With permission, I should like to make a statement about local authority revenue finance for England in 2007-08. Sensible planning for service delivery needs a stable and predictable funding environment. The quality of councils’ forward budgets, their relations with stakeholders whose budgets they support, and their ability to set low and sustainable council taxes, will all be promoted by predictable funding.

As I told the House last January, we were then setting out firm proposals for forward financial allocations on a two-year basis—including the use of projected data for population and council tax base. As 2007-08 is the second year of a multi-year settlement, the policy is not to change the settlement, including the data used in the grant calculations, from that previously announced, other than in exceptional circumstances.

This year’s announcement therefore contains no surprises for local authorities. I make a virtue of that, because I am convinced of the advantages of multi-year financial planning, and most of what I hear from councils and their delivery partners, such as those in the third sector, supports that view. Today’s announcement launches a period of statutory consultation, and I will fully consider any representations made during the consultation period in the light of the policy in relation to multi-year settlements.

Within the framework of stability, I am able to provide adjustments to grant allocations for the voluntary merger of the fire services of Devon and Somerset under a new single combined authority, should that go ahead for 2007-08. Today, I am also updating details of individual specific grant allocations to local authorities for 2007-08.

With the next spending review period, we will move to give three years of grant allocations to local government: for 2008-09, 2009-10 and 2010-11. The stability provided by multi-year settlements will allow local government to publish three-year council tax figures, and we would expect it to take up that opportunity. More widely, such security on funding will enable councils to move forward on providing more flexible, efficient and responsive services to their communities, as was set out in our October 2006 White Paper, “Strong and prosperous communities”. It will facilitate the move towards new, more inclusive local area agreements that are tailored to meet the needs of individual areas and the drawing together of different stakeholders to provide better, more cost-effective services that seamlessly meet the needs of clients.

Total revenue grants to English local authorities will be £65.7 billion in 2007-08, an increase over 2006-07 of £3.1 billion, or 4.9 per cent. Part of that increase is in specific grants, and it includes dedicated funding for schools and a further £525 million in neighbourhood renewal fund, allocating extra help to the 86 most deprived local authority areas in England. Within that total, formula grant will total £25.6 billion in 2007-08, an increase of 3.7 per cent. That means that by 2007-08, the increase in Government grant for local services since taking office will be 39 per cent. in real terms. The provisional standard multiplier for national non-domestic rates in 2007-08 will be 44.4p in the pound, and the small business non-domestic rating multiplier will be 44.1p. That means that, once again, businesses and other non-domestic users can look forward to predictable and stable rates.

Grant floors—minimum guaranteed increases from one year to the next—are a permanent part of the system. I need to strike a balance between funding stability and the cost of the floor. This year, I am able to improve floor protection for fire and rescue authorities, while easing the impact of floors on upper-tier and shire district authorities. I can thus today confirm my proposal that, for 2007-08, the floors will be: for authorities with education and social services responsibilities, 2.7 per cent.; for police authorities, 3.6 per cent.; for fire and rescue authorities, 2.7 per cent.; and for shire district authorities, 2.7 per cent. Within each group of authorities, those above the floor will have their grant increase scaled back to pay for that floor.

We have provided a stable and predictable funding basis for local services. We expect local government to respond positively as far as council tax is concerned. We thus expect to see an average council tax increase in England in 2007-08 of less than 5 per cent. We will not allow excessive council tax increases. We have used our reserve capping powers in previous years to deal with excessive increases and we will not hesitate to do so again if that proves necessary.

I am also announcing consultation on alternative notional amounts for Devon and Somerset fire and rescue authority and Somerset county council. That will enable like-for-like comparisons to be made between 2006-07 and 2007-08 budget requirements for capping purposes. This is being issued today for consultation to ensure that, should the proposed merger go ahead for 2007-08, the relevant authorities will know, in advance of setting their budgets, the budget requirement figure for 2006-07 that the Government will use when considering using their capping powers.

The supporting people programme has proved to be a highly successful one that has provided support to more than 1 million vulnerable people each year. In July, I announced almost £1.7 billion of investment in supporting people and I am pleased now to confirm the grant allocations for 2007-08. Additionally, I can announce a further £40 million of administration grant for authorities in 2007-08 to help them to manage that important programme. I am pleased to announce that if authorities generate savings under the programme through their careful management, they will be able to roll forward those savings from 2006-07 to 2007-08, in order to reinvest in the programme.

The Government have provided another significant boost for local authorities, setting out a financial package that is stable, predictable and adequate to meet the pressures that local authorities face, but keeping council tax increases down to acceptable levels. I have placed copies of the tables showing grant allocations and copies of the supporting documentation in the Vote Office and the Library, and full details are being made available to local authorities on our website. I look forward to receiving consultation responses, and I commend the proposals to the House.

I thank the Minister for early sight of his statement and for the supporting documents. I have always considered the Minister for Local Government to be someone who respects the Chamber, so I am sorry that he chose to release the details of the settlement in a press release yesterday. Clearly, the spirit of Jo Moore lives on in his Department.

Since 1997, council tax bills have rocketed. They have gone through the roof, rising by 84 per cent., and that takes the average bill for a band D property to £1,268 this year. A 5 per cent. rise this year will mean an extra £63 on the bill of a typical pensioner couple or a family, and that is equivalent to paying £111 every month of the year. What is the Minister’s estimate of the extra burden on the vulnerable? I remember the deep shock felt by households when the average band D bill breached £1,000. It took seven years of this Labour Government for us to reach that oppressive figure. From the figures before us, we can calculate—I suppose that that is the advantage of multi-year financial planning—what bills will be by the end of Labour’s third term, if there is a 5 per cent. annual increase. The average council tax bill will be £1,500.

The Minister’s last major adventure in capping resulted in nearly half the savings going on the cost of rebilling. Will he at least spare himself the embarrassment of capping authorities in cases in which the savings are trivial? Will he confirm that his capping powers will not be applied to the Olympic levy on council tax, and if costs continue to soar, as they did in Montreal, will Londoners be paying the Olympic tax for the next 30 years?

We have long been promised the publication of Sir Michael Lyons’s recommendations on local government finance, but a spokesman in the Department is reported in last week’s Municipal Journal as saying:

“we have never made a commitment to publish the report at all”.

Will the Minister give a clear undertaking that the Government will publish Sir Michael’s recommendations well in advance of the debate on this year’s settlement? One of the key drivers for soaring council tax is the failure of the Government to finance fully the burdens that they impose on local councils from Whitehall. Will the Minister confirm that, on top of the figures given today, the Chancellor will look to meet a target of 3 per cent. cuts from local authority budgets?

The finances of local authorities, particularly those with social services departments, are closely linked with the NHS. Across the country, local hospitals are cutting staff recruitment, abolishing posts and cancelling operations because their budgets are in the red. In July, the Local Government Association and the NHS Confederation published research revealing that seven out of 10 local authorities have been hit by cost-cutting pressures from the NHS. Are there any measures in the settlement to address that problem, or do the Government have their head in the sand, with regard to Labour’s NHS cuts?

The Chancellor has set in place a landfill tax escalator, and is making municipal waste collection ever more expensive. The costs should be funded under the “new burdens” principle, but the Department for Environment, Food and Rural Affairs argues that it does not apply, because of the “polluter pays” principle. What representations has the Minister made to remedy that injustice? In conclusion, no wonder the Minister thought that this was a good day to bary—bury—bad news. The bad news is that an ordinary family in an ordinary house face the prospect of paying a crippling £1,500 in council tax by the end of Labour’s third term—truly, a shocking and crippling legacy.

What did the hon. Gentleman mean by “Barrying Texas”?

I am grateful to my hon. Friend the Member for Bolsover (Mr. Skinner).

I thank the hon. Member for Brentwood and Ongar (Mr. Pickles) for his comments about my attitude to the House, but I can assure him that the details of the statement were largely announced to the House last year, so there has not been a breach of privilege in the House. If there had been, I would take it very seriously. I thank the hon. Gentleman for his opening remarks but, in response to the questions that he asked, I specifically announced that the Government would not tolerate average tax increases above 5 per cent.—that is the same policy that I pursued last year. Last year, he attempted to portray that as an actual increase in everyone’s council tax of 5 per cent. Of course, that was not the case this year, and it will not be the case next year. I accept his point that an advantage of multi-year statements is that we can predict council tax increases in future, but a disadvantage of that sensible policy from the Government’s point of view is that the propaganda and spin that he put on the figures is made worse. Such a practice does nothing other than unnecessarily frighten particularly vulnerable people, so I urge him not to indulge in it. [Interruption.] What was wrong about it was that the accusation was made last year. It was not true then, and it will not be true this year.

The hon. Gentleman asked about the Olympics. The £20 levy for the Olympics, which has been agreed between the Government and the Mayor, cannot be changed without the agreement of the Mayor and the Greater London authority. The hon. Gentleman’s party was supportive at the time of the bid, and the Prime Minister graciously said so. I accept that it is the job of Her Majesty’s Opposition to oppose, but sometimes I think Her Majesty should ask for her money back because they have not provided value for money. The hon. Gentleman’s worry about the Olympics is therefore not borne out. He asked an important question about the Lyons review, which is due to report to the Chancellor and the Secretary of State by the end of the year, and decisions will be made at that time. The hon. Gentleman described the 3 per cent. efficiency target as a cut—I assume that he was referring to the Gershon figure. Local government has a good record on efficiencies, both cashable and non-cashable, and I am pleased to report that our all-party work with the Local Government Association has resulted in improved efficiencies and services.

