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House of Commons

Tuesday 21 June 2011

The House met at half-past Two o’clock


[Mr Speaker in the Chair]

Oral Answers to Questions


The Chancellor of the Exchequer was asked—

Debt Level (GDP)

1. Emily Thornberry (Islington South and Finsbury) (Lab): What assessment he has made of potential trends in the level of debt as a proportion of gross domestic product to 2014-15. [60772]

6. Mrs Linda Riordan (Halifax) (Lab/Co-op): What assessment he has made of potential trends in the level of debt as a proportion of gross domestic product to 2014-15. [60777]

The Chancellor of the Exchequer (Mr George Osborne): This Government inherited plans that had Government debt rising as a share of GDP in 2014-15. Thanks to the credible plan that we have put in place, debt is now forecast to be falling in that year.

Emily Thornberry: Would the Chancellor of the Exchequer like to take this opportunity to explain why the Office for Budget Responsibility now says that the Government will need to borrow £46 billion more than was estimated a few months ago? Would he also like to take this opportunity to accept that, by cutting too far and too fast, we will fall into a vicious circle that will make it more difficult to pay off the deficit in the long term?

Mr Osborne: The public finance figures are out today, and they show that the British economy and the British Government are on track to reduce the budget deficit, as we forecast in the Budget. On a day like this, in a week like this, for the Opposition to suggest that we should abandon our credible deficit reduction plan shows how out of touch they are with what is going on in the world today.

Mrs Riordan: Will the Chancellor confirm that national debt as a proportion of GDP was 36.5% in 2007-08, before the global crisis, which was significantly lower than the 42.5% that we inherited from the previous Government, and lower than in America, France, Germany and Japan?

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Mr Osborne: There is this myth on the Opposition Benches that we inherited a golden economic legacy. It is not a myth believed in by the International Monetary Fund, the OECD or the CBI, nor is it a view shared by Tony Blair or the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), both of whom have identified—since the general election, of course—the fact that Labour was running into spending problems in 2007 and that the structural deficit was starting to build before the global economic crisis that the hon. Lady mentioned.

Michael Fallon (Sevenoaks) (Con): How much greater would our public sector debt be if we adopted the completely unfunded and opportunistic proposal for a £13 billion VAT cut from the very people who racked up all the debt in the first place?

Mr Osborne: My hon. Friend draws attention to the completely ludicrous policy put forward by the shadow Chancellor last week—it was mentioned just on that Thursday, and has not been repeated by any Labour politician since—for a £13 billion unfunded tax change, or £51 billion over the Parliament. The policy is totally incredible, and was rejected by every serious economic commentator on the day. It just shows how far those on the shadow Front Bench have to go to make good for the mistakes that they made in office.

Mr John Redwood (Wokingham) (Con): Given the large amount of state bank debt still on the balance sheet, will my right hon. Friend consider a scheme to make an early transfer of shares in the state-owned banks to taxpayers for free, on condition that, as and when people sell, they send money back to the Treasury to represent the Treasury cost of those shares?

Mr Osborne: I am always happy to discuss the ideas of my right hon. Friend or other Members on how we dispose of those bank shares. The House will know that we announced last week that we are putting Northern Rock up for sale—the good bank in Northern Rock, of course; the state will hold on to the bad bank for many years to come. We want to exit from our shareholdings in RBS and Lloyds in due course, but we do not judge now to be the right time.

Ed Balls (Morley and Outwood) (Lab/Co-op): I am very much looking forward to our debate on the economy tomorrow, on the anniversary of the Government’s first Budget. I do hope that the Chancellor is looking forward to the debate too, but today let me ask him about another matter of great importance to our economy, our national debt and our wider national interest. Three months ago the Chancellor told the House that the cost of the intervention in Libya, which the Opposition support, would be

“in the order of tens of millions of pounds, not hundreds of millions.”—[Official Report, 22 March 2011; Vol. 525, c. 850.]

That was followed the next day by headlines—which would have been read by the Gaddafi regime—saying that the Chancellor and the Government thought that the campaign would be over in a month. Does the Chancellor now accept that that was a mistake? Will he tell the House how much has been spent so far? Will he

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also give the House his latest estimate of what the full cost of the campaign is likely to be and what its impact on the national debt will be?

Mr Osborne rose—

Mr Speaker: Order. All with specific reference to the level of debt as a proportion of GDP.

Mr Osborne: I see that the shadow Chancellor is following his former master’s habit of straying from the direct area of his brief, but there we go. Let me deal directly with Libya. What I told the House at the time was that the cost estimated at the time by the Ministry of Defence was in the tens of millions of pounds, and the Ministry of Defence is planning to provide an update to the House on the full costs, I think within the next week.

Ed Balls: This is a Treasury matter. It is about Treasury spending from the reserve, and it has a direct bearing on the national debt as well as on our national interests. It seems rather odd that, at the outset of the campaign, the Chancellor was happy to give a detailed answer, yet he now says that he cannot do so. Does he not know, or is he not prepared to do so? Just a few weeks ago, the White House provided the US Congress with a 34-page document giving details of the costs up to 3 June and the likely costs up to September. Will the Chancellor now agree to provide this House with similar information on the cost of Britain’s involvement in Libya, and to make a full Treasury statement to the House?

Mr Osborne: If the right hon. Gentleman had been listening, he would have heard me say that the Ministry of Defence was going to provide an update on the costs within the next week. I know that, when he was in the Treasury, everything was a Treasury matter, but in this Government we let the Ministry of Defence talk about defence operations, just as we let the Department for Education talk about schools and the Department of Health talk about the NHS. The Ministry of Defence will provide an update on the costs within the next week. The costs come from the special reserve, as the right hon. Gentleman well knows, and I can tell him that they are very much lower than those of the ongoing operations in Afghanistan.

Growth Forecast

2. Huw Irranca-Davies (Ogmore) (Lab): What assessment he has made of the likelihood that the growth outturn will meet or exceed the forecast for 2011 made by the Office for Budget Responsibility in June 2010. [60773]

13. Debbie Abrahams (Oldham East and Saddleworth) (Lab): What assessment he has made of the likelihood that the growth outturn will meet or exceed the forecast for 2011 made by the Office for Budget Responsibility in June 2010. [60784]

The Chancellor of the Exchequer (Mr George Osborne): The Office for Budget Responsibility’s latest economic forecasts were published in March. The whole purpose of creating the OBR was to have forecasts that were

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independent of the Chancellor, so for me to give a running forecast would completely undermine the institution. To strengthen its independence, I am today announcing the appointment of Lord Burns and Kate Barker as the new non-executive members of the OBR. They were posts that the Treasury Select Committee recommended that we create. I am also announcing today the new appointment of Michael Cohrs as a non-executive director of the Court of the Bank of England, along with the re-appointment of Sir Roger Carr, Lady Susan Rice and Harrison Young—

Mr Ronnie Campbell (Blyth Valley) (Lab): They are all Tory.

Mr Osborne: Well, the hon. Gentleman will like this bit, then. Recognising that we are all going to have to work a little longer, I am announcing the extension of Brendan Barber’s term by a further year.

Huw Irranca-Davies: A year ago at the Dispatch Box, the Chancellor said that, in his judgment, we would have sustained economic growth, even in the face of the cuts agenda that he is pursuing. Does he now believe that the 1.7% economic growth that the OBR has forecast will be met, or will we face a fourth period of downgrading its growth forecasts?

Mr Osborne: The OBR is a new institution that I think we all agreed should be established and put on a statutory footing. It is independent, and it makes independent forecasts. If the Chancellor of the day started giving a running commentary on those forecasts or making his own forecasts, that would completely undermine the OBR. The institution was introduced in order to give more credible independent information to Parliament. It is interesting that, in the acceptance speech that the former Foreign Secretary would have given if he had become the Labour leader, one of his central points was that Labour should embrace the OBR as an idea that it should have had while in office and that it should support in opposition.

Debbie Abrahams: Over the past six months, we have seen the economy flatlining, whereas in the previous six months we saw growth of 1.8%. Can the Chancellor explain to the House exactly what has changed?

Chris Ruane (Vale of Clwyd) (Lab): The Government.

Mr Osborne: I think the hon. Gentleman will find that the Government changed a year ago. I would say to the hon. Lady that the economy is now growing, and that in the past year more than 500,000 private sector jobs net have been created, which the Opposition should welcome. Exports are up 13%, investment is up 5.8% and manufacturing is up 4.2%—[ Interruption. ] Well, we remember when that lot were in a couple of years ago and the economy was tanking. Now it is growing and, as the public finance figures show today, we are getting the budget deficit down, dealing with our borrowing problem and restoring stability to the British economy. That is why the plans that we have put in place have been welcomed by so many independent organisations.

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Mr Andrew Tyrie (Chichester) (Con): The Office for Budget Responsibility is scoring the value of most asset sales other than banks at zero in the forecast, on the grounds that it cannot estimate their value. Will the Chancellor provide every assistance possible to the OBR, so that an estimate can be incorporated in its assessment of long-run sustainability, which it is due to publish in three weeks? Is that not an early issue for the newly appointed non-executives to take up?

Mr Osborne: I am certainly aware that the Treasury Committee and the Office for Budget Responsibility are in discussions over privatisation receipts and other asset sales, but I do not think that it would be right for me to intrude in that discussion. I can give my hon. Friend the commitment that we will certainly provide the OBR with any information it asks for.

Sajid Javid (Bromsgrove) (Con): Has the Chancellor considered what would happen to our growth rate if we followed the advice of the shadow Chancellor, which is opportunistically to oppose every spending cut and every tax increase proposed by the Government?

Mr Osborne rose—

Mr Speaker: Order. There is no requirement or need for the Chancellor to comment on Opposition policy. I would have thought that we had grasped that point by now.

Kerry McCarthy (Bristol East) (Lab): In reaction to this year’s Budget, the Institute for Fiscal Studies said that, if the Chancellor is to meet his borrowing targets, he will be

“now even more dependent on a bounce back in the rate of economic growth from 2013”.

Borrowing has already been £1.5 billion higher in the first two months of this financial year than it was in the same period last year, as the Chancellor’s tax rises and spending cuts kick in. If growth outturns fail to meet the forecasts, will the Government change their plans on borrowing?

Mr Osborne: When the director of the IFS was asked this month:

“Have things changed so much in the past 12 months that you would expect the Government to change course now?”

he replied, “No”. In fact, the advice of the IMF is also that now would be the wrong time to adjust macro-economic policies, while the Governor of the Bank of England at Mansion house said that we should not adjust the macro-economic mix. The truth is that the Labour Opposition, who got us into this mess, have absolutely no answers for getting us out of it. Is it not striking that the shadow Chancellor gave a speech last week with his big new economic policy, and not a single Labour MP has mentioned it yet?

UK Economic Policy (IMF)

3. Mr David Amess (Southend West) (Con): What recent representations he has received from the IMF on UK economic policy. [60774]

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The Chancellor of the Exchequer (Mr George Osborne): The IMF completed its article IV assessment of the UK economy this month. Its recommendation could not have been clearer. When asked whether it was time to adjust macro-economic policies, its answer was no.

Mr Amess: I am delighted that the IMF has confirmed that the Chancellor is pursuing the right strategy to clear up the mess left by the last rotten Labour Government. Will he explain why the yield on UK Government bonds is only 0.25% higher than in Germany, whereas in Portugal it is 8.5% higher?

Mr Osborne: The simple reason is that we have a credible deficit reduction plan. Even though we inherited a deficit higher than Portugal’s, our interest rates are closer to those of Germany. Indeed, the spread over Bunds—the difference between German and UK interest rates—has come down substantially over the last year, even though that gap has gone up in France, Spain and other European countries. The real monetary stimulus being provided to the economy by those low interest rates is anchored in the credible deficit reduction plan.

Mr Geoffrey Robinson (Coventry North West) (Lab): May I take up the point made by the Chancellor about the outstanding speech made by my right hon. Friend the shadow Chancellor? Why does the Chancellor have this touching, childlike faith in the views of the IMF when it got things dead wrong on the exchange rate mechanism, which it unfortunately imposed on this country the previous time it had the misfortune to have a Tory Government?

Mr Osborne: It is normal for Finance Ministers to pay some attention to what the IMF says, but there we go. The last time we had a Labour Government, we had to turn to the IMF for help; I am trying to avoid that.

George Freeman (Mid Norfolk) (Con): Is my right hon. Friend aware of the recent comments of the director general of the CBI? He said:

“Acting swiftly and decisively on the deficit has…laid a firm foundation for…growth.”

Who does my right hon. Friend think is more plausible: the director general of the CBI or the lone voice opposite?

Mr Osborne: I think the CBI’s view reflects those of almost the entire business community in Britain and almost all international commentators on the United Kingdom economy. When the CBI was asked explicitly what it thought of the Labour party’s plans, its chief economic adviser said:

“The economy would be weaker because of the impact of a loss of confidence in the markets.”

Mr David Hanson (Delyn) (Lab): Since the Government came to power, the growth forecast for this year has been downgraded by 1%. The IMF has also said that the speed of Government cuts poses a risk of higher inflation, lower growth and rising unemployment. Does the Chancellor agree with the IMF, which he is keen to support, that if

“a prolonged period of weak growth”

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—which we have at present—

is in prospect, “temporary tax cuts” should be considered?

Mr Osborne: First, the right hon. Gentleman has misquoted the IMF. Perhaps he will give the House the full quotation. The IMF did not say “at present”, which the right hon. Gentleman slipped into the quotation. [Interruption.] Perhaps he will take the opportunity to correct the record later. Secondly, the IMF said:

“Strong fiscal consolidation is underway and remains essential”.

The managing director of the IMF could not have been stronger in his endorsement through article IV.

I note that three Opposition Front Benchers have asked questions, and that not one has mentioned the new policy of the shadow Chancellor.

Inflation Trends

4. Angela Smith (Penistone and Stocksbridge) (Lab): What recent assessment he has made of the effect on the economy of trends in the rate of inflation. [60775]

8. Mr David Lammy (Tottenham) (Lab): What recent assessment he has made of the effect on the economy of trends in the rate of inflation. [60779]

The Exchequer Secretary to the Treasury (Mr David Gauke): The Government consider a range of factors when making their assessment of the United Kingdom economy. The Office for Budget Responsibility is responsible for producing independent economic and fiscal forecasts. The OBR published a full analysis of recent developments and the prospects for growth and inflation in its forecast at the time of the Budget.

Angela Smith: Do the Minister and the rest of the Front-Bench team now regret raising VAT at a time of rising commodity prices, which has helped to push inflation up to double the Government’s target rate and has added to the squeeze on pensioners and families?

Mr Gauke: First, the former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), said that he would have done the same. Secondly, a cut in VAT would do nothing to reverse the rise in global commodity prices, but would do a lot to reverse the Government’s hard-won credibility for getting the deficit down.

Mr Lammy: In the light of what the Minister has said, may I invite him to Tesco’s in Tottenham high road, where he will meet some of my constituents who must deal with higher food prices, rising electricity and gas prices and, now, redundancy and the loss of most of the services on which they rely?

Mr Gauke: I should be delighted to accept the right hon. Gentleman’s invitation. However, he will be aware that VAT is not chargeable on food, and that we have not raised fuel duty as the last Government did. You do not have to be a mastermind to know that.

Elizabeth Truss (South West Norfolk) (Con): If the Government took longer to reduce the deficit and carried on spending, what would be the impact of that policy on inflation?

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Mr Gauke: I certainly think that, if we put our credibility at risk, there would be considerable concern about, for example, the currency. The response to that would be higher interest rates, which would do nothing for the growth of the economy.

Nadhim Zahawi (Stratford-on-Avon) (Con): We are already spending £120 million a day on debt interest. What figure does the Minister think would be reached if we had not increased VAT?

Mr Speaker: Order. We should be focusing on inflation. I call the Minister to answer, very briefly.

Mr Gauke: I shall try to focus on inflation, Mr Speaker, but I think that it is important to the economy all round, in terms of inflation and of other factors, for us to maintain credibility. That is something that the Government have and the Opposition, I am afraid, do not.

Ms Angela Eagle (Wallasey) (Lab): How many of the 34 countries in the OECD have comparable inflation rates higher than the present rate in the United Kingdom?

Mr Gauke: The fact that global commodity prices are rising and that the UK experienced a significant devaluation under the last Government mean that we face an issue with inflation, but it is the Monetary Policy Committee of the Bank of England that has responsibility for that. It is one of the few policies of the last Government that still has any credibility. Is the Labour party distancing itself from that policy as well?

Ms Eagle: Obviously, the Minister did not know that the answer is only two: Estonia and Turkey. He can huff and puff and blame world commodity prices all he wants, but is it not obvious that the Chancellor’s decision to put up VAT in January because he chose to cut too far too fast is causing real hardship to families throughout the country as they struggle to cope with the most vicious squeeze on living standards in generations? When is he going to realise that his economic policy is hurting and it is not working, and that the whole Treasury Front-Bench team is out of its depth?

Mr Gauke: For a moment, the hon. Lady got quite close to supporting the policy the shadow Chancellor announced last week, but she did not quite do so. The fact is that the Bank of England says the main causes of inflation are to do with the devaluation and rising global commodity prices. That is the truth; that is the reality—[Interruption.] Well, that is what the Bank of England says, and I suspect it has a bit more expertise than the hon. Lady.

Structural Deficit

5. John Stevenson (Carlisle) (Con): What recent estimate he has made of the size of the structural deficit. [60776]

The Chief Secretary to the Treasury (Danny Alexander): The independent Office for Budget Responsibility published its latest forecast on the structural deficit in the March

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economic and fiscal outlook. The OBR forecast shows the structural deficit was 7.4% of GDP in 2010-11.

John Stevenson: I thank the Minister for that answer. Does he agree that one of the main reasons we are experiencing financial difficulties and the large budget deficit is the simply that for a number of years prior to the recession the Labour Government were borrowing money while other, prudent economies were repaying debt, and that has exacerbated our problems now?

Danny Alexander: I am grateful to my hon. Friend for that question, and he makes an important point. This country was running a structural deficit from 2002 onwards, so his analysis is exactly right. However, that was not the only problem with the previous Government’s policy, of course; another was their abject failure to regulate the banks and deal with the financial system. That is a further major cause of the problems we face.

Geraint Davies (Swansea West) (Lab/Co-op): Does the Chief Secretary accept that his and his Government’s macho approach of massive cuts and confronting the unions is reducing consumer confidence, which in turn is reducing investment, and that that is hindering growth and has led to the March deficit forecast being increased by £46 billion, which is almost £1,000 per person in Britain?

Danny Alexander: No, I do not. The decisions we have taken on reducing the enormous budget deficit we inherited from Labour were absolutely necessary to restore confidence in this country’s ability to pay its way in the world, and that is helping to deliver the low interest rates that are delivering a significant benefit to our economy. The hon. Gentleman should recognise that, too.

Andrew Selous (South West Bedfordshire) (Con): Will the Chief Secretary reassure the House that he will never behave as irresponsibly as The Daily Telegraph has revealed the last Government did? When faced with a massive structural deficit before the recession, they increased spending by £90 billion between 2007 and 2010, even though the Treasury told them to increase spending only in line with inflation.

Danny Alexander: I can certainly confirm that we will not repeat that mistake. We have all seen the document entitled, “We’ve spent all this money, but what have we got for it?” It is very important that this country maintains the spending plans we set out in the spending review, in order to deliver the deficit reduction that this country needs to establish confidence in our economy.

Bank Lending (Small Businesses)

7. Chris Evans (Islwyn) (Lab/Co-op): What assessment he has made of trends in bank lending to small businesses in the first quarter of 2011. [60778]

The Financial Secretary to the Treasury (Mr Mark Hoban): Under Project Merlin, the banks loaned a total of £47.3 billion to UK businesses in the first quarter of 2011, including £16.8 billion to small and medium-sized enterprises. The Government are encouraged that banks are broadly on target to meet their overall commitments.

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However, it is disappointing that banks are behind schedule on SME loans, and they clearly need to do much more work to deliver on their commitments.

Chris Evans: A number of small businesses in Islwyn tell me they have experienced an increase in the overall interest rate charged by banks, despite the base rate being at an all-time low. What are the Government doing to address that?

Mr Hoban: We must ensure that banks signal to businesses that they are open for business and that they have the capacity to lend to businesses. That is why we work with the banks to deliver Project Merlin, but, as I have said, there is more work for the banks to do to ensure they lend to small businesses, and we will continue to hold them to account on that.

Laura Sandys (South Thanet) (Con): Did Project Merlin also cover transparency in respect of the covenants banks require small businesses to put forward, and has that increased over the last three or four years? I ask because this seems to be one of the big barriers to small businesses taking out loans.

Mr Hoban: My hon. Friend makes an important point about the relationship between banks and their customers and the transparency of that relationship. That is why the British Bankers Association business taskforce has introduced a range of measures to look at the relationship between banks and their customers and we will continue to monitor that work. It is important that banks are transparent with their customers about the terms on which loans are offered.

Dame Anne Begg (Aberdeen South) (Lab): My constituent Ashlea Hassan came to see me last week with her idea for setting up a small business. Despite having been told by every bank she has visited that she has an excellent business plan, a brilliant concept and enough equity in her house, not one of them is prepared to lend her the £40,000 she needs to set up her business. What advice does the Minister have for my constituent?

Mr Hoban: I would encourage the hon. Lady to suggest to her constituent that she pursue the appeal route that each bank has to enable businesses to appeal against lending decisions. That is a very transparent process that would, one hopes, reach the outcome that her constituent wants. The hon. Lady could also encourage her constituent to approach business angels for investment. We announced in the Budget a review of venture capital trusts and enterprise investment scheme reliefs to encourage more investors to commit more money to small and medium-sized enterprises.

Charity Bequests

9. Tony Baldry (Banbury) (Con): What fiscal measures he is taking to encourage bequests to charities. [60780]

The Economic Secretary to the Treasury (Justine Greening): At the Budget this year we announced the most radical and generous series of charity tax reforms for more than 20 years. The measures were not just

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about improving support for gift aid and payroll giving—we also introduced new measures to improve the inheritance tax system so that we can encourage more bequests.

Tony Baldry: What estimate has my hon. Friend made of the number of charities that will benefit from the raising of the gift aid limits, the simplification of gift aid administration and the introduction of the gift aid small donation scheme?

Justine Greening: My hon. Friend is right to point out that we have taken a number of steps to improve the ability of gift aid to help charities. There are about 100,000 charities and community and amateur sports clubs currently registered for gift aid, all of which should be able to benefit in part or in entirety from these changes.

Ian Lucas (Wrexham) (Lab): The reality of the Government’s approach to charities is that they have imposed a tax burden on charities by increasing VAT. If the Minister really wants to do something positive for charities, why does she not extend to them the same tax relief relating to VAT that is extended to local government?

Justine Greening: I emphasise to the hon. Gentleman that the measures we came up with for the Budget were ones that we talked to charities about in order to pull together. Over this Parliament, the measures will encourage approximately £600 million more going to charities from donations, and I think that all hon. Members across the House should welcome that.

Banks (Taxation)

10. Paul Blomfield (Sheffield Central) (Lab): What assessment he has made of the level of taxation of banks. [60781]

The Financial Secretary to the Treasury (Mr Mark Hoban): Banks operating in the UK make a significant contribution to the economy and public finances. However, as the financial crisis demonstrated, the sector also posed a potential risk to the wider economy and it is only fair for the banks to make an additional contribution to reflect that. That is why we have implemented a permanent levy on the balance sheet of banks, which will raise more than £2.5 billion each year.

Paul Blomfield: I thank the Minister for that reply, but will he recognise the enormous feeling throughout the country that the banks need to fulfil their responsibility for the challenges we face? Will he therefore explain the stubborn refusal of the Government to repeat last year’s bonus tax, on top of the bank levy, which would generate the revenue to build 25,000 affordable homes and create 100,000 new jobs?

Mr Hoban: Perhaps the hon. Gentleman should speak to the right hon. Member for Edinburgh South West (Mr Darling), who said that imposing the bank levy again simply would not work.

Mr Peter Bone (Wellingborough) (Con): Are the losses on banks that accumulated because of their bad judgment

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being allowed to be set against future profits? In other words, are they avoiding future tax on future profits?

Mr Hoban: The corporation tax arrangements for banks are similar to those for other businesses. That is one reason why we have imposed the additional bank levy, which will raise more each year over this Parliament than the previous Government’s bank payroll tax did. It is important that the banks make a contribution to reflect the risk that they pose to the wider economy.

Unemployment Trends

11. Bill Esterson (Sefton Central) (Lab): What recent assessment he has made of the effect on the economy of trends in the rate of unemployment. [60782]

15. Steve Rotheram (Liverpool, Walton) (Lab): What recent assessment he has made of the effect on the economy of trends in the rate of unemployment. [60786]

The Chief Secretary to the Treasury (Danny Alexander): The unemployment rate has fallen recently: in the latest data, it was 7.7%—down from 7.9% on the quarter. The Office for Budget Responsibility assumed at Budget 2011 that the structural rate of unemployment was unchanged from its previous trends at 5.25%. In the medium term, unemployment is expected to fall as the economy recovers, supported by the action taken by the Government, including measures published in the Budget and “The Plan for Growth.”

Bill Esterson: Youth unemployment peaked in 1985 four years after the recession of 1981, with disastrous consequences for a generation of young people. When the Chancellor scrapped the future jobs fund he showed that he had not learned from what happened in the 1980s. Is not the truth that the Chancellor is out of touch with the realities of life for young people and is on course to repeat the same mistakes as the Tories made in the 1980s, with the same disastrous consequences?

Danny Alexander: If the hon. Gentleman was being fair, he would recognise that youth unemployment was growing substantially under the previous Government as well. The country has faced the problem for many years, which is why in the Budget we announced a £200 million package of support, including work experience placements for young people, skills training, guaranteed interviews and progression to apprenticeships. Including the measures in the Budget and the spending review, we will deliver at least 250,000 more apprenticeships over the next four years, compared with the previous Government’s plans.

Steve Rotheram: Since this nightmare coalition came to power, the number of people out of work in my constituency has increased, and that is even before the cuts really start to bite. Is it not a fact that the Chancellor, like many Members on the Government Benches, still believes that unemployment is a price worth paying?

Danny Alexander: Certainly not. That is why in Merseyside, we have announced a new enterprise zone that will encompass the Liverpool Waters and Mersey

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Waters regeneration projects. The regional growth fund has announced several projects in Merseyside, and the Work programme in Merseyside will help to deliver support for people to get off benefits and into work; the second contractor got under way yesterday. I hope the hon. Gentleman agrees that is a serious programme to help people off benefit and into work in Merseyside.

Charlie Elphicke (Dover) (Con): Will the Minister confirm that the recent announcement of the sharpest fall in unemployment in a decade and the creation of 500,000 jobs in the private sector over the past year shows hope that things are going in the right direction for unemployment?

Danny Alexander: We always said that the economic recovery would be choppy, but it is none the less welcome that we have seen significant job creation in the private sector over the past year. That offsets some of the job reductions in the public sector that are necessary as part of our deficit reduction programme.

Mr Rob Wilson (Reading East) (Con): May I tell my right hon. Friend that since May last year unemployment in my constituency has fallen by 11%? That is due to fast-growing private companies, such as Pegasystems. Is not the key to reducing high unemployment sticking to the deficit reduction programme and removing barriers to growth?

Danny Alexander: My hon. Friend is absolutely right. We have to stick to the deficit reduction programme, which is the essential underpinning for future economic growth in this country. We also need to take steps to ensure that that economic growth is balanced across the country, and the regional growth fund and the local enterprise partnership programme are an important part of ensuring that we have growth across the entire United Kingdom.

Job Creation (Private Sector)

12. Eric Ollerenshaw (Lancaster and Fleetwood) (Con): What recent assessment he has made of the rate of job creation in the private sector. [60783]

The Financial Secretary to the Treasury (Mr Mark Hoban): Last week, the Office for National Statistics published private sector employment numbers for the first quarter of 2011. They showed that private sector employment has risen for five consecutive quarters by 560,000 in total. That is the largest increase recorded over five consecutive quarters since the ONS started to publish the quarterly series of private sector employment in 1999.

Eric Ollerenshaw: I welcome those figures, but—like other Members—I constantly meet in Lancaster and Fleetwood small and medium-sized enterprises that have orders and could take on new staff and deal with the unemployment situation, but are being frustrated by the banks. What further support can the Minister offer to those much-needed engines of private sector growth?

Mr Hoban: That is why we introduced Project Merlin. We have also taken other measures to encourage funding for small businesses. The banks have set up the business

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growth fund, which can invest capital in medium-sized businesses to help them grow. We have approved arrangements for business angels to invest more in small and medium-sized businesses. These are the measures we need to take to introduce a range of available finance so that small businesses and private sector employment can continue to grow.

Mr Brian H. Donohoe (Central Ayrshire) (Lab): When a constituent comes to my constituency surgery or writes to me, and I write to the Treasury because that is where their question should be answered, why, after a long process, is the Treasury now saying that I will not get a letter in reply because a circular was sent some months ago? The Minister now answering is the one who is responsible. Why is that practice happening in the Treasury?

Mr Hoban rose—

Mr Speaker: Order. The hon. Gentleman refers to letters but the question is about the rate of job creation in the private sector; I think the hon. Gentleman meant to say that.

Mr Hoban: Indeed. If the hon. Gentleman will let me have details, I will look into the matter for him.

Mr Donohoe: On a point of order, Mr Speaker. In view of the unsatisfactory nature of the reply I have just received, I will seek a debate on the Adjournment.

Mr Speaker: I am extremely grateful. Under the procedures of the House, as colleagues are aware, we must proceed to the next question.

Budget (June 2010)

14. Andrew Gwynne (Denton and Reddish) (Lab): What assessment he has made of the progressive effects of the measures in the June 2010 Budget which have been implemented to date. [60785]

The Economic Secretary to the Treasury (Justine Greening): As the House knows, the Government published huge amounts of analysis of the impact of the measures announced in the Budget of June 2010. The majority of the measures have now been implemented. The charts in the Budget book show that the most well-off households make the largest contribution to the fiscal consolidation, both in cash terms and as a proportion of their net income.

Andrew Gwynne: I am grateful to the Minister for that reply, but has she seen the analysis produced by the House of Commons Library and my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper) showing that the measures in the last Budget hit women three times as hard as they hit men? Why is that?

Justine Greening: I do not accept the premise of the hon. Gentleman’s question at all. As ever, what we have heard from the Opposition is a cheap political point-scoring jibe. They might be better advised to come up with an alternative plan for tackling the fiscal deficit. The hon. Gentleman had nothing to say to my response to him,

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which implied that it is the most well-off households in the country that are bearing the brunt of the fiscal consolidation.

Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): A year ago, when the Institute for Fiscal Studies analysis found that the Budget was a regressive one, the Treasury objected to that analysis on the basis that the IFS had not properly considered the incentives to economic growth that the Budget contained, but given that growth is now flatlining and seems to be frequently downgraded, is the Treasury willing to accept that the IFS analysis last year was entirely correct?

Justine Greening: The IFS analysis was very clear-cut that it was indeed the most well-off people in our country who were bearing the brunt of the fiscal consolidation measures. I draw the House’s attention to the need to look at the overall impact of not just the Budget 2010, but the spending review and the Budget this year. They show that the most well-off people in our country are bearing the brunt of the fiscal consolidation, whether that is measured in terms of their income or of their expenditure.

Mr Philip Hollobone (Kettering) (Con): The incentives for job creation in the June 2010 and subsequent Budgets are to be welcomed, but given that for every 10 new jobs eight go to foreign-born workers, what more can be done to encourage the employment of the indigenous work force?

Justine Greening: As my hon. Friend knows, one of the key aspects of the Budget this year was to launch “The Plan for Growth”. A key part of that was to provide for more apprenticeships and more work experience so that we can make sure that people have the right skills that companies in this country need.

Growth Forecast

18. Alison McGovern (Wirral South) (Lab): What assessment he has made of the most recent growth forecast by the Office for Budget Responsibility. [60790]

The Chief Secretary to the Treasury (Danny Alexander): Growth forecasts are for the independent Office for Budget Responsibility. In March it forecast the economy to grow by 1.7% in 2011, 2.5% in 2012 and 2.9% in 2013.

Alison McGovern: If the OBR embarrasses the Treasury again by downgrading growth forecasts yet again, how will the Government respond?

Danny Alexander: As I say, growth forecasts are a matter for the independent Office for Budget Responsibility. I am clear that the deficit reduction programme is essential to ensure that we have confidence in the UK economy. Given that the Opposition caused the mess we are trying to clear up, I hoped the hon. Lady would support that.

Stephen Hammond (Wimbledon) (Con): Does the Chief Secretary agree that one of the assessments that we can make on growth is that encouraging job creation in the private sector will see a reversal of the decline in

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the productivity experienced when the Labour party was in power, and is likely to see growth forecasts continue to rise?

Danny Alexander: The hon. Gentleman is right that we need to see the private sector lead the economic recovery. Many of the measures that we announced in “The Plan for Growth”, such as reforms to the planning system, the measures on regulation and some of the tax measures that we announced to support investment, will all help to encourage and support private sector businesses to lead the recovery that we all want to see.

Banks (Regulation)

19. Glyn Davies (Montgomeryshire) (Con): What steps he is taking to reform the regulation of banks and financial institutions. [60791]

The Financial Secretary to the Treasury (Mr Mark Hoban): Last Thursday we published “A new approach to financial regulation: the blueprint for reform”, which sets out the Government’s proposals to reform financial regulation in the UK.

Glyn Davies: With a permanent annual levy worth £2.5 billion, tough rules on bonuses, a new deal on lending and regulatory responsibility returned to the Bank of England and handed to a new Financial Conduct Authority, is not the coalition making good progress in creating a sustainable banking system?

Mr Hoban: My hon. Friend is absolutely right that we have made significant progress over the past year in getting the financial regulatory system back in good shape. Of course, the Opposition should remember that it was the shadow Chancellor who spent his time in office trumpeting the value of light-touch regulation across the world.

Mark Durkan (Foyle) (SDLP): Will the Minister assure us that, in the context of his current work on regulation, the anomalous position of credit unions in Northern Ireland, which have much bigger memberships and funds than those in the rest of the UK but cannot offer the same range of services, will be addressed, along with industrial and provident societies in Northern Ireland, which are also in something of a regulatory black hole?

Mr Hoban: The hon. Gentleman makes an important point. Work is under way to look at the regulatory position of Northern Ireland credit unions.

Topical Questions

T1. [60797] Mr Gareth Thomas (Harrow West) (Lab/Co-op): If he will make a statement on his departmental responsibilities.

The Chancellor of the Exchequer (Mr George Osborne): As set out before, the core purpose of the Treasury is to ensure the stability of the economy, promote growth and jobs, reform banking and clear up the mess in the public finances that we inherited.

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Mr Thomas: In Harrow, five police sergeant posts have been axed and Wealdstone police station is being closed. Is that the Chancellor’s fault for cutting public services too far and too fast, or should I blame Boris?

Mr Osborne: I blame the Labour Government. During the election campaign, the Labour Home Secretary said publicly on television that police numbers would have to be cut if Labour was re-elected.

T3. [60799] Stephen Barclay (North East Cambridgeshire) (Con): What assessment has my right hon. Friend made of the cost to the public finances of an emergency cut in VAT and the disastrous impact that would have on debt interest?

Mr Osborne: The estimate is £51 billion over this Parliament, which I guess is just another nail in the coffin of the shadow Chancellor’s economic credibility.

T2. [60798] Mr Denis MacShane (Rotherham) (Lab): Has the Chancellor by chance seen the interesting analysis by the House of Commons Library showing that the measures in his Budget will affect women three times as adversely as they will affect men? Is he a misogynist?

The Economic Secretary to the Treasury (Justine Greening) rose— [ Interruption. ]

Mr Speaker: Order. Mr Ruane, I want to hear the Minister’s answer.

Justine Greening: The right hon. Gentleman’s hearing must be suffering, because he obviously did not hear my earlier answer to the hon. Member for Denton and Reddish (Andrew Gwynne).

T4. [60800] Mr Aidan Burley (Cannock Chase) (Con): Dr Adrian Steele, the managing director of Mercian Labels in Cannock, has just been named as one of the midlands’ most promising entrepreneurs. His company supplies labels and barcodes to the medical industry and employs 32 people. Does the Chancellor agree that it is small business entrepreneurs such as Dr Steele who will grow our economy back to strength, and will he continue to support manufacturers, who were shamefully neglected by the Labour party?

Mr George Osborne: My hon. Friend is right. Manufacturing halved as a share of our economy under the Labour Government and financial services grew dramatically over that period. Since the last election, manufacturing output is up 4.2% and the private sector has created more than 500,000 new jobs net, which is all good news. The example he brings to the Chamber is just one of many companies that are investing and employing people, and despite a choppy recovery we should celebrate that.

T7. [60803] Alison McGovern (Wirral South) (Lab): On 14 February the Governor of the Bank of England told the Chancellor that his VAT rise had caused inflation. On 16 May the Governor again told him that his VAT rise had caused inflation. Will he tell me how he is measuring the impact of his VAT rise on the rest of our economy and whether it was a rise too far, too fast?

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Mr Osborne: The Governor of the Bank of England had his opportunity at the Mansion House to comment on the macro-economic policies pursued by the Government, and he said that

“to change the broad policy mix would make little sense.”

That is the judgment of the Governor of the Bank of England, and the hon. Lady may now find herself, like the shadow Chancellor, against the IMF, against the IFS, against the Governor of the Bank of England and against the CBI. It leaves the right hon. Gentleman completely alone, and it leaves the Labour party’s economic policy absolutely isolated in the world. Now, she is a new Member, and I know that she has been saddled with being the former Prime Minister’s private secretary, but she can break away from the nonsense being spouted by Opposition Members.

T5. [60801] Oliver Colvile (Plymouth, Sutton and Devonport) (Con): Does my right hon. Friend agree that the shortest suicide note in history consists of just five letters—plan B?

Mr Osborne: My hon. Friend is right, and, in the case of the Opposition, their plan is plan B for bankruptcy.

T9. [60806] Mr Russell Brown (Dumfries and Galloway) (Lab): About 20,000 UK citizens, including some of my constituents, have lost their savings by investing in the fund management company, Arch Cru. Will the Chancellor step in and investigate the role of the Financial Services Authority in the failure of that company?

The Financial Secretary to the Treasury (Mr Mark Hoban): The hon. Gentleman may well be aware that today an announcement was made of a voluntary scheme that we have put together to make available £54 million of compensation to Arch Cru investors. That, together with a previous payment to consumers, means that they will have recovered about 70% of the value of their holdings in Arch Cru funds as of the date when the funds’ trading was suspended. That is a welcome move for Arch Cru investors, the FSA is continuing to look at the matter, and it would be inappropriate to make any further comment on it.

T6. [60802] Andrew Jones (Harrogate and Knaresborough) (Con): Has the Chancellor had cause to regret a decision, made by one of his predecessors, to sell the UK gold reserves a decade ago at the bottom of the market, a decision that has cost this country just under £10 billion?

Mr George Osborne: My hon. Friend is right: it is a decision of great regret. The gold was sold at £2.3 billion, and it would now be worth £12 billion, which as he says is a £10 billion loss. The Labour party, on the advice of the shadow Chancellor, managed to sell gold at its record low price. Indeed, gold traders now call it the Brown bottom. That is how they know the number, and it is yet another disastrous decision after which we are having to clean up.

Caroline Lucas (Brighton, Pavilion) (Green): The Chancellor will be aware of the recent Office for National Statistics finding that the regressive nature of VAT means that the UK tax system is doing almost nothing

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to prevent income inequality. In that context, will he pay particular attention to a Fawcett Society report, to be launched tomorrow, which shows that his fiscal policies, such as increasing VAT, cause particular harm to lone parents, 92% of whom are women?

The Exchequer Secretary to the Treasury (Mr David Gauke): May I also point out that our tax policies include taking hundreds of thousands of people out of income tax altogether? On the particular subject that the hon. Lady raises, of those taken out of income tax following the announcement in the Budget earlier this year, 56% will be women.

T8. [60804] Mr Robin Walker (Worcester) (Con): Which does the Chancellor think is better for low-paid workers in Worcester: the Government taking 1 million of the lowest paid out of tax altogether; or the previous Government’s move to double their tax by scrapping the 10p tax rate?

Mr George Osborne: As my hon. Friend points out, we have taken more than 1 million low-paid people out of income tax. We are committed to further such moves through this Parliament, and that is in stark contrast to the 10p tax raid in the previous Parliament. Of course, we now discover that, before the decision was made, the shadow Chancellor knew all about its impact on the poorest fifth in our society.

Mr George Mudie (Leeds East) (Lab): The Chancellor thought it proper in his Mansion House speech to give the bankers of the City first go on his views about the ring-fencing of banks. Apart from that being discourteous to the banking commission, which he set up, does he not think it discourteous to this House that he is prepared to give bankers that information but not to come and explain it to the House and take questions?

Mr Osborne: First, the announcement was made with the consent of the Independent Commission on Banking. Secondly, it is established that the Chancellor is able to give the Mansion House speech each year. I seem to remember that the last-but-one Chancellor announced the renewal of the nuclear deterrent at the Mansion House without coming to the House of Commons to do so. If the hon. Gentleman will allow me to say something about banking reform at the Mansion House in the years to come, I will therefore be grateful.

Stephen Williams (Bristol West) (LD): The spending review said that employee contributions to public sector pensions would need to increase in order to make the funds sustainable for the future. Does my right hon. Friend agree that that rate should not be applied uniformly in order to protect the lowest-paid public sector workers and encourage them to stay within public sector pension schemes?

The Chief Secretary to the Treasury (Danny Alexander): I am grateful for the question. I agree with my hon. Friend. In fact, a similar point has been made by several trade union representatives in the very constructive talks that we are having at the moment, which will be

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going on over the next few weeks. In applying the increase in pension contributions, it is very important to protect the low-paid so as to minimise the risk of opt-out.

Alison Seabeck (Plymouth, Moor View) (Lab): Repossessions are rising and are up by 17% on the last quarter. That is very reminiscent, sadly, of the conditions under the Conservative Government in the 1990s and the cost and misery caused to families. Will the Chancellor, and perhaps the housing Minister, tell us what direct action he is going to take to support those affected and to restore confidence to the housing market?

Mr Hoban: The hon. Lady is right to highlight the increased number of repossessions. We want to see a strong and stable housing market. The Government have taken action to support those who wish to stay in their homes through an extension of the scheme for mortgage interest support. We are continuing to make sure that advice is available to people who are facing difficulties in meeting their mortgage payments. The important thing, however, is to keep interest rates as low as possible for as long as possible so that families are not faced with an increase in their mortgage payments.

Mr John Redwood (Wokingham) (Con): Given the lack of growth in money and credit, is there anything else that the Government can do to promote the growth in the economy that is so crucial to their plans?

Mr George Osborne: As my right hon. Friend will know, the supply-side reforms that were set out in the growth review, including the reduction in corporate tax rates, are key. At the same time, as banks’ balance sheets inevitably contract after the credit crunch and after the dramatic increase in the size of balance sheets over recent years, we need to ensure that we try to protect small and medium-sized businesses from the effects of that. That is why we concluded the Merlin deal with the banks.

Jon Ashworth (Leicester South) (Lab): The Minister will be aware that the claimant count has continued to rise in the past three months and that unemployment in many inner-city constituencies such as mine remains stubbornly high. Why will he not consider taxing the banks sufficiently to fund an inner-city youth jobs programme to help the young people on the estates in my constituency?

Mr Osborne: We have introduced a permanent bank levy that applies each and every year. There was a bank bonus tax for one year of the 13 years of the Labour Government; other than that, there were no charges on the banks. The former Chancellor of the Exchequer—my immediate predecessor—said that we could not repeat that because the bankers would find a way round it. We therefore looked to the advice of international bodies such as the IMF, and we introduced a bank levy that will raise more each and every year, net, than the Labour Government raised from the banks in any one year. That shows that we are asking the banks to make a decent contribution to the economy.

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Henry Smith (Crawley) (Con): Last week, a consortium of regional airports called for a congestion tax on London airports such as Gatwick in my constituency. Will the Treasury rule out such an absurd and, frankly, anti-free trade measure?

Justine Greening: My hon. Friend is right to refer to the importance of the aviation sector. As he will know, the consultation on reform of air passenger duty closed last Friday, and we have received a number of different representations from stakeholders. He will be aware that this is partly about looking at what we can do to support regional airports, but we certainly do not want to do that at the expense of our other key airports in the south-east.

Mr Chuka Umunna (Streatham) (Lab): Several figures have been cited about the number of jobs created over the past 12 months. What percentage of those jobs were created before the spending review and are arguably attributable to the last Government, and what percentage have been created since?

Mr Osborne: I am happy to provide the hon. Gentleman with an exact breakdown based around the date of the spending review. What is clear, however, is that we said that we wanted the private sector to lead the recovery and that that was absolutely essential. That is the view of virtually every credible economist and business organisation in the country. He should be celebrating the fact that over 500,000 net new jobs have been created by the private sector in the past year.

Duncan Hames (Chippenham) (LD): Last week, I met development campaigners from Bradford-on-Avon at the “Tea time for change” rally. They welcome the Chancellor’s support for transparency in companies operating in developing countries. Will he press for effective legislation internationally, and for country-by-country, project-by-project financial reporting for companies in the resource extractive industries?

Mr Osborne: My hon. Friend raises a good point, which commands the support of MPs from all parts of the House. We want to see greater transparency in the extractive industries. I raised the matter at the G20 meeting in Paris earlier this year. We want measures to be introduced at a European level and shortly after that at a G20 level to ensure that they have the maximum possible impact around the world.

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Jonathan Edwards (Carmarthen East and Dinefwr) (PC): Diolch yn fawr, Mr Speaker. The Governments of Northern Ireland and Scotland will soon have greater financial autonomy. What requests has the Chancellor received from the new Welsh Assembly Government for similar job-creating levers?

Mr Osborne: The hon. Gentleman knows that we made a clear commitment that if the outcome of the referendum in Wales was a yes, we would set up a Calman-like process that would come to an agreed set of proposals—I hope they will be agreed across many parties, as was the case with Calman in Scotland—on greater financial responsibility for the Welsh Assembly. We are engaging in that process now. One reason why Calman has worked well—I know that we will come on to discuss the Scotland Bill later—is that at least three parties in the House of Commons, Labour, the Liberal Democrats and the Conservatives, were able to agree on a set of proposals. I hope that we can achieve similar agreement in Wales.

Stephen Metcalfe (South Basildon and East Thurrock) (Con): I am sure my right hon. Friend is aware that if every small and medium-sized enterprise in the UK employed one additional person, we would have an employment surplus. What plans does he have directly to incentivise SMEs to take on additional staff?

Mr Osborne: First, we offer a national insurance tax break for new employees in new companies. We have cut the small companies tax rate, which was due to go up when I came to office. We are also cutting the headline rate of corporation tax by 2% this year and then by a further 3%, making it a 5% reduction over the course of the Parliament.

Ian Austin (Dudley North) (Lab): Is the Chancellor who now complains about a decade of over-investment by the previous Government related to the George Osborne who wrote an article in The Times in 2008 not just praising that Government’s spending plans, but promising to stick to them?

Mr Osborne: I think the hon. Gentleman has his years wrong, for a start. We fought the 2005 general election warning that Labour was spending too much and we fought the 2010 general election giving that warning. The British people listened to us, and realised that people like him had been supporting a Government who had brought our country to the brink of bankruptcy.

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Sentencing Reform/Legal Aid

3.32 pm

The Lord Chancellor and Secretary of State for Justice (Mr Kenneth Clarke): With permission, Mr Speaker, and further to the written ministerial statement I laid in the House earlier today, I would like to make a statement.

Last autumn, the Government launched two consultations on far-reaching plans to reform punishment, rehabilitation and sentencing of offenders, and on legal aid in England and Wales. Today I have laid before Parliament the government’s responses to those consultations. I will also introduce the Legal Aid, Sentencing and Punishment of Offenders Bill to give effect to the measures we are taking forward that require primary legislation.

Protecting the public from crime and punishing lawbreakers are the most fundamental responsibilities of the state towards its citizens. The sad truth is that after 13 years of government, over 20 criminal justice Bills, more than 3,000 new criminal offences and an explosion in the prison population, Labour left the system in crisis. Most of our prisoners spend their time behind bars idling in their cells, with ready access to drugs. A bigger scandal still is our reoffending rates, which are straightforwardly dreadful. Within a year of leaving jail, half of offenders will have been reconvicted of further offences. The same people cycle round the system endlessly, committing more crimes against more victims. The best way to reduce crime is to reduce reoffending, and that remains the central feature of our programme of radical reforms.

Prisons must be places of both punishment and reform. Today I can confirm that we plan to deliver a full working week across the prison estate. We will legislate to extend powers to use money earned by prisoners to support victims. We have never proposed that community sentences should replace prison sentences, but we will introduce tougher, properly enforced community punishments whereby offenders work longer hours, unpaid, at least four days a week.

Drug abuse lies behind much, if not most, criminality in this country. It is not acceptable that drugs are too readily available in prison. We are taking forward plans to reduce addiction across the prison estate by improving security and introducing drug-free wings in jails. We must tackle other root causes of criminality, particularly alcohol addiction, mental illness and a lack of skills, but we will ensure that we put taxpayers’ money only into rehabilitation programmes that actually work.

Public confidence in the criminal justice system is unacceptably low. That is why we want to take forward plans for a new offence, with a mandatory minimum prison sentence of six months, for adults who use a knife to threaten and endanger. We will also consult on proposals to criminalise squatting, and we will bring forward legislation to clarify the law on self-defence. In addition, I can confirm our intention to improve the use of remand and reduce the number of foreign national prisoners in our jails.

Discounts for early guilty pleas have been part of the criminal justice system for decades, for good reason, and we consulted on changes to that system. Personally, I was particularly impressed by the representations of the senior judiciary and other criminal justice experts

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who said that increasing the maximum discount on offer for a guilty plea at the earliest possible stage might result in the sentence served being too short in some serious cases. I was hoping to address that problem, and I considered doing so by introducing a greater degree of judicial discretion, but we could not make that work. We have therefore decided to retain the present system.

The consultation also produced strong opposition to the indeterminate sentencing framework. It was introduced by the last Government and sold as a way of protecting the public from a small number of the most dangerous offenders, but it has never worked as Parliament intended. It has created a flawed system in which thousands of offenders have already served their normal sentence or tariff, but no one can predict when or if they might ever be released. That is why, as the Prime Minister confirmed this morning, we are reviewing so-called indeterminate sentences of imprisonment for public protection, with a view to replacing them with a more sensible, tough system of long, determinate sentences. That will see judges handing down life sentences in a greater number of very serious cases, including mandatory life sentences for the most serious repeat offenders. Serious sexual and violent offenders will spend at least two thirds of their sentence in prison, rather than being released halfway through. We intend to return to the best aspects of the system before IPPs were introduced in 2005 by new Labour.

I turn to legal aid reform. We have much the most expensive system in the world, except for Northern Ireland, costing £39 per head of population. That compares with, for example, £8 per head in New Zealand, a country with a broadly similar legal system. The last Government consulted on the subject more than 30 times since 2006, and still left us with the mess that we now have to tackle. In some cases the system encourages people to bring issues before the courts when other solutions might be better. In others it enables people to pursue litigation that they would not contemplate were they paying for it out of their own pocket.

Following careful consideration of more than 5,000 responses, I am bringing forward proposals that I believe will ensure access to public funding in the cases that most require it, encourage early resolution of disputes instead of unnecessary conflict and ensure much better value for money for the taxpayer.

I can announce that we will retain legal aid in cases where people’s life or liberty is at stake, where they are at risk of serious physical harm or immediate loss of their home, or where their children may be taken into care. In response to consultation, that will include strengthened provision for victims of domestic violence and for children at risk of abuse or abduction, and the retention of legal aid for special educational needs cases.

Legal aid will no longer be routinely available for most private family law cases, clinical negligence, employment, immigration, some debt and housing issues, some education cases, and welfare benefits. It will also no longer be available for squatters resisting eviction.

We have also decided not to abolish, as we originally proposed, the current capital disregards for pensioners and for equity in the main home in assessing an applicant’s eligibility for legal aid. We will not now introduce a £100 contribution from capital for those assessed as having £1,000 or more disposable capital.

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All that amounts to a balanced and sensible package of reforms of the kind that the Government were determined to achieve when we published our proposals and started to consult on them. Our plans mean a return to common sense in the justice system. On legal aid, the overall effect will be to achieve significant savings while protecting fundamental rights of access to justice. On sentencing, we will deliver punishment, protection and a renewed focus on breaking the cycle of crime and reoffending. I look forward to debating the proposals on Second Reading and during the Bill’s subsequent stages.

Sadiq Khan (Tooting) (Lab): I thank the Justice Secretary for advance sight of his statement.

Our justice policy should be about protecting the public, punishing and reforming offenders, being on the side of the victim and bringing crime down. That underpinned our record in government, which led to a 43% fall in crime, reductions in reoffending and serious improvements in youth offending rates. However, the Government demonstrate that that is not what matters in their approach to crime and justice. Instead, it is about cutting cost, despite the impact it could have on communities across the country.

The Government have seen sense and taken heed of opposition to cost-driven proposals to reduce sentences by 50% on early guilty pleas. A coalition of victims, the judiciary, justice groups, the Sentencing Council and victims groups rightly questioned the motivation and effectiveness of that policy. Let us be clear: the policy had been agreed by the Cabinet. I asked the Justice Secretary during the Opposition day debate on sentencing whether the Prime Minister agreed with him. His response was:

“This was an entirely collectively agreed policy”.—[Official Report, 23 May 2011; Vol. 528, c. 672.]

It is therefore no good No. 10’s distancing itself from it. In oral questions last month, the Justice Secretary said that the policy would survive the consultation. Of course, some Government Members voted against our motion—although some had the sense not to—which opposed the proposal on 23 May.

Will the Justice Secretary outline why the Prime Minister ditched the proposal when the Government were so wedded to it only a matter of weeks ago? When was the decision made to change the Bill’s title from the Legal Aid and Sentencing Bill, as it was called up until late last week, to the Legal Aid, Sentencing and—I like this—Punishment of Offenders Bill? What did he hope to achieve by tinkering with the title?

We know from the impact assessment that was provided with the Green Paper that removing the option of remanding offenders in custody for certain cases could save £50 million and 1,300 prison places. I note that that proposal remains. Will the Justice Secretary outline the view of the Magistrates Association on the proposal and say whether he believes that the Police Federation and the Association of Chief Police Officers support the policy?

In the past 13 months, we have seen broken promises on minimum and maximum sentencing, prison building and knife crime. Today the Justice Secretary proposes a new offence of a mandatory custodial sentence for knife possession in aggravated circumstances, with a

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minimum sentence of six months. Even that proposal is less than that promised to the electorate in the Conservative manifesto, which stated that

“we will make it clear that anyone convicted of a knife crime can expect to face a prison sentence”.

That is still a broken promise, and tinkering with the Bill’s title will not change that.

On indeterminate sentences for public protection, I have consistently questioned the Justice Secretary on how he will ensure the safety of our communities when considering which offenders should be released and when. Again, the impact assessment helpfully tells us that financial savings will be “sizeable”. From that, it is obvious that the focus is saving money, not what is in the public’s best interests. Today we find that the Justice Secretary is to undertake an “urgent review” of IPPs with a view to replacing them. Will he explain to the House why he needs another review when he has had 13 months, a Green Paper and a consultation that he has consistently described as an opportunity to review IPPs?

How does the Justice Secretary reconcile losing thousands of front-line, experienced prison and probation staff with the desire to increase the numbers of offenders diverted into specialist drug, alcohol and mental health facilities, and how does he reconcile that with more prisoners working, because they will clearly need more supervision?

The legal aid proposals have been roundly criticised across the board as devastating social welfare law—[ Interruption. ] Has the Justice Secretary—[ Interruption. ]

Mr Speaker: Order. There was too much noise when the Secretary of State and Lord Chancellor addressed the House, and once again there is too much noise. Let me just say this to those who are making a persistent noise: stop it, or leave the Chamber, but do not for one moment suppose that making that noise you have the foggiest chance of being called to ask a question.

Sadiq Khan: I am grateful, Mr Speaker.

As I was saying a moment ago, the proposals on legal aid have been roundly criticised across the board as devastating social welfare law. Has the Justice Secretary seriously considered the alternative funding options proposed by, for example, Justice for All? Does he accept that his changes will have a huge impact on the viability of many law centres, citizens advice bureaux and high street practices up and down the country that do an enormous amount to provide access to justice for some of our most deprived citizens? The Prime Minister claims that the whole point of a Green Paper is to listen and to be ready to change one’s mind, so why have the Government made no substantive changes to their proposals on social welfare legal aid?

This morning the Prime Minister said that savings that would have been made by the 50% sentence proposals will be found elsewhere in the Ministry of Justice budget. Can the Justice Secretary explain exactly where those savings will be made and when?

We are seeing cuts to the police and cuts to prison staff and probation trusts, but where is the strategy to cut crime? The Government’s policies on crime and

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justice are a shambles. We have always known that we cannot trust the Tories on the NHS, but now it seems that we cannot trust the Tories on law and order either.

Mr Clarke: Well, first of all I can confirm what the right hon. Gentleman says: the proposals that I presented for consultation and the Green Paper were the proposals of the Prime Minister, the whole Cabinet and I, and the proposals that I am putting forward today in response to the consultation and the comments that we invited are the responses of the Prime Minister, the whole Cabinet and I. Indeed, we had a discussion at Cabinet this morning. We run a collective Government.

I remind the right hon. Gentleman that we carried him with us on our Green Paper. His reaction to what the Prime Minister and I said at the time—it is all accessible in Hansard—was that this was a

“perfectly sensible vision for a sentencing policy, entirely in keeping with the emphasis on punishment and reform that Labour followed in government”.—[Official Report, 7 December 2010; Vol. 520, c. 171.]

We carried him with us then, and I have hopes that if he looks at the consultation and listens to the arguments, we will carry him with us again. If he wants to turn and change his mind, he is free to do so.

Early guilty pleas were a genuine attempt to help victims and witnesses, who are mightily relieved if they hear that the accused decides to plead guilty. Had they worked, they would have saved a very great deal of money and time for the police service and Crown Prosecution Service, as well as for prisons. I do not know quite what the right hon. Gentleman’s view on this is, but I paid particular regard to the legal opinions that I was getting from serious members of the judiciary and others. The arithmetic just went too far in some serious cases. A week or two ago, I said that I thought the proposal would survive, because I thought that by introducing some judicial discretion, I could solve the problem, but I could not. For that reason, the Government are sticking with the present system. That is what consultation is all about.

We have consulted on our remand proposals, and we are pushing on with them. Carrying on with a system whereby people are refused bail when everybody knows they will not be sent for a custodial sentence if they are convicted at their final appearance is simply not the best use of a very expensive place in our prison system. It is cheaper to put our prisoners in the Ritz—and many of them would like to be there—but while the public prefer them to be in prison, we will keep them in prison. Nevertheless, the remand proposals are, I think, extremely sensible.

The proposal on knife possession has been made to send a message about its seriousness. I do not think that the right hon. Gentleman expressed an opinion on it, but I would advise him to support this perfectly sensible measure. On IPPs, which I have said we are minded to repeal and replace with a better version of what preceded them, I refer him to the consultation and the attacks on IPPs from sensible people. David Thomas QC, who writes the bible on sentencing so far as criminal law practitioners are concerned—his book on sentencing is the book for those practicing in the courts—described IPPs as an “unmitigated disaster”. We are carrying out

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a review to decide what will replace them by way of a strong system of determinate sentences that protects the public.

On legal aid, I could rapidly find a quotation from the right hon. Gentleman saying that if the Labour party was in government, it would be cutting legal aid. He has nothing to say on legal aid that challenges the case I made a moment ago. On citizens advice bureaