of State and Government around the table were serious about that liberalisation, which is for consumers, not industrial users. It is my judgment that they are, although time will tell. Although sometimes we take three steps forward and two back, overall, including in countries with a protectionist past and present, the move is towards greater liberalisation because the benefits of that are perfectly plain to everyone.

On my remarks about the summit being workmanlike, I have always believed in litotes, rather than hyperbole, and 35 pages of conclusions sounds to me like being workmanlike.

May I welcome the Foreign Secretary's words—and indeed, the shadow Foreign Secretary's words—on Belarus, although I would not be quite so sanguine about the election in Ukraine, where there has been a remarkable victory for old-style conservatives and oligarchs, which is always bad news anywhere in the world?

On Belarus and, to an extent, Ukraine, is not the problem that Europe does not know how to spread and promote democracy? Will the Foreign Secretary ask one of his bright young officials in the Foreign Office to produce a paper on creating a European foundation for democracy, roughly based on the way in which the Westminster Foundation for Democracy works? There are €140 million unspent in Brussels for democracy and human rights promotion. Both the Council and the Commission are not very good at that kind of work. I invite him to see whether Europe cannot be bolder and more original in promoting democracy in its near abroad.

I would pick my hon. Friend up on one thing. It does not automatically follow that just because old-style conservatives and oligarchs are elected, they have been elected undemocratically. Sometimes it is possible that the people want old-style conservatives and oligarchs. Indeed, that is the whole pitch of the Conservative party. I will follow up the request for a European foundation for democracy.

Six years ago, after the Lisbon summit, the Prime Minister specifically promised that Europe would move

"away from heavy-handed intervention and regulation, towards a new approach based on enterprise, innovation and competition.—[Official Report, 27 March 2000; Vol. 347, c. 21.].

However, those of us on the European Scrutiny Committee have noticed no reduction in the volume of legislation or in the appetite of the EU for more business regulations. Why should we believe the statement this time around? In particular, why does paragraph 61, announcing the better regulation initiative this time, specifically exempt the 97,000 pages of the existing rules and regulations, known as the acquis communautaire?

I know that the right hon. Gentleman is a member of the European Scrutiny Committee, but my perception, from a position of some scepticism about whether the EU is moving, is that there is a real process of change. I have given some figures indicating that. The Commission is starting work on the most heavily regulated sectors—cars, waste and constructions. Other sectors—foodstuffs, cosmetics, pharmaceuticals and services—will follow.

One example is the directive on registration, evaluation and authorisation of chemicals. Had it gone through six or seven years ago, it would have meant very heavy regulation, which would have seriously damaged the Europe-wide chemical industry. We managed to get it agreed under our presidency in a form that was acceptable to most people representing the chemical industry. My notes tell me that it led to the cost of the proposal being reduced by up to €660 million. There are other proposals, too, that are aimed at improving EU competitiveness. Things are changing.

On the right hon. Gentleman's last point, I have had no discussion with Commissioner Verheugen to suggest that he intends to avoid the existing acquis, and nor do we.

I pay tribute to the Foreign Secretary, the Prime Minister and the Minister for Europe for their work in pushing forward the economic reform agenda. In response to Opposition Members, let me say that Lisbon was different because it set out benchmarks for the first time. The Foreign Secretary will know that, according to the Centre for European Reform, Britain has done extremely well against those benchmarks. Is he confident, however, that our European partners have learned the lessons of the Kok report, because many of them are lagging well behind on them? May I also welcome the establishment of the European Research Council and offer Leicester or Blackburn as a possible home?

I cannot speak for Blackburn as Secretary of State and my hon. Friend cannot speak for Leicester as its Member of Parliament. I think that that means he speaks for Blackburn as a Member of the House, and I am very grateful to him. I will do my best to establish the ERC there.

On the Kok report, some member states have been more resistant than others to its very clear messages. I was going to say in response to the right hon. Member for Richmond, Yorks (Mr. Hague), who spoke about economic growth and relative economic decline, that, underneath the EU averages, there is a wide variation in economic performance. That is an indicator of the policies that will work, which are basically those where there is greater liberalisation as well as good underlying investment, and those that will not work, where there is a high degree of protectionism and a lack of liberalisation in the markets.

Will the Foreign Secretary show greater urgency in pressing for diversification of gas supplies? Is he aware that some 50 per cent. of Europe's gas supplies come from only three countries—Russia, Algeria and Norway—and that that is going to increase to 80 per cent. over the next 20 years? Will he take into account the fact that, as 52 per cent. of Gazprom is owned by the Russian Government, any decision by Gazprom to withhold gas from Ukraine, Moldova or any other country must be deemed to have been taken on political, not business, grounds? Will he make it clear to his Russian colleagues that as long as that continues, Russia will not be seen as a reliable partner in energy matters?

The right hon. and learned Gentleman raises a very important issue. Our own gas supply is not nearly as vulnerable as that of Europe as a whole to just a handful of suppliers and Russian gas supplies are likely to account for only 5 per cent. of our supplies, compared with much higher dependency elsewhere in the European Union. However, I accept his overall point. Both the reliance on a few countries and the problems that arose between Russia and Ukraine and the rest of Europe are matters of concern. Energy security will dominate the G8 summit in St. Petersburg in the summer, and I know that my right hon. Friend the Prime Minister is very keen to secure real guarantees about energy security for the whole of Europe.

Will my right hon. Friend say more about the discussions regarding the Palestinian Legislative Council? Does he agree that Hamas, by entering into the electoral process and joining the Palestinian Legislative Council, has implicitly accepted the Oslo peace route and we need to ensure that we cautiously encourage that development?

There was not, as I recall, discussion on the Palestinian situation in the summit itself. We discussed it earlier in the week, in the General Affairs and External Relations Council on Monday. We will get a better idea of Hamas's real intentions after the Arab League summit in Khartoum. If Hamas indicates that it supports, even tacitly, the proposals of the then Crown Prince Abdullah of Saudi Arabia in the Beirut declaration of three years ago, which was in favour of accepting the reality of Israel, there may be a basis for moving forward, but Hamas, as well as the European Union and the international community, has to make moves.

Will the Foreign Secretary give the House a modest assurance on the future of the constitution? I believe that Ministers agreed that they would discuss that again in mid-April, whether in its present form or whatever aftermath they are proposing. Does he agree that the only basis for a referendum on the EU constitution was that it represented a fundamental change and that if any such change, or part of such change, were proposed at a future mini-intergovernmental conference, a referendum would be appropriate?

I am not going to anticipate a rather abstract possibility. I certainly agree that a referendum in respect of this constitution was appropriate. In the event, it has not proved necessary.

My right hon. Friend will recall that the earlier proposed draft directive on services was widely opposed by trade unionists across the EU and particularly strongly opposed by major trade unions in Britain. It is very pleasing that the country of origin principle has been removed, but is the new proposal any more acceptable to trade unionists? Will he consult the TUC and British trade unionists to get their view?

Yes, indeed, we shall consult British trade unionists and the European Trade Union Confederation. Speaking from memory, I think that the current proposals, which were for a country of destination rule rather than a country of origin rule, are significantly more acceptable to the trade unions. If that turns out to be inaccurate—I do not think that it is—I shall write to my hon. Friend.

The Foreign Secretary, like the Chancellor of the Exchequer, said that the British economy compared favourably with economies in the eurozone. Does he accept that that is despite, not because of, his policies and those of other Governments in the past? In fact, economic and monetary union and the exchange rate mechanism must be repudiated, so will he take the opportunity expressly to repudiate those policies to ensure that we can continue to govern ourselves and, indeed, repeal European legislation, as I proposed, with the support of 45 Members of Parliament, when I suggested that we repeal future European legislation and parts of the acquis communautaire to reduce the burden on business?

I am sorry to disappoint the hon. Gentleman but, although he may not have spotted it, we did not join the euro, and I do not anticipate that we are likely to do so in the foreseeable future. [Hon. Members: "Ah!"] In this case, that is a long time. In any event, if there were a recommendation that we join, it would have to pass, first, the famous five tests announced on 27 October 1997 by my right hon. Friend the Chancellor, and then a referendum. The hon. Gentleman can therefore remain calm.

On the more important point, the hon. Gentleman said that my claims about our economic progress had nothing to do with the Government. I am afraid that I disagree completely—it is to do with the Government. If, instead of advancing from the bottom of the G7 league table to second from top, we had gone the other way, he would say that that was all the Government's fault, so we are entitled to claim the credit when we go the right way.

What steps does the right hon. Gentleman intend to take to encourage the Commission to use its extensive powers to challenge the rising tide of protectionism among companies and states in the European Union?

We are doing a great deal. In fairness to President Barroso, he does not need much encouragement, as the Commission has made it clear that the rising tide of protectionism is against EU policy and law, and not remotely in the interests of the European Union. We must try to ensure that there is greater political consensus to challenge the rising tide of protectionism, which masquerades as economic patriotism.

On Belarus, may I strongly commend the Foreign Secretary's robust objections to the behaviour of the authorities in Minsk at the weekend that resulted in innocent protesters being attacked and imprisoned? I urge him to be more hawkish and vigilant in the weeks ahead, because on many occasions we have heard that the European Union objects to a breach of human rights and promises action, but action is not taken. He will therefore understand why some of us are a little cynical.

I do understand that. On Belarus, the European Union's view is strong and united, and I think that we will see action.

The Foreign Secretary spoke proudly about the British sovereignty of Gibraltar, which is very welcome, but I am more concerned about the sovereignty of Britain. If he is winning the war against the over-centralising tendencies of the European Union, which powers are likely to be repatriated from the EU to this country? Many people here are sick to the back teeth of the majority of laws and rules in Britain being decided in Brussels, not Westminster.

To the extent that laws and orders are decided in Brussels, not Westminster, that is because treaties were signed, not under the present Government, but under the Government whom the hon. Gentleman himself supported until 1997. If he is proposing to the House and the country that we change those treaties, let him put that proposal to his party and the people, but I think that he will get short shrift from his Front-Bench team.

Since 1997, the British Government have been at the heart of Europe. Does the Foreign Secretary agree that, during those nine years, the other members of the EU have been thumbing their noses at the British Government, whether on budget contributions, common agricultural policy reform, energy reform or market liberalisation?

I am sorry to disagree with the hon. Gentleman, but the answer is no. The record also disproves his point. In that period, we have been at the heart of Europe. What is more, to take one profound change, Europe has expanded. There were 15 member states when we joined the EU. There are now 25 and soon there will be 27. That is a direct result of the policy led by my right hon. Friend the Prime Minister and by the Government as a whole. It would not have happened without my right hon. Friend's commitment and that alone is helping to change the whole climate and the economic policy of the EU.

Does the Foreign Secretary share my concern that the EU and its member states, particularly on the mainland of Europe, are not doing nearly enough to counter the vile trade of international human trafficking?

Yes, I do. That is all the more reason why EU Governments, with help from the Commission, must integrate and co-operate better in their efforts to deal with that vile trade, as the hon. Gentleman describes it.

With permission, Madam Deputy Speaker, I would like to make a statement on council tax for 2006–07 and the action that the Government propose to take with regard to local authorities that have set excessive budgets. Figures released today show that, excluding the council tax element of the funding package for the 2012 Olympic games, the average council tax increase in England for 2006–07 is 4.2 per cent. With the council tax element of the Olympics, it is 4.5 per cent.

We have a mature working relationship with the Local Government Association. We have worked with the LGA to look at the pressures that councils face in the next two years, and how central and local government can manage those pressures. Under the settlement for 2006–07, which the House approved on 6 February, total support for local government, including specific grants, will rise by 4.5 per cent. compared with 2005–06. That includes an extra £305 million above previous plans. The provisional settlement for 2007–08 will provide an increase of a further 5 per cent., with £508 million above that previously planned. By introducing multi-year settlements, we are enabling authorities to plan ahead more effectively in budgeting for service delivery. We have now provided a framework for authorities to deliver effective local services over the next two years that takes account of the pressures that those authorities face.

By 2007–08, Government grant for local services will have increased by more than the rate of inflation for 10 years in succession. That represents an increase of 39 per cent. in real terms since 1997. It can be compared very favourably with a real-term reduction of 7 per cent. in the four years up to 1997. I also remind the House of the council tax support that the Government provide to those on low incomes. Indeed, 14 per cent. of total council tax is paid through council tax benefit. Nobody who is unable to pay is made to pay, and we are working to ensure that all who are eligible do claim the benefit.

Given our significant extra investment of grant, and the continuing scope for efficiency savings, we made it very clear again this year that we expected authorities to budget prudently. It was only with the greatest reluctance, following the 12.9 per cent. rise in council tax in 2003–04, that we first made use of our reserve capping powers. However, as we said in our 2005 election manifesto, we will use capping to protect council tax payers from excessive increases. There can be no doubt that the recent, more modest increases in council tax could not have occurred without the Government making judicious use of those powers.

When we announced the provisional settlement in December, we said that we expected the average increase in council tax in England to be less than 5 per cent. for each of the two years 2006–07 and 2007–08. I set that out in a letter to all authorities. Ministers later wrote to those authorities reported to be considering setting increases of more than 5 per cent. I also wrote jointly with my right hon. Friend the Minister for Policing, Security and Community Safety to all police authorities reaffirming the Government's expectations.

I am pleased to report that the overwhelming majority of authorities have responded positively to our messages. Most authorities fully recognise the need to minimise the demands that they place on council tax payers. Regrettably, however, a very small number of them have set excessive budget and council tax increases, and it is for that reason that I am making a statement to the House today about the action that we propose to take.

I should like to remind hon. Members of the provisions of the capping legislation set out in the Local Government Finance Act 1992, as amended by the Local Government Act 1999. In order to determine whether each authority's budgeted expenditure as defined in the legislation is excessive, we must compare the authority's budget requirement for 2006–07 with that of the previous year. The legislation also allows us to determine other principles, such as the level of increases in council tax.

This year, the increase in budget requirement for authorities providing education, police and fire services is measured using the alternative notional amounts given in the "The Limitation of Council Tax and Precepts (Alternative Notional Amounts) Report (England) 2006/07", which the House approved on 6 February. Alternative notional amounts are notional figures used for capping purposes to help give a like-for-like comparison of budget requirements between years.

Our view is that authorities' 2006–07 budgets are excessive if they show, first, an increase of more than 6 per cent. in budget requirement compared with 2005–06, and, secondly, if council tax has increased by more than 5 per cent. in the same period. As was the case in 2005–06, a single set of principles has been applied to all authorities.

Despite the principles being more stringent than in 2005–06, when authorities' budgets were judged excessive if they showed an increase of more than 6 per cent. in budget requirement compared with 2004–05 and if council tax had increased by more than 5.5 per cent, we are proposing to take action against only two unitary authorities this year, compared with 2004–05, when we took action against 14 authorities, and 2005–06, when we took action against nine authorities. The two authorities in question are Medway borough council and York city council, which have both set excessive budgets according to the principles that I have described. We are writing to those authorities today, informing them of our decision to designate them with a view to capping them in-year, and notifying them of the maximum budget that we propose to set for them.

The authorities have a statutory right to challenge the proposed caps, and they have 21 days in which to do so. If they want to challenge, we will carefully consider the information that we have required them to send us, along with any other representations they make, before we take final decisions. We will then either make an order, to be approved by this House, designating the authorities at the level of the proposed maximum budget or another level, or we will withdraw the designation and nominate them instead. Nomination would allow us either to set them notional budgets for 2006–07 for future capping comparisons or to cap them in advance for 2007–08.

Two shire districts, Aylesbury Vale district council and Wellingborough borough council have also breached the limits. However, as they have done so by very small amounts—only 12p and 9p respectively in terms of band D council tax—we are not proposing to take action against them. We have always made clear our reluctance to take capping action, because these are powers of last resort and we would prefer not to have to use them, but the public have a right to be protected from excessive council tax increases.

Under our wider localism agenda, we are giving local authorities more freedom over how they deliver services. However, that must be set within a framework of prudent financial management and value for money. The vast majority of authorities—99 per cent.—have responded well to our clear message for council tax in 2006–07, and no one would have been happier than me if the figure had been 100 per cent. However, we remain committed to taking action against those increases that we believe to be excessive.

I thank the Minister for sending me an advance copy of his statement. That is much appreciated and entirely in line with the courtesy that we have come to expect from him. I also thank him for delivering it almost a month earlier than expected. I hope that that sets a precedent and that, in future, we can see statements in plenty of time for the local elections.

The Minister talked about the amount of extra resources that he claims to have put into local authorities. Can he put a figure on the extra burdens that have been placed on local authorities? That would be interesting to know.

The figures released represent an 84 per cent. increase in council tax in the period since Labour came to office. From 1997 to 2006, the average council tax on band D properties has soared to £1,268—the equivalent of £106 a month. It is a measure of how great is the council tax burden that the current increase is £4 short of being the fourth largest increase that this Government have made in the course of their massive increases in council tax. The current increase is £5 more than last year's increase. The Minister can talk in terms of percentages, but £54 is a lot for a hard-working family. As the Chancellor might say, in his own inimitable way, "We have had increases of £59, £50, £49, £54, £75, £126, £65, £47 and £54, making a total increase of £579 since Labour came to power"—although he would probably have rattled through it much more quickly. That represents a considerable burden on hard-working families.

But one section of the community faces increases of more than £54 on this year's bill—pensioners, who face an increase of £254. Where does the Minister seriously expect pensioners just above the benefit level to find an extra £254? Can he explain why the £200 pensioners' payment has mysteriously disappeared this year? Last year, when council tax had increased by £525 since 1997, the Government felt that pensioners needed extra protection. This year, it has increased by £579 since 1997, so why do they now feel that pensioners no longer require that protection? The House can only draw the conclusion that that money was a cynical election bribe.

I have heard the Minister express concern that council tax might be a tad regressive, but are not the current figures taking his case to the extreme? When a billionaire donor to the Labour party faces an increase of £54—perhaps a bit more in other bands—and a pensioner just above the benefit level faces an increase of £253-plus, is there no better indication of the true state of the Labour party? Aneurin Bevan and Keir Hardie must be turning in their graves. This is a complete sell-out of pensioners.

Not only did I get the statement in good time, but I have also had the benefit of the Minister's press release, courtesy of "Gallery News". In it, he makes the most extraordinary statement, which I note he did not repeat on the Floor of the House. For the benefit of colleagues, it says:

"Labour councils are once again leading the way. Labour councils cost on average £190 less than Tory controlled councils and £96 less than Lib Dem councils."

What is the basis for those figures? Surely they are not the discredited figures that do not take account of the relative property values of traditional Labour and Conservative authorities. Surely they are not the discredited figures that rely on Labour authorities having a lower valuation than Conservative authorities. Surely they are not the figures that no one else uses because they fail to convey a fair picture. That marvellous set of accounts and such creative accountancy show that the Minister for Local Government is wasted in his job. He should be a fundraiser for the Labour party.

If we use the comparison on band D that the rest of the country and the House of Commons Library use, we realise that Conservative councils charge £81 a year less than Labour-controlled councils and £88 a year less than Liberal Democrat councils, despite the fact that Labour has fiddled the grant to give more money to its councils. As the independent Audit Commission put it,

"grant redistribution . . . led to some councils putting up council tax more than others. We found a clear association between the size of grant increase a council received and their increase in council tax."

Yet Conservative councils still manage to charge lower council tax. The figures that the Minister produced are the clearest manifestation that Labour is in retreat and being pushed into its heartland.

The Minister made some announcements about capping. After last year's fiasco, when re-billing cost more than the money saved, he again targets minnows. Both authorities have increases in absolute terms that are below the average increase. The Minister appears to be blinded by percentages and to have forgotten that people pay in pound notes.

In Medway, a Conservative-controlled council, this year's increase is £50, which is a 5.5 per cent. increase. That is £4 less than the average council tax increase. In York, a Liberal Democrat-controlled council, this year's increase is £49 or 5.5 per cent. That is £5 less than the average. Yet the Minister does not seem to be obsessed by percentages when it comes to his friend—and the Standard Board's friend—Mr. Ken Livingstone. The Greater London authority's increase, before the addition of the Olympic precept, is 5.5 per cent.—exactly the same figure as Medway and York.

Medway and York are capped because they have introduced increases that are below the average. Let us contrast that with three other councils. Oldham's increase for band D is £59, that of Hartlepool is £57 and that of North Tyneside is £55. What makes those increases acceptable to the Minister? Why is the highest band D council tax in the country levied in Sedgefield, at £1,490? It has a Labour district council, a Labour county council and, at least for now, a Labour Member of Parliament. Cannot the Minister speak to that spendthrift Member and try to ensure that people in Sedgefield get a fairer deal?

Every year, the council tax increases. Every year, despite fiddled figures and grant, and wishful figures provided by the Minister, Labour's tax burden increases and it digs itself further into a hole over council tax. In some parts of the country, Labour will face the consequences in May, but in most parts, the poor council tax payer must face those consequences.

First, I thank the hon. Gentleman for his kind initial remarks. Let me deal with his points in the order that he raised them. On extra resources, we have a mature working relationship with the Local Government Association that allows us to make a serious analysis of the pressures that councils say that they face. I have made it clear that the new burdens principle will be implemented, but on the basis of net rather than gross new burdens, and on a shared understanding and analysis of those pressures.

We believe that the exercise leading up to the two-year settlement satisfied the Local Government Association's major recommendations, either by establishing self-funding regimes in the case of fees—particularly in regard to licensing—or by providing the extra resources that we were able to announce in the settlement. I notice that the hon. Gentleman did not welcome that extra money but, shucks, I guess I will just have to live with that.

The hon. Gentleman said that council tax had gone up by 84 per cent. I said in my statement that the 12.9 per cent. increase some years ago had been unacceptable. It is also true that significantly more resources had been given to local councils in that period. I also mentioned the 39 per cent. real-terms increase in Government support for local authorities.

The hon. Gentleman asked about the £200 assistance for pensioners, but he failed to mention two important points. One is that about 14 per cent. of council tax is now paid through council tax benefit, and that people on full pension credit pay no council tax at all. All right hon. and hon. Members would like to see 100 per cent. take-up of council tax benefit, and I would ask Conservative Members to join us in encouraging that take-up, as many Conservative-run local authorities already do. Secondly, the hon. Gentleman ignored the other help that pensioners receive.

The hon. Gentleman's fifth question was about billionaires. I feel that it is only right to ask him what is the Conservatives' actual policy on a property tax. I must remind the House that this property tax—the council tax—was introduced by the Conservatives, and we all remember the circumstances in which that happened—[Interruption.] Well, I have asked before in the House about their policy on a property tax. Do they have a commitment to a property tax or do they not? They introduced the eight bands in 1991. It would be perfectly possible for them to put a proposal to Sir Michael Lyons' inquiry for an increase in the number of bands, so as to include a billionaires' band. Perhaps they should propose that, but I suspect that they will not.

I cannot accept the hon. Gentleman's accusation that the grant system is politically biased. That is not borne out by the facts, the figures of the House of Commons Library, or the representations that have been made to the Under-Secretary of State, Office of the Deputy Prime Minister, my hon. Friend the Member for Poplar and Canning Town (Jim Fitzpatrick) and other ministerial colleagues. My hon. Friend the Member for Wigan (Mr. Turner) is not in his place, but if he were, he would be reading out statements from the special interest group of municipal authorities—SIGOMA—many of which are floor authorities. It is a bit rich of the hon. Member for Brentwood and Ongar to make such an accusation, which I deny outright. Indeed, having studied the formulae and the method of grant distribution in detail for nearly 12 months, I defy anyone to come up with a formula that would achieve what he is accusing us of doing. I reject his analysis.

The hon. Gentleman referred to what he described as last year's "fiasco". In my view, however, there is a relationship between the decisions that we took last year on excessive budgets and council tax levels, and our success this year—and in future, no doubt—in keeping council tax levels down. I suspect that the hon. Gentleman is not quite sure whether he would prefer there to be higher council tax increases so that he could blame central Government, or lower council tax increases, for which he would no doubt give the credit to Conservative-run councils—but not Labour ones—in the forthcoming local government election campaign. He cannot have his cake and eat it, although he always tries to do so.

The hon. Gentleman's final point related to the comparison with the Greater London authority. I repeat for the benefit of the House that the principles involved this year and last year relate not just to council tax levels but to budget requirement levels—in layperson's terms, expenditure levels—of the authorities concerned. It is important that that point is understood.

I thank the Minister for his statement and the measured way in which he presented it, although I cannot thank him for the news that it contained.

I am sure that the Minister recognises that yet again council tax nationally is rising by twice the rate of inflation. He will know that the Liberal Democrats believe that the tax should be scrapped, not simply fudged and tinkered with. What does he have to say to pensioners across the country who, if they were paying the average council tax last year with the £200 rebate and are now paying the new average council tax without the £200 rebate, face a 25 per cent. increase in the coming year? It is fine to cap local authorities, but does he not understand that without that rebate, pensioners, the poorest council tax payers, will be hit hardest by his and the Chancellor of the Exchequer's combined decisions?

Should not local tax be based on ability to pay? Do not the Deputy Prime Minister and the Minister understand that the current system is fundamentally flawed and puts the poorest at a disadvantage when it comes to paying for local services? Will the Minister now speed up the Lyons review and make sure that that report comes to the House promptly, not delay its implementation until after the next general election, which would condemn the poor council tax payers of this country to another three years of this iniquitous system? He should bring it to the House with his reform ideas clearly in mind.

When did resistance to capping and all its works, clearly and firmly expressed by the Deputy Prime Minister when in opposition, translate into the current enthusiasm for centralising and suppressing the work of local authorities? Does not the Minister see that capping is a sign of Government failure and not of Government success? Underlying all that is the byzantine grant allocation mechanism that he and his colleagues have devised. It might or might not be politically partisan, but it is certainly partisan as between central Government and local democracy, leading to higher council tax, intolerable burdens on pensioners, cuts in services and, today, the ultimate madness, capping by this Government.