The hon. Gentleman said that the NHS budgets are in the red, but the NHS budget has not been cut. NHS trusts and hospitals are required to balance their books, and it is amazing that the Opposition should fail to support the concept that public services should balance their books. Councils must do so—that is quite right—and most of them take a responsible attitude towards the requirement. The increasing work that they do through local partnerships, particularly the new financial arrangements of local area agreements, means that the aligning of financial budgets by the partners is important. The hon. Gentleman therefore made a significant point. As for his point about waste, my Department, the Department for Environment, Food and Rural Affairs and the LGA have important work streams on waste issues, which receive substantial attention in the White Paper that we published on 26 October. In giving a reaffirmation of the new burdens principle, I should point out to the House that those new burdens can only be calculated on a net basis, even though they are sometimes presented on a gross basis.

I welcome my hon. Friend’s statement. May I draw his attention to an anomaly that affects the city of Newcastle upon Tyne? The population figures that the Government use to calculate the city’s entitlement to rate support grant seriously understate the real population of the city. This has been the case for a number of years, and the gap between the two figures is widening. Will my hon. Friend meet me and the other Members of Parliament for the city, and also perhaps the leader of the Liberal-controlled local authority and a representative from the opposition party in order to discuss the anomaly and see what can be done to rectify it?

Of course I would be delighted to meet my right hon. Friend, the leader of his council and any other representatives who wish to participate in a discussion of the issue. In the formula announcement that I made last December and confirmed in January, I changed the formula calculation to take into account population projections as well as historical trends, so there was a change in that direction. I am aware that his council and some others are raising the important matter of the population figures. The Government rely on the best data available, which are provided to us by the Office for National Statistics. The ONS constantly reviews the data and has a work stream through the population statistics working group to examine the matter. One can go only so far in future projections to be consistent with the overriding policy of financial stability and predictability.

I commend the Minister for making the statement available much earlier than is usually the case. I congratulate the Government on moving to a three-year settlement, which will allow local authorities to plan much more effectively. However, it will not have escaped Members’ attention that the Labour manifesto pledge back in 1997 to abolish universal and crude capping has still not been delivered. We do not have crude and universal capping. What we have is a benevolent Minister who reluctantly uses his reserve capping powers but achieves the same end, and our strong and prosperous communities still have to dance to his tune.

The Minister neatly side-stepped the question from the hon. Member for Brentwood and Ongar (Mr. Pickles) about whether and when Sir Michael Lyons’ report would be published. I hope he will answer that question on the record. In relation to the three-year settlements and picking up a point that has just been made, can the Minister confirm that those will be sufficiently flexible so that if a local authority experiences a swift change, such as inward migration, or if the census data prove to be inaccurate, it will be possible during that three-year period to adjust the settlement?

On the 2007-08 announcement, does the Minister not accept that it is his settlement of 2.7 per cent. for many authorities, combined with public sector inflation and the financial impact on local authorities of the cuts in many primary care trusts and many acute trusts, that make inevitable an increase in council tax of double the rate of inflation, hitting the poorest—often our senior citizens—the hardest? Is it not time he stopped punishing local authorities? Instead, he should congratulate them on moving forward with the Gershon savings at a rate that central Government cannot match. He should introduce a local tax based on ability to pay, give local councils control of business rates, allow fair votes for local elections and scrap the hundreds of targets that are imposed on local authorities by his Government.

The 2.7 per cent. floor that the hon. Gentleman mentions benefits his own authority, which is a floor authority. Without the floor, there would be a significant shortfall, and the hon. Gentleman and his colleagues would no doubt lobby me for the floor. I therefore expect a letter of thanks for it, although I doubt whether that will be in the Christmas box for the Woolas office this Christmas.

The Lyons report will be complete by the end of the year. [Hon. Members: “Will it be published?”] Of course it will be published. [Hon. Members: “When?”] The hon. Members for Brentwood and Ongar (Mr. Pickles) and for Carshalton and Wallington (Tom Brake) will have to be patient. That approach was used in the past with the Layfield review and other independent reports.

The answer to the question about three-year settlements is yes, because the settlement takes into account the updated data.

On council tax increases of twice the level of inflation, I repeat that the 5 per cent. figure to which I referred last year and this year is the national average, so it does not mean that council tax will rise by 5 per cent. in every authority. Council tax is set by individual local authorities, which has been the case since its introduction.

On hitting the poorest hardest, the poorest benefit most from the council tax benefit system, which contributes just under 15 per cent. of total council tax revenues. That point is often missed out from the debate for what I assume are entirely honourable reasons.

On the Gershon review, this morning I congratulated local authorities at the conference of the Chartered Institute of Public Finance and Accountancy on their success in reaching their Gershon targets a year early, and I am happy to repeat those congratulations.

If the new formula supporting social services had been fully implemented in this settlement, how much extra taxpayers’ money would Wirral receive?

I am very grateful to my right hon. Friend for asking that important question. The funding blocks for children’s social services and for young adult’s social services come with floors, while the funding block for elderly social services does not. All the formula grant is covered by floors, and the floor for my right hon. Friend’s authority is 2.7 per cent this year. Without that floor, I estimate that the loss to Wirral would be around £4 million. It is not possible to say—I am more than happy to clarify this matter in writing—what effect the removal of the floor would have on children’s social services and on young adult’s social services.

The Minister is a reasonable guy, and I like him. Will he give me an honest answer to this question? Cheshire is under-resourced in respect of education—it is one of the worst funded authorities in the country—and the same is true of social services. If the Government limit the money that they give to Cheshire, and if Cheshire cannot raise the level of local tax above 5 per cent. in order to provide the services that it requires, how can the local authority provide facilities for, in particular, the elderly and children, when it is under-resourced and limited on what it can raise itself?

I thank the hon. Gentleman for his comments, which I sincerely reciprocate—I genuinely thank him for what he has said. He has raised a difficult issue. Councils led by all political parties have identified that they face pressures, particularly in social care. We work with councils and their representatives to identify the causes of those pressures, and we work out with them, often successfully, what we can do together to address them. The plain fact of the matter is that the public—I am sure that the hon. Gentleman will back me on this point—will not tolerate excessive increases in taxes and particularly in council tax. The Government do not have a solution to the issue set out by the hon. Gentleman. We must square the circle through efficiencies, the improvement of services and better joint working with other public service agencies, which has resulted in significant improvements in Cheshire and elsewhere.

How can the Minister describe as a significant boost a settlement that gives a council such as Gateshead, which is often held up by Ministers as an example of good local government, 2.7 per cent.—some 30 per cent. below the English average—and that gives the north-east a settlement below the English average even though it is widely acknowledged that its needs are higher than that? Under this settlement, what prospect does Tyne and Wear passenger transport authority have of clawing back some of the £7.2 million that it cost us to introduce the Government’s free travel scheme; and how on earth is it supposed to finance that scheme next year, given the inadequate system of local government finance?

I congratulate my hon. Friend on continuing his important campaign on behalf of bus users in Tyne and Wear. As he knows, the Government provided £350 million last year, and £367 million this year, for the concessionary fare scheme. In addition, there has been an uplift across the board in grants provided to local authorities. Having looked particularly at regional distribution, I can confirm to my hon. Friend that over the past 10 years the north-east has not been at the bottom of the league on a regional basis as regards the allocation of grant funding. We are in discussions with him about this important matter.

The issue of social services is fundamental. The Minister will know that the Prime Minister and the Chancellor have just put together a document about the challenges facing the Government which highlights the problems that arise in a society in which the numbers of elderly people and young people are growing in proportion to the total population. Those are precisely the groups that make the most demands on social services, and where significantly higher statutory demands are laid upon local authorities and the most pressure from budgetary provision is felt. What forecast has the Minister made for the evolution of demand in that sector, and what plans does he have to meet it?

The right hon. Gentleman speaks with great authority and knowledge on these matters, and I believe that he understands the Government’s argument, which is that we have provided extra revenue and capital support for social services—I could read out the substantial figures. The answer to his question is that the Government are proposing, through the White Paper, a partnership approach whereby local authorities are freed up to work more effectively with other partners, especially the health service. Spending on social services has increased year on year above inflation. That is not to say that there are not significant demographic and other pressures on councils and on central Government; that is why it is right and wise of my right hon. Friends the Chancellor and the Prime Minister to deal with that in their reviews.

What assessment has my hon. Friend made of the impact on local government finance of implementing the single status and equal pay Acts? I have gained the impression that his Department has been in denial about this for some time. Has he now woken up to the size of the problem, and what are his plans?

I can assure my hon. Friend that I am not in denial, and neither is my Department, about the importance of equal pay for equal value, not only in achieving equality and fairness for women workers, especially low-paid workers in local government, but in ensuring the balancing of the books on which we place such importance. Equal pay is very high on our agenda; indeed, this morning I held yet another substantive meeting with the Local Government Association to consider some of the potential solutions.

Will the Minister meet council leaders and Members of Parliament from the London borough of Sutton to discuss two matters: first, the effects of cost shunting from the local NHS on to local social services as a result of bed closures and cuts in staffing in the local NHS and tens of millions of pounds of cuts in primary care services; and secondly, the double disadvantage that the poorest of my constituents suffer as a result of not counting within the formula allocation and not benefiting from targeted grants because we are regarded as being a leafy suburb but in fact have pockets of deprivation that are not properly met by the grant system?

I shall be more than happy to look at the situation in the hon. Gentleman’s borough, but I must point out again that our policy is a fair one. I acknowledge, as do the Government, that the point about pockets of poverty in relatively well-off areas is an important one. That is one reason why we apply the floors within the formula, of which his authority is a beneficiary.

While I welcome the stability of the two-year settlement and the fact that population projections will now be included, may I draw the Minister’s attention to the problems faced by authorities such as Milton Keynes council, which has a rapidly increasing rate of population growth but is limited by the damping effect introduced to protect authorities affected by the floor? Will he allow representatives of the council to come with me to make representations to him on its specific problems as a housing growth area, and on the way in which that should be reflected in the formula?

I congratulate my hon. Friend on her persistent campaign to raise the issues affecting Milton Keynes, which she has acknowledged as being problems of success. This is a new issue that we have to deal with. I can assure her that the specific issues facing Milton Keynes are being considered, and that discussions are taking place on possible ways forward, not only for her area but for areas in a similar situation. I do not believe that this settlement specifically addresses the issue that she has raised, but I can give her the assurance that it is high on our agenda.

As a councillor on Kettering borough council, may I draw the Minister’s attention to the acute pressure on the planning departments in small district authorities, particularly in growth areas? Will he consider lifting the cap on the planning fees that developers have to pay? If a developer makes an application for 5,000 houses, that can occupy all the planning department’s time, yet the recompense that it receives is totally inadequate.

I congratulate the hon. Gentleman on raising this issue, which we have debated before. He has made an important point in a non-partisan way on behalf of his constituency, and the Department is indeed looking into the matter.

My constituency is benefiting from £1.6 million of neighbourhood renewal funding. This is because super-output areas, rather than borough-wide statistics, have been used to target those resources. My constituency is in the relatively wealthy metropolitan borough of Stockport, as my hon. Friend the Minister knows. Will he increase the use of super-output areas to ensure that resources go to all deprived areas, irrespective of the council area in which they are located?

My hon. Friend makes an important point about super-output areas, which are the sub-ward areas of highest deprivation. I have announced today the allocation of neighbourhood renewal funding, and it is for the local authorities and their partners to allocate that funding to try to meet the floor targets on deprivation that we have set for them. The review of the neighbourhood renewal fund will take place in tandem with the comprehensive spending review, and the issue that my hon. Friend has raised is one of the subjects under consideration in that review.

I want to return to the issue of population change, and to refer the Minister back to the Westminster Hall debate that he and I attended on 1 November. He said that he would write to me after that debate, but will he instead tell me today whether he will look again at the situation in local authorities such as my own, as well as in other London boroughs and places such as Peterborough and Slough? Apart from the change in the trend in population increase in such places, they have faced huge and sudden increases in population since the accession of the 10 new EU member states. Will he look again at the possibility of giving a gateway grant to such local authorities to deal with the one-off effects of those circumstances?

The hon. Gentleman referred to our fruitful debate on this issue in Westminster Hall. I cannot give him the commitment that he is looking for, however. The best data available to the Government are those produced by the Office for National Statistics, and I am obliged—as any Government would be—to use the best data. The work stream that is examining those data is ongoing, as his local authority and the others that he mentioned have requested.

My hon. Friend said in his statement that there would be no surprises for local authorities. Does he agree that his intervention last week in the negotiations on the local government pension scheme was a big surprise for local authority workers? He must have surprised not only the workers, probably scuppering the genuine negotiations, but the Prime Minister, who had said at the Dispatch Box 24 hours earlier that he would do all that he could to help to reach a successful outcome.

I am grateful to my hon. Friend for giving me the opportunity to put it on record that the statement issued last Thursday on the future of the local government pension scheme was influenced by discussions involving trade unions and employers, and that it refers to a consultation on the best way forward. On behalf of members of the scheme, and with regard to the viability of the scheme, I have an obligation to move forward in accordance with the timetable outlined to participants in the tripartite committee for some months and, indeed, years.

In town halls up and down the country, the Minister’s statement today will have disappointed many people, not least because it represents a thoroughly bad deal for local government, which is struggling to provide the services that all our communities need and deserve. It seems to me that the Government are effectively asking councils—

Order. When a statement is made, it is the practice in the House to put a question. The hon. Gentleman has so far not put a specific question. If he does so, I will allow him to continue.

As ever, Mr. Speaker, I am grateful for your guidance. I was just coming to the question. Given that the Government are asking local councils to do more and more with less and less, which services that local councils currently provide does the Minister think they no longer need to provide? Will he give us an answer, instead of giving councils more and more responsibilities to discharge with existing funds?

With respect, if the hon. Gentleman will give the House an undertaking not to distribute a Focus leaflet attacking tax or council tax increases, I will give a straight answer to his question. The fact is that neither Her Majesty’s Treasury nor the council tax payers in his constituency or mine are aware of the mystical tree on which he thinks money grows. Stockport borough council has had an average increase for 10 years of 4.5 per cent. in real terms. Admittedly, that includes the schools budget, but a real terms increase has been provided for other council services. Politics is about making those hard choices, for which he does not seem to think he should take responsibility.

The need for a successful conclusion on the local government pension scheme has already been mentioned. Will my hon. Friend give a commitment that he will call in the employers and trade unions to see him, so that he can stress the need for further discussion and compromises on the way forward?

I am grateful to my hon. Friend, who plays a positive role on behalf of his constituents, particularly low-paid workers. I can give him that commitment. As I said a moment ago, the statement to the House refers to a consultation on the future of the local government pension scheme, and meetings are already in the diary to continue discussions on the future of that pension scheme, so that we can move forward with a strong final salary pension fund that is fair to scheme members now and in the future.

The Minister will know of the problems faced by Northamptonshire county council, as he met an all-party delegation last year. He will know that we cut 600 full-time equivalent jobs, and that we cut deeply into services. This year, we have a £45 million shortfall on a balanced budget because of the support grant that he has announced, which we knew about last year. We can shave the employment structure to the bone, but we are still left with an £18 million shortfall that can only be dealt with by service reductions. How can the Minister reconcile that scenario with his claim that his party is improving local government services?

I am not the only one who says that local government services are improving. The independent Audit Commission and the Local Government Association say the same, backed up by independent research and evidence from respected market research companies and opinion pollsters. I am sorry that the hon. Gentleman chooses not to join me in congratulating local government, but I really cannot accept the argument that a shortfall on projected desirable expenditure is a cut. It is not, it never has been, and it never will be.

I welcome the extra £525 million that has gone into the neighbourhood renewal fund. That money is extremely useful and, as I am sure my hon. Friend knows, the excellent Labour-led Wigan city council uses it very well.

In his statement my hon. Friend made no mention of double damping, which was raised by my right hon. Friend the Member for Birkenhead (Mr. Field). I think most people would welcome damping, or at least understand the need for it; what we cannot understand is why there should be additional damping before the final damping in the formula.

Replying to my right hon. Friend the Member for Birkenhead, my hon. Friend said that he could not assess how much the amount would be. The Wigan treasurer estimates that, for Wigan, it will be £8 million, as against the extra £4 million that we have. Will my hon. Friend give careful thought to the issue of double damping and try to resolve it, so that local authorities can address the needs of their social services departments?

My hon. Friend makes an important point. I will of course look at the specific figures relating to his authority and similar authorities that have presented the argument about double damping in a responsible way. As I tried to explain to my right hon. Friend the Member for Birkenhead (Mr. Field)—I am grateful to my hon. Friend for acknowledging this—the social services budget for the elderly is not damped, whereas the budget for children and young adults is. I have been able to make progress on the overall damping. Wigan city council, owing partly to a success on which I am happy to commend it, received a 3.9 per cent. increase this year.

As the Minister turns his mind to the new three-year settlement, will he consider the position in Croydon? Comparisons with Ealing, which has similar social indicators, show Croydon’s budget to be £40 million adrift of where it should be. What consideration can the Minister give to a fair deal for Croydon in future years?

I hoped that the hon. Gentleman would thank the Government for the local enterprise growth initiative funds that Croydon received this year. That excellent scheme, for which I commend the council, is working very well, but I do not accept the hon. Gentleman’s premise. All local authorities can and do argue that they are special cases. We have to balance the demands on central Government funds. I believe that overall I have distributed the money fairly, and in a way that is perhaps more transparent than has been the case in recent years.

When my hon. Friend decided that Liverpool city council should receive a 2.7 per cent. floor uplift, did he take into account a recent report by KPMG which suggests 43 ways in which the council could save money on the external contracts negotiated by its former chief executive Sir David Henshaw? One of them commits the council to a service charge of £11,000 a year per councillor, to be paid to a company called Liverpool Direct for computers supplied to councillors.

Clearly more savings can be made in Liverpool. Will my hon. Friend examine the report to ensure that he and his officials know the background, and to ensure that Liverpool council tax payers receive the best services that can be provided from the significant resources that the council receives?

I, like my right hon. Friend, want the best for the council tax payers of Liverpool. I am grateful to her for raising the important point about the KPMG survey. Of course, in terms of the allocation of revenue support grant one cannot take into account such specific reports, but Liverpool is subject to the Gershon requirements, as are other authorities, and I would have thought that a consideration of that important report would be a contribution to that agenda in Liverpool.

Does the Minister recall that he met with a delegation from the London borough of Bromley in June of this year, and does he accept that during that meeting he appeared to agree with its point that formula grant is only part of the picture and that we would not be able to come to a fair assessment of the treatment of Bromley or any other authority until a comprehensive list of all grant, including specific grant, is published for each local authority? Will the Minister undertake to do that, and what comfort will his settlement give to my constituents in Bromley, as it appears that their formula grant will be nailed to the floor for a fourth successive year?

I hope I am not being churlish or disrespectful, but I say again that it would be nice to get a thank you for the floor, especially as Bromley council is part of the London Councils Association which argued for the floor in the first place. But notwithstanding that, the point that the delegation made was on the pockets of poverty, which a Member has raised. What I have done is to make available all the specific grants that are within the remit of my Department and portfolio today. The Department for Education and Skills today also publishes the dedicated school budget for schools. Surety and predictability of funding are an important part of our policy, and next year I will be able to announce three years of funding.

Today’s East Riding Mail reports that the new East Riding of Yorkshire Primary Care Trust wishes to close the bedded units in Beverley, Driffield, Hornsea and Withernsea. Does the Minister accept that such financially driven cuts must be stopped, or else the consequences will be dire not only for patient’s but for local authority budgets?

It is only proper for me to respond by saying that our public services have to balance the books. I do not think that the good people of east Yorkshire—of the beautiful market towns and other places that the hon. Gentleman mentioned—misunderstand the point that the Government are making when we say that there has been a real-terms increase in health expenditure in this country of 90 per cent. so far. I disagree with the idea that a trust or hospital that is balancing its books can be fairly described as making cuts; it is not doing that. The hon. Gentleman does his campaign no good by pretending otherwise. The public simply will not believe him when he says on the one hand that there are cuts, and on the other hand criticises the Government in other forums for allegedly overspending on public expenditure.

I beg to move, That the Bill be now read a Second Time.

I start by expressing my gratitude for the close co-operation that we have enjoyed in preparing today’s Bill—from the shadow Minister, the hon. Member for Fareham (Mr. Hoban), from the hon. Member for Twickenham (Dr. Cable), from their spokesperson colleagues in the other place, and from other interested stakeholders across the City of London, particularly the recognised exchanges themselves, with whom we have been able to discuss the Bill in recent weeks. I hope that we can demonstrate today to the outside world that—perhaps unusually for this place—we have been able to reach a consensus in the national interest on the way forward on this important issue: both inside this House with Opposition Members, and outside it among practitioners in the City. I am also grateful for Members’ co-operation in allowing us to move the Bill quickly through its Commons stages and detailed scrutiny this afternoon, in what are unusual circumstances.

As Opposition and other Members will know, the Bill fulfils the commitment that I gave in a written statement to the House on 13 September to enhance the power of the Financial Services Authority to veto changes to the rules of UK-recognised investment exchanges and clearing houses where they are deemed disproportionate.

Why do we need a guillotine? This is about the first piece of Labour legislation that some of us actually want. It is sensible and there is agreement in all parts of the House—why can we not have an open debate, given that we want to get it through as much as the Minister does?

I am grateful to the right hon. Gentleman for his intervention; hopefully, he will make a more substantive contribution in due course. I expect that there will be plenty of time in this debate for various points to be made by Members in all parts of the House. I very much look forward to the right hon. Gentleman’s contribution; I hope that it will be as revealing and interesting as yesterday’s was.

My statement of 13 September was prompted by concerns about the potential implications of a possible takeover bid for the London stock exchange. At that time, a bid by NASDAQ, the US stock market, for the LSE was still only a possibility. As Members will know, NASDAQ has now announced an offer for the LSE, so with a bid on the table it is important that we move swiftly. Our aim, with the co-operation of both Houses, is for the Bill to gain Royal Assent as soon as possible, consistent with proper parliamentary scrutiny. With support from all parts of the House, it should be possible to achieve that before the NASDAQ bid reaches its important point.

Before I turn to the Bill’s detail, I want to set out the wider context. London today is widely seen as one of only two truly global financial centres in the world. It is the location for 70 per cent. of the global secondary bond market, for more than 40 per cent. of global derivatives, and for more than 40 per cent. of cross-border equities trading. London today has more foreign banks than any other financial centre, and it is the location for the headquarters of six of the world’s 10 largest international law firms. Based on its global reach and its reputation for free, fair and open global markets, London has in recent years been attracting business and listings from around the world. We are determined to keep it that way.

I believe that international businesses have located in the City because of four great strengths: our commitment to the rule of law and the highest professional standards; the skills and flexibility of the work force and our ability to attract talent from around the world; our long-standing tradition of openness and internationalism—a global approach to competition and ownership that has allowed the City to innovate and to respond to new challenges; and the FSA’s highly respected principles-based and risk-based approach to regulation, which has been put in place over the past decade. I know that the whole House will join me today in paying tribute to the many men and women from across our country and abroad who work hard in the City and in our other UK financial services to build the City’s reputation and to contribute to its strengths.

However, we are not complacent. Back in May, when I first became the Minister responsible for such matters, concerns were expressed to me about the effects of a possible takeover of the London stock exchange by a company based outside the UK, and the threat that that might pose to London’s attractiveness as a place for international listing and wider business. Some Members will know that the UK has for some years been open to overseas investment in UK exchanges. The London international financial futures and options exchange, ICE Futures and virt-x are all owned by overseas companies. Such overseas interest in UK exchanges in part reflects our principles-based approach to regulation, which has been flexible enough to accommodate the desire of exchanges to innovate in recent years, but rigorous enough to ensure the probity and integrity of our markets.

However, following NASDAQ’s interest in acquiring the LSE, I have discussed the implications of such a change in ownership widely in recent months, including with all the interested parties. I have made two points absolutely clear. First, the Government are neutral with respect to the nationality of the ownership of the LSE. It has been put to me that the right approach is Government intervention to protect the LSE from foreign ownership. I reject that argument. Such intervention would fly in the face of the traditions that have underpinned the City’s success over the past 20 years. A policy of protecting “national champions” would damage, not bolster, the interests of London and the UK. So the Government do not have and will not express any views about the commercial merits of the proposed NASDAQ takeover. It is for the current owners of the shares to decide whether to accept or reject the offer. But secondly, our interest in the ownership of the LSE is that it should not affect the existing regulatory regime under which the exchange and its members and issuers operate. We are determined to act to protect our domestic regulatory environment, founded in both UK law and EC directives, that has made the City a magnet for international business. If a company operates in London, it should be regulated in London.

Following those discussions, in which a range of possible approaches were put to the Government, we concluded that the only way to provide the assurance to London and the UK was through primary legislation, by making changes to part 18 of the Financial Services and Markets Act 2000, which provides for the recognition of investment exchanges and clearing houses.

Let me turn to the detail of the Bill. The provisions will confer a new and specific power on the Financial Services Authority to veto rule changes proposed by UK- recognised investment exchanges and clearing houses that would have an excessive regulatory impact. By excessive we mean that the proposed rules would impose a regulatory burden on a user of the exchange or clearing house, or the wider community, that could not be justified by any regulatory benefits, or whose effect on those users or the wider community would be disproportionate—and obviously that would not include anything already required by UK or EU law.

The new powers will not put the existing provisions for regulation of the investment exchanges and clearing houses into question. They will apply only to future changes. But they will apply to all UK-recognised investment exchanges and clearing houses from the outset, not just after there has been a change of control. They will apply to all recognised exchanges and clearing houses, not just those that are in foreign hands.

The Bill also provides for necessary processes and safeguards. The exchanges and clearing houses will be required to notify proposed changes to their rules and other regulatory provision—by which I mean any guidance, policy, practice or arrangement made by an exchange or clearing house—to the FSA. The FSA will have up to 30 days to decide whether to call in a proposal for further examination. If it calls in the proposal, the FSA will have to set a period in which it will consult publicly about the proposed rule change. The FSA will then have a further 30 days after that consultation period has ended to decide whether to veto the proposed rule change.

What happens if the FSA decides that a proposed change is not burdensome and therefore takes no action, but many other people think that it is? Is there any right to take legal action against the FSA to try to get it to take action?

Of course there is. In this area, as in others under the Financial Services and Markets Act 2000, the appropriate course would be to apply for judicial review of the FSA’s decision. Given that that would probably be an exceptional event, an application for judicial review would be the best approach.

May I suggest a different set of circumstances. Let us say that the FSA decides to intervene in a change proposed by the LSE, and it decides to apply for judicial review of that decision. The FSA’s regulatory objectives include the protection of consumers, but do not include the desirability of maintaining the competitive position of the UK—it merely has to have regard to that. The FSA could be vulnerable to having its decision overturned on those grounds.

I am sure that we will deal with such matters in detail in Committee. Clause 1 writes into the Financial Services and Markets Act 2000 the power to block any regulatory decision by an exchange judged to be excessive and disproportionate and going beyond what is required for the proper functioning of that exchange. The Bill gives the FSA the power to block changes that would damage both its ability to regulate properly and proportionately and the competitiveness of the City of London. We have looked at the matter in detail, and we have judged that there is no need to include that clear intention in the Bill. Any attempt to do so would have given the impression that we were trying to narrow the FSA’s powers unnecessarily.

As I have said, we believe that the problem that the hon. Member for South-West Hertfordshire (Mr. Gauke) described will not arise, but it is important that any decision by the FSA is open to scrutiny. An exchange or clearing house will not be able to introduce the proposed change in regulatory provision until the initial 30-day period has expired without the FSA calling in the proposal, or until the FSA has confirmed that it will not be calling the proposal in, or until the FSA has stated that it will not be vetoing the proposal, or until the further 30-day period has expired without the FSA issuing a veto. If the FSA does then act, it will be open to the exchange to appeal to judicial review, as I have just made clear.

In drawing up these clauses, we have been anxious to ensure that the procedures are not burdensome and disruptive for the investment exchanges and clearing houses. We have consulted all the main exchanges, and the trade association. We are aware of the concern that any unnecessary regulation could stifle innovation and impose extra costs for both the exchanges and the FSA. The exchanges and clearing houses have put to us their concerns that the procedures, if applied in a heavy-handed way, could damage their competitive position by reducing their flexibility to make and change their rules.

We are determined that the new processes will not impose an unnecessary burden. The new power has always been intended to be a backstop; it was never intended to be a day-to-day supervisory tool for the FSA. We believe that the vast majority of changes to the exchanges’ regulatory provisions and rules will not raise the sort of concern that the new power is intended to address. The fact is that many rule changes are routine and do not need to be subject to the type of scrutiny and processes that I have just outlined. The FSA will not be micro-managing the rule books of the exchanges and clearing houses.

To make that clear, and following detailed consultation with the exchanges and the FSA, the Bill gives a power to the FSA to specify in its rules which types of change to regulatory provision need to be notified and which do not. That approach is consistent with the wider approach adopted in the Financial Services and Markets Act 2000, where more detailed working out is left to secondary legislation—that is, Treasury regulations or FSA rules.

The exchanges accept that it will take time for the FSA to plan, discuss, devise and draft rules, to consult on those draft rules as it is required to, and then enact them.

Proposed new subsection 300D(2)(c), at lines 19 and 20 on page 3 of the Bill, makes it clear that the FSA will specify a period in which representations can be made. No amendment is proposed to the provision, but the Bill does not specify a long-stop period in which the FSA must act. It has the initial 30-day period, and the 30 days at the end of the process, but the Bill does not limit the length of time that the FSA can devote to looking into a particular matter. Does my hon. Friend share my concern that matters could go into a sort of limbo as a result, and that the slowness of the FSA might be a burden on business?

My hon. Friend helpfully, as always, raises exactly my point: it is important that the FSA takes the time to plan and discuss the precise details of the rule making, and I am sure that that is the approach it will take. I am keen to discuss my hon. Friend’s particular point in detail. However, I am sure that Mr. Deputy Speaker agrees that it will probably be more appropriate to do that in Committee, so I look forward to my hon. Friend making the point again at that stage, if he can fit it into his busy schedule this afternoon, so that we can discuss it further.

It is exactly to make sure that we get such things clarified that the FSA will consult on the rule book. That will take some months, so as we need to act with some urgency, and because it will take considerably more time for the FSA to hold those consultations on the detailed rules than we hope will be available before Royal Assent, the Bill gives the FSA the power in the meantime to grant waivers from the notification obligation to exchanges and clearing houses for the first 12 months after Royal Assent. That will enable the FSA to offer some comfort and flexibility to exchanges while it gets the detail of the rules in place—to respond to the point made by my hon. Friend.

The provisions of the Bill are intended to come into force on the day after Royal Assent, so that once Parliament has decided that the new regime is to have effect, the policy intention of the Bill cannot be undermined by precipitate rule changes between Royal Assent and commencement. I am sure that the House will be pleased to hear that the FSA has already started to work with exchanges and clearing houses on the formulation of the waivers. Indeed, the FSA has written to me today—copies of the letter have been deposited in the Library and passed to Opposition Members—to confirm its intention to use that power only if it is justified as proportionate and if the benefits of doing so exceed the costs, and only after consultation.

I appreciate that the FSA regime is somewhat different from that which applies, for example, in Wall street or Tokyo, but does the Minister have any evidence that in other major international exchanges where similar issues might arise a similar regime has been adopted to try to give protection from disproportionate actions elsewhere?

The hon. Gentleman makes an important observation. The answer is no, not in our experience. I do not think that any other financial centre has such an open and global market for ownership and exchanges, as well as a regulatory regime that its authorities are so keen to protect. There is something particular about not only our open approach, but our regulatory regime, which means that we are keen simultaneously to allow ownership changes if shareholders desire them and to retain that back-stop power.

As I said, in the recent consultations, we considered the type of thing we could do; for example, issues arise in the case of the proposed, or rumoured, New York stock exchange takeover of Euronext, which would have implications for London, owing to Euronext’s ownership of LIFFE—the London International Financial Futures and Options Exchange—although regulatory issues do not arise in quite the same way. We looked at the corporate governance changes that were being proposed and discussed with authorities in other European capitals and concluded that those arrangements would not give us sufficient comfort. As we looked around the world, and at past experience, we concluded that as no model would give us comfort, other than taking power directly in law, that was the appropriate thing to do. However, it is my understanding that there is no precedent for what we are proposing.

After the detailed scrutiny of the Bill on which we are about to embark, I hope that Members will conclude that the guiding principles I set out earlier are being fully respected in the legislation. First, the principle that we should be blind to ownership of exchanges is being protected; we are entrenching London’s reputation as a global financial centre determined to attract talent and ownership from around the world. Nothing in the legislation has any consequence for the nationality of the ownership of UK exchanges. It will make overseas ownership neither easier nor more difficult and I am confident that any potential foreign investor who wants to come to the UK will not be deterred. We are also upholding the principle that it is right for the Government to act to protect and enhance the UK’s proportionate and risk-based regulatory regime.

I believe that the Bill will deliver that objective and can do so without imposing unnecessary regulatory burdens on the exchanges. Yes, we are intervening. However, we are intervening and legislating not to impose regulation, but to avoid excessive regulation being imported into the UK. By outlawing the imposition of any rules that might endanger the proportionate and risk-based regulatory regime that underpins the City’s success, I believe that we will help to ensure that London continues to be a magnet for international business and new listings from around the world. The Bill will therefore continue to bring new investment and new jobs to the UK, so I commend it to the House.

First, let me make it clear that we support the Bill. Indeed, there is widespread support for it across the financial services sector and few measures on financial regulation have gained the support of so many interested parties. We have sought to co-operate with the Government to ensure that the Bill receives a swift passage through the House today. We recognise the importance of the timing and want to place on the record our acknowledgement of the spirit of co-operation between the Government and Opposition Front Benchers in a rare outbreak of consensus and working together. It could be said that a similar spirit of consensus was not the hallmark of yesterday’s debate.

We welcome the powers given to the Financial Services Authority to veto changes to the rule books of exchanges, particularly where they are seen to be excessive. As the Economic Secretary said, the Bill is before us because of widespread concern that acquisition of the London stock exchange could lead to changes in its rule books that could damage the competitiveness of UK capital markets. If a US exchange were to acquire the London stock exchange, US regulations—especially Sarbanes-Oxley—would be imposed on UK-listed companies.

Does the hon. Gentleman accept that there is concern about regulation not only in London but in the US? Although that concern may not have reached up to Congress, it is actively discussed in New York and in markets throughout the US.

The hon. Gentleman is right about concern in the US, which is widespread. Hank Paulson, the US Treasury Secretary, has made a number of speeches on the theme, so although the issue may not yet have reached Congress, it is certainly important in the higher ranks of the US Treasury. In some of my discussions with UK institutions, I have found that the most vociferous opposition to extraterritoriality has come from some of the US banks, which recognise themselves in discussions of the problems caused by disproportionate regulation.

The Bill deals with one aspect of extraterritoriality in the regulation of financial services. In recent years, there have been other instances of regulators seeking to impose their rules on businesses operating outside their jurisdictions, thus eroding the competitive advantage that one market has by doing things differently and countering any such benefit. The consequence has been to impose additional costs on businesses and try to erode the advantages of the light-touch, principles-based, risk-driven approach, which has been the cornerstone of the success of the UK financial services sector.

I understand where the hon. Gentleman is going, but may I suggest the other side of the coin? Shareholders in a recognised body might be concerned if they could not tighten their own rules to protect the solvency of their organisation because such tightening would fall foul of the legislation. The Bill might deem it excessive, because it would not be required under UK or Community law. Thus, if an organisation wanted to take action internally to protect itself and its shareholders, it might not be allowed to do so.

The hon. Gentleman raises a quite complex point. We need to establish what constitutes the right balance of protection and I believe that the Bill makes important moves in seeking to ensure that we protect one of this country’s vital assets: the regulatory environment of the UK financial services sector.

A recent report by the City of London corporation highlighted that the strength of the regulatory environment in the UK was one of the most important success factors in determining the strength of the City. We should also make it clear that such strength comes from getting the level of regulation right too. There is a balance to be struck between over-regulation that imposes additional costs on businesses and under-regulation that damages confidence in the market. Moving one way or the other can harm the financial services sector.

The current strength of the UK capital markets is partly a result of the regulatory arbitrage between the UK and the US, as a consequence of the Sarbanes-Oxley legislation. Reflecting on the point made by the hon. Member for Edmonton (Mr. Love), I suspect that the existence of regulatory arbitrage will come under threat as the US wakes up to the consequences of the Sarbanes-Oxley legislation. We cannot rely for ever on the existence of such regulatory arbitrage to promote and allow UK financial markets to grow. We need to ensure in that aspect, as in every other, that we keep the regulatory structure under review, so that we continue to achieve the right balance.

The historical examples may not bear out the point that the hon. Gentleman is making. I agree that it would be sensible for the US authorities to adopt such an approach, but looking back to the Eurobond fiasco of some time ago, the US took so long to wake up that it lost the business.

Indeed, the hon. Gentleman makes a fair point, but I hope that regulators and legislators learn those lessons. Effective light-touch, risk-based and principles-based regulation is in the interests of the sector globally, and the Government need to send that message more strongly to the US Administration and Congress, so that we ensure that the arguments in favour of the UK regulatory regime are put and understood in Washington.

I shall give some examples of how extraterritoriality imposes additional burdens on businesses. Under the Sarbanes-Oxley legislation, the US Public Company Accounting Oversight Board is required to report on foreign auditors with US-listed clients. It has recently exercised those powers by reviewing audits undertaken by Ernst and Young in the UK. Of course, UK auditors are already subject to audit inspection arrangements, so in a sense the additional review by the board imposes an additional cost on UK auditors. In effect, those costs will be borne by their clients in one form or another.

The regulatory overlap that arises from extraterritoriality is a problem, but it is not the only one: the situation has arisen with hedge funds when their management is based in the UK. The Securities and Exchange Commission has sought to regulate hedge funds by reference to the location of the hedge fund investor. The SEC has gone to some lengths to try to draw UK-based hedge fund managers into its remit.

The SEC requires firms with more than 13 clients to register with it, but it has looked beyond simply the number of direct investors to the next layer down. For example, a UK-based hedge fund could have, say, 10 investors—below the SEC limit—but if they each had 10 investors, the SEC would say that the hedge fund had 100 investors and it would be drawn into the net. So there is a continuing push from the SEC to draw more activities based outside the US into its remit, with the consequence of imposing additional regulatory burdens on those funds. Although the Bill tackles an aspect of extraterritoriality, we should be under no illusion that it deals with the issue in its entirety.

Does my hon. Friend agree that, if sensibly interpreted, the Bill is a bit of a first? It provides some kind of deregulatory ratchet, instead of a regulatory ratchet, which we have had so often in so many areas. It cannot just target one possible overseas buyer of the stock exchange and one possible overseas source of extra regulation. It has to target all of that. So as exchanges renew their regulations, there will be a gentle deregulatory pressure, which seems admirable.

I am grateful to my right hon. Friend for making that point. There is a great deal in what he says, because there will be an inherent bias in the Bill to look at how exchanges reviewing their rule books might lead to the introduction of more onerous regulations, affecting the competitiveness of those exchanges. There is a benefit there. It is a slightly curious irony that the Bill makes a small extension of regulation in order to protect the light-touch regulation that we see at the moment and to entrench it still further.

On that point, does the hon. Gentleman agree that, in order to make sure that we keep that deregulatory pressure on all exchanges, there is merit in the provision applying to all new rules and all existing exchanges regulated in London, and not simply to exchanges where there has been a change in governance?

Indeed, although the Minister is in danger of trespassing on the detailed scrutiny of the Bill in Committee. I have tabled a probing amendment to that effect, to elicit from him his thought process. He makes an important point. There is an issue in that the current ownership regime of all exchanges has not created a problem to date. Some may believe that these changes should be triggered only on a change of control. It is important that, in Committee, we flesh that out still further.

Let me turn to the background to the Bill and the importance of the measure. The global nature of international capital markets means that businesses looking to raise money can choose where they go to raise it. Historically, international businesses have looked principally to New York to do so, but, following the introduction of the Sarbanes-Oxley legislation in the aftermath of the WorldCom and Enron scandals, international businesses have found the regulatory burden in the US too onerous and sought to raise capital in the UK. As a consequence, we have seen an increase in the number of initial public offerings in London and the amount of capital raised. It was announced earlier this month that £22.3 billion of funds has been raised on the London stock exchange so far this year, which exceeds the amount raised on other exchanges.

We have seen a significant benefit to the UK from Sarbanes-Oxley and the impact of that regulation, and not just in terms of fees for merchant banks and issuers. There are also the accountancy and legal services. A whole range of people have benefited from the fallout from excessive regulation in the US. A recent study indicated why firms were coming to raise money in the UK. It said that the cost of capital at both the initial public offering stage and afterwards is lower in London than in other major European or US financial centres. The report, commissioned by the City of London corporation and the London stock exchange, found that London markets are cheaper than both the New York stock exchange and NASDAQ with respect to both underwriting fees and other direct IPO costs. Other direct IPO costs, including legal and accounting costs, are lower in London than in the US largely due to the fact that in the US one needs to comply with Sarbanes-Oxley.

It is interesting that, despite the additional costs associated with US listing, the report found no evidence that Sarbanes-Oxley has delivered any significant regulatory benefits not already available under the UK corporate governance regime. That indicates an area where regulation has not improved the protection available to consumers. In the US, those involved are bearing the costs without seeing any great regulatory benefit.

The unpopularity of US markets and the increasing popularity of UK and European markets has led to US exchanges looking abroad to strengthen their business. It led to the New York stock exchange seeking to acquire Euronext and to the NASDAQ bid for the stock exchange. The commercial logic of that is that the US exchanges would like to benefit from the success of effectively regulated markets in the UK and Europe. Indeed, we should be clear in acknowledging that it is not in the economic interest of potential acquirers of UK and European exchanges for the Securities and Exchange Commission to be in a position to exert pressure to enable US regulations to be imported into the UK and Europe. If such regulations were brought in, there would be a risk that IPOs would move from Europe to Asia and other markets, with money thus flowing out of the UK and Europe. That explains why acquirers have an interest in the legislation going ahead in the UK.

In meetings that my hon. Friends and I have had with institutions across the City, it has become clear that businesses are worried that the takeover of the London stock exchange could lead to the City losing its competitive advantage over US capital markets. We need to be clear that the Bill has nothing to do with economic nationalism or the protection of national institutions. It would be wrong for any country to use the Bill to defend its protectionist policies. We have thrived as an economy because we have open markets and enable foreign companies to buy UK assets. Indeed, that has been one of the factors behind the strength of the UK financial services market. The Bill is really answering the question of how we can best protect the regulatory advantage that we have at the moment.

In reply to an intervention made by the hon. Member for Edmonton (Mr. Love), I said that US houses had been more vociferous than others about the risk of Sarbanes-Oxley being applied in the UK, but it is not just US houses making such comments. In March, Angela Knight—she was then at the Association of Private Client Investment Managers and Stockbrokers, but is now at the British Bankers Association—said:

“What we need is a copper-bottomed guarantee that whatever framework is put into place we continue to trade and settle here, be governed by British law and be regulated by the FSA … Otherwise, the SEC believes very strongly in extra-territorial activities, and because NASDAQ and the NYSE are American they will find it difficult to resist”.

The Bill will achieve a single goal: to enable the ownership of not just the LSE but other exchanges to change without having a detrimental impact on the competitiveness of UK capital markets.

As the Minister said, the Bill gives the Financial Services Authority the power to veto changes to the rule book not just of the LSE, but of all UK recognised investment exchanges and clearing houses. Those powers are new. At the moment, exchanges in London have the freedom to set their own rules, subject to meeting certain recognition criteria. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) asked the Minister whether there is a parallel with that elsewhere. I understand that many other regulators regulate the detail of rule books to a greater extent than the FSA has hitherto been able to do. Enabling the FSA to consider rule changes and the rule books of new exchanges is a significant change for London. Although the measure represents an extension of the FSA’s regulatory power, it is an attempt to entrench our present advantage and, as my right hon. Friend the Member for Wokingham (Mr. Redwood) said, to introduce a deregulatory ratchet.

One of the concerns about the Bill that has been expressed by several people is the extent to which the FSA will seek to look at individual rules. The FSA will need to minimise the additional compliance burden on exchanges without creating the opportunity for exchanges to impose unchecked rules that make UK markets less competitive. I welcome the letter that the Economic Secretary received from John Tiner today about the FSA’s recognition of that.

The Bill’s regulatory impact assessment reinforces the point about looking at relatively few changes to rules. It gives an upbeat assessment of the impact of the Bill, suggesting that of the estimated 1,000 rule changes a year, there would be only about 25 notifications, of which only one would be called in. On that basis, the RIA suggested that the measure would have a relatively low cost. I suggest that when the FSA considers regulations during the 12-month grace period before it must introduce detailed regulations, it should look at the type of rule changes made in the past, so that it understands what it would call in, because it is important for it to understand what is likely to happen in practice. We should continue to monitor the detailed regulations once they are applied to make sure that we are not calling in too many regulations, and imposing too many costs on exchanges and clearing houses in the UK.

The Bill sets out the framework within which the powers can be exercised. It is carefully worded, and it assumes that any rule required under EU or Community law is not excessive—a point that some in the industry might question, but I leave the matter at that. The Bill does not prevent the exchanges from ignoring excessive regulations that come from Brussels. It sets out the four criteria that should be considered in determining whether requirements are excessive. The first is the effect of existing legal and other requirements. The second is the global character of financial services and markets, and international mobility of activity. The third is the desirability of facilitating innovation, and the fourth is the impact of the proposed provision on market confidence.

On the framework, is the hon. Gentleman surprised that shareholder protection or consumer protection are not included in the factors to which he referred?

The hon. Gentleman raises a point about the context in which the Bill should be considered. Of course, the FSA has other powers relating to consumer protection, which is one of its regulatory objectives. The Bill deals with the regulations that apply to shares traded on exchanges, so I do not think that issues of shareholder protection come within its remit. There are measures in the UK listing rules that cover shareholder protection, too. The Bill is narrowly focused; it is more a rapier-like thrust than a clunking fist when it comes to tackling regulation, and we should keep it like that, rather than use it as a Christmas tree from which to dangle ever more baubles, although I may be in danger of mixing my metaphors.

Perhaps I did not make clear what I sought to tease out from the hon. Gentleman. A body might wish to increase consumer protection or shareholder protection by tightening its rules, but that does not come within the framework of the Bill, so that tightening could well be seen as “excessive” under the definition in the Bill. That is the issue that I wished to raise.

The hon. Gentleman is trying to make an important point. He is trying to find out whether there is any opportunity under the Bill for a Sarbanes-Oxley measure to be introduced, but I hope that it will not enable such a provision to be made. He should remember that although the conditions that I mentioned are in place the FSA seeks to ensure that regulation is proportionate and not excessive in its impact—so there is not leeway, exactly, but a wider context for such considerations.

On whether a requirement is excessive, proposed new section 300A(3) includes a test of whether something is

“required under Community law or…law in the United Kingdom” ,

and a second test, which is whether the requirement

“is not justified as pursuing a reasonable regulatory objective”.

One “reasonable regulatory objective” is the aim of protecting consumers, so I do not take the point made by the hon. Member for Wolverhampton, South-West (Rob Marris), as that aim can be pursued under that heading. As long as the requirement is not

“disproportionate to the end to be achieved”,

it would not be excessive.

Indeed. My hon. Friend has practised in that area of law, and he demonstrates his knowledge and understanding of the subject, and of the way in which the Bill will interact with the Financial Services and Markets Act 2000. The hon. Member for Wolverhampton, South-West (Rob Marris) is in danger of leading us up a blind alley.

The suggestion made by the hon. Member for Wolverhampton, South-West (Rob Marris) is dangerous, because if too many of those provisions were added to the legislation, Sarbanes-Oxley would indeed be legal in Britain and it would be used as a reason for excessive regulation.

My right hon. Friend is quite right. The narrow focus of the Bill and the way in which it has been drafted have received widespread support from the financial services sector and from trade bodies, because they seek to prevent that very thing from happening. If the wording were wider, more permissive and less restrictive, it would not necessarily command consensus, because it would not address the threat that UK financial services institutions attach to the imposition of extra-territorial jurisdiction in that area.

Surely the important factor is that scandals such as those involving Enron and WorldCom have not taken place in the UK, presumably because of the proportionate regulatory environment. When Parliament passes the legislation, it must provide reassurance that sufficient protection is available to prevent similar scandals.

The hon. Gentleman is right that those things did not happen in the UK. We did not suffer from the extensive financial scandals that afflicted US markets, partly because of the strength of UK regulation. A principles-based approach to regulation, with an emphasis on risk, puts in place the right framework to prevent the reoccurrence of those scandals. Too often, financial scandals arise because of a prescriptive, rules-based approach that requires people to tick boxes. We must therefore learn lessons from the American experience, and we must be careful not to repeat the mistakes that were made in the US in the past.

May I turn to the four conditions set out in proposed section 300A? People using the Bill must have a clear understanding of its import, and the purpose of the provision is to maintain the competitive advantage of the UK financial services sector relative to other global markets. We must look carefully in Committee at the language of proposed subsection (4)(b) to make sure that that message is clearly conveyed to people who are interested in regulation in the UK. The hon. Member for Wolverhampton, South-West asked the Minister about the lack of a backstop date in proposed section 300D. I am sure that, after consulting stakeholders, the Financial Services Authority will suggest an appropriate date. However, will the Minister or the Financial Secretary confirm that the FSA believes that the 30-day period in which it may deliberate on the changes is sufficient to consider fully the impact of any rule changes? Returning to the collapse of Enron and WorldCom, how long would it have taken people to discern the long-term damage that Sarbanes-Oxley would have inflicted if it had been introduced in UK capital markets? It is therefore important that we make sure that there is sufficient time for the FSA to consider fully the impact of any rule changes.

In conclusion, Sarbanes-Oxley has provided a great boost for the City, as US markets recognise, which is why, from Hank Paulson downwards, there has been pressure to water down the provision. It should be a warning to the Government and to Governments across Europe that while one piece of legislation can strengthen our competitive position, another can seriously damage it. We must pay great attention to the conditions that make the UK financial services sector a great success. It is not just about regulation—it is about the people and businesses based here, the tax system, infrastructure and many other factors. If the UK is to thrive, we must look at what we can do ourselves to ensure that it remains globally competitive in the financial services sector, rather than relying on others to make mistakes from which we can benefit.

The Bill gives the FSA the power to protect the competitive position of our capital markets, but as the provisions indicate, it cannot protect exchanges and clearing houses from excessive regulations imposed here in Westminster or in Brussels. Although it protects UK capital markets from one aspect of extra-territoriality, it does not protect them from all aspects. We welcome the Bill and hope that it will be effective, but we do not see it as the end of the story when it comes to maintaining the competitiveness of the UK financial services sector.

I am pleased to have the opportunity to speak in the debate. I welcome my hon. Friend the Minister’s opening remarks, which confirm that the Bill is intended not to impose additional regulatory burdens on the City, but to protect the light-touch system of regulation that has served the City so well since we set up the Financial Services Authority.

I also welcome my hon. Friend’s reaffirmation that the Government recognise that the City’s strength lies not just in its sensitive and light-touch approach to regulation, but in its internationalism and receptiveness to outside influences and outside investment. I am pleased to hear confirmation that the Bill is not intended to restrict foreign ownership of our recognised exchanges and clearing houses, that the Government are neutral on the matter and will remain neutral, and that the Bill is intended to safeguard the risk-based, principles-based approach that has made London such an attractive place for international financial institutions to do business, and its exchanges such a magnet for listings from around the world.

Far from imposing a new burden, the Bill will, by giving the FSA what I am sure will be a judiciously exercised power of veto, ensure that excessive, disproportionate or unnecessary regulation is not permitted. I am also pleased to hear the Minister confirm that the Bill is not about micro-managing the exchanges, and that safeguards will be built into it so that the FSA can allow exchanges to make minor changes to their rules without interference.

Many reasons have been advanced for the City’s position as one of the world’s two most successful financial centres—some would say the most successful. Such factors include the English language, our geographical position between the US and Asian time frames, our skilled work force, and the attractions of London as a place in which to live and do business. But the Bill encapsulates the two main reasons for London’s success: its internationalism and its approach to regulation.

Britain has always been ahead of the pack as far as globalisation is concerned. Its financial sector has for 300 years or more been internationally focused and outward looking. Unlike other financial centres that developed primarily to serve their own domestic markets, the City’s phenomenal growth has been due to its role in financing world trade, rather than financing our indigenous industries. Indeed, as Professor Anthony Hopkins said, the industrial revolution happened independently of the City of London.

In the past three decades or more, since the collapse of Bretton Woods, London has prospered as a financial centre not just by capitalising on its traditional strengths, but by embracing liberalisation and exploiting the advantage offered it by protectionist or fiscally restrictive regimes in other financial centres. We have spoken a great deal today about Sarbanes-Oxley, but in the 1970s the London Eurobond market flourished because of decisions taken in the USA.

In 1979, the scrapping of exchange controls by the Thatcher Government freed up the flow of capital in and out of the country, removing a key obstacle to globalisation and cementing the City’s position as an international hub. Big bang, 20 years ago last month, changed the City for ever, by relaxing the rules preventing foreign ownership of British financial institutions and leading to an influx of overseas investment. Of course, there has always been a foreign element in the City. The names of what we would regard as some of the most traditional City institutions, such as Rothschild’s, Warburg’s, and Kleinwort Benson, make it clear that they were established by immigrants, and they have now been taken over by yet more foreigners coming in.

With big bang we saw what is commonly dubbed the “Wimbledonisation” of the City—that is, its domination by foreign players. In particular, US banks, prohibited by Glass-Steagall from owning US securities houses, took the opportunity to move into London in force, and provided the City with capital for almost unlimited expansion.

This all means that London is now a truly international financial centre, handling foreign transactions worth £560 billion a day. It is the place where more international mergers and takeovers are arranged than anywhere else, and more cross-border transactions take place than anywhere else. It has the biggest foreign exchange, swaps and international insurance and reinsurance markets in the world. The City has more foreign banks than any other financial centre—264 at the last count. It has almost a third of the daily turnover in the world foreign exchange market. It has over 40 per cent. of the world’s OTC derivatives trade, 70 per cent. of the Eurobond market, 40 per cent. of the world’s turnover in foreign-listed equities trading, and the fastest-growing share, currently 20 per cent., of global hedge fund assets. It has taken a long time to establish a regulatory system which can cope with that new order. Most people accept that the fragmented, predominantly self-regulatory regime established at the time of big bang was a messy compromise that ended in failure.

If we look back at the 1980s and the early 1990s, we can all recite a litany of City failures and scandals—Johnson Matthey, British and Commonwealth bank; Bank of Credit and Commerce International, Barlowe Clowes, Lloyds of London, Brent Walker, the Guinness affair, the Blue Arrow affair, Roger Levitt, Asil Nadir and Polly Peck, Maxwell and the Mirror Group pension funds, and, of course, Nick Leeson and the ignominious downfall of Barings bank.

At the time of the Barings collapse, I was employed in Abbey National’s treasury division. At the time, Abbey National had a derivatives trading joint venture with Barings, which, I suspect, it would not care to remind people about these days—I hasten to add that it had nothing to do with Barings futures trading activities in Singapore. I was called into the Barings head office in London on the Sunday when Barings went under to help to sort out the mess with the Bank of England and the chief executives of the top UK banks. I remember that day well, because it was the day of my constituency Labour party’s annual general meeting. I was chair of my constituency at the time and had to give my apologies, which raised more than a few eyebrows among my comrades in Luton, North Labour party, who until then had no idea what I did for a living. I am glad to say that the Labour party has come a long way since then.

Barings management did not know what its traders were up to, the regulators did not know that the management did not know what the traders were up to, and the Government certainly did not know that the regulators did not know that the management did not know what its traders were up to. The old boy network comprehensively failed. It may be tempting fate to say that I do not think that such a scenario could happen now. Of course we should never be complacent, but the Financial Services Authority and the relationship between the Government and the regulators inspire a great deal more confidence now.

Surely the hon. Lady is experienced enough to know that there is no regulatory system in the world that is proof against all fools, knaves and crooks—so it is completely silly to say that there will never be a collapse in Britain again. We must accept that that will happen in the future.

As I said, we should never be complacent.

It is easy to portray the Barings situation as the consequence of one rogue trader acting in a criminal way. If one examines the matter closely, however, there was a systemic failure throughout the management and the regulatory system, and people simply did not understand the risks that the bank was taking. I am a member of the Treasury Committee, which has discussed with the FSA how it regulates matters such as hedge funds and the current risk-based system of assessment. I am confident that the FSA appreciates what the banks that operate out of the UK are doing, what sort of business they are engaged in and what risks are associated with it. [Interruption.] Farepak does not come under the FSA, although perhaps that is a subject for future debate.

The UK approach is widely seen as the best in the world, and it underpins London’s success as a modern international financial centre. It is important that we preserve that approach, which is the essence of the Bill. While we are debating how we regulate our financial markets and City institutions, I want to restate why, while we should aim to achieve a degree of harmonisation and a level playing field across the European Union—and, indeed, further afield—it must never be at the expense of our international competitiveness.

London has a comparative advantage in financial services, and if other countries want to compete with us they should do so by raising their game to our level, not by seeking to hold us back with inflexible, over-burdensome, gold-plated regulation. A one-size-fits-all approach in a new enlarged European Union is unlikely to be to London’s advantage, and we should resist attempts to force us down that path. However, we should do so not through withdrawal and seeking to isolate and disassociate ourselves from our European partners, as I have heard the right hon. Member for Wokingham (Mr. Redwood) suggest, but through co-operation, negotiation, being at the table and making our voice heard.

As the Minister has said, we should welcome European co-operation on regulation, but only where it is necessary, where it truly furthers the integration of the internal market and where other non-legislative policy solutions have been thoroughly considered. Any new regulation must be implemented in a sensitive light-touch manner, too.

The City is stronger because of its position within the EU. We act as Europe’s wholesale financial services gateway to the world, and the world’s financial services’ gateway to Europe. It is in Britain’s best interests that we stay fully engaged, but we must do it in the City’s best interests, not at the City’s expense. That is increasingly true on a global scale as developing markets open up, and countries such as China and India develop their financial sectors. Regulatory co-operation is more important than ever before, but we must continue to strike the right balance between protecting investors and entrenching financial stability, and encouraging innovation and foreign investment.

We should not be scared of foreign investment or foreign ownership in the City. In the late 1990s, more than 40 per cent. of City employees had an overseas employer, and I am sure that that percentage has, if anything, grown since then. Some of the recognised exchanges are subsidiaries of foreign companies. However, we need to be watchful to ensure that foreign takeovers do not lead to the imposition of burdensome foreign regulatory standards on UK exchanges and issuers, and that, as the hon. Member for Fareham (Mr. Hoban) said, the US’s extra-territorial ambitions are curbed. I say that as someone who has worked for an American investment bank and has been on the receiving end of the not-so-light regulatory touch of the Securities and Exchange Commission.

As a member of the Treasury Committee, I visited the US earlier this year with my hon. Friend the Member for Edmonton (Mr. Love), and we heard first-hand about the impact of Sarbanes-Oxley. The London stock exchange has benefited as a result of Sarbanes-Oxley. It attracted a record 129 international companies to its main market and the alternative investment market last year, up 82 per cent. on 2004. Twenty-five per cent. of companies surveyed identified the UK’s standards of regulation and corporate governance as the most important factor in their decision to float in London, and of those that had considered listing on a US exchange, 90 per cent. felt that the demands of Sarbanes-Oxley made listing in London more attractive. We were therefore right to choose not to go down that path. However, we need to be ever vigilant to ensure that we do not import overseas regulatory burdens, and that we have the best possible environment in which our financial services industry can continue to prosper and to create jobs.

I very much welcome the Government’s initiative in introducing the Bill. I am sure that it will be welcomed in the City, as it has been on both sides of the House.

It is a pleasure to follow the hon. Member for Bristol, East (Kerry McCarthy), whose presentation was all the more authoritative for being based on her own experience.

The Economic Secretary said at the outset that there is all-party consensus on the Bill, and I certainly do not intend to oppose it. I am not yet entirely persuaded that it is necessary, but that need will no doubt emerge in the course of the debate. When I see Conservative and Labour Front Benchers, together with most luminaries in the City and even Mr. Ken Livingstone, romping in the same bed, I tend to suspect that something not entirely wholesome is taking place.

I think that the characterisation of American financial regulation—I am not an expert, unlike the hon. Member for Bristol, East—has been a little overdone and rather unhelpful, given that the Americans are aware of the problems and are dealing with them. It was presented as the financial equivalent of avian flu against which we must put up defences.

Let me go over a few areas of undoubted common ground. First, it is true, as the Economic Secretary said, that the City is a crucial part of the British economy. Ten per cent. of gross domestic product is generated from financial services, although not all of those are based in the City—some are provided by retail banking throughout the country. It is particularly important for employment.

Secondly, we all agree that financial services must be regulated flexibly—but, as the hon. Members for Edmonton (Mr. Love) and for Wolverhampton, South-West (Rob Marris) said, flexibility must be balanced against investor protection and protection against systemic failure. There is more than one dimension to consider.

Thirdly, we all accept that we are dealing with global markets that move very fast and that this is not an area where nationalism or national ownership are appropriate concepts. Competition takes place not between countries but between sets of rules. People in the City often employ the imagery of Wimbledon to describe what they are trying to achieve, saying that they are hosting an event and that it does not matter whether British people win it. That is quite a comforting image in some respects. However, there are problems with the Wimbledon comparison. Will Hutton has observed that it is probably because we have Wimbledon that we produce such dreadful tennis players, unlike smaller European countries. He also argues that having an international financial centre may be to the detriment of domestic companies’ growth and innovation. I do not entirely buy that, but we have to look at both sides of the argument.

I part company with the proposals over two issues. First, we should be more honest about what this legislation is for. It is presented as being completely innocuous, but its proper title should be something like the “Investment Exchanges and Clearing Houses (Americans Keep Out) Bill”. That is essentially what we are talking about. The Minister and the Conservative spokesman have said that there is no objection to takeovers or to foreigners per se, but it is clear that a barrier is being raised and that powers are being created to deal with takeovers from two particular sources, which just happen to be the two biggest exchanges in the world: the New York stock exchange and NASDAQ. Because they are so big, they have the potential to launch a successful takeover in London.

Does the hon. Gentleman agree that Morgan Stanley, Merrill Lynch and Goldman Sachs are all important American investment houses that play a vital role in creating jobs and employing people in the City of London? We welcome those American investment houses into the UK, and the idea that we are trying to prevent American ownership in London is disproved by the reality of today’s City of London.

The Minister is being a little too defensive. I was not suggesting for a moment that there was a problem with American companies investing in London. The problem is with the American exchanges that might take over London or the Euronext market. That is the issue here.

There are certain forms of regulation that are not covered by the Bill. The right hon. Member for Wokingham (Mr. Redwood) might be able to make this point more comfortably that I can. The Bill does not cover European regulation, which may or may not be onerous. Let us envisage a hypothetical situation—after all, the Bill is all about hypothetical possibilities—in which, as a result of injecting this poison pill into the regulatory system, the New York stock exchange backs off from its interest in the Euronext company, and the Deutsche Börse, a German company that is interested in acquiring a Franco-Dutch operation, succeeds as a consequence of that. As a pan-European exchange, it could then choose to apply European regulation in a way that is unhelpful to London’s interests. That is purely hypothetical, but it could certainly happen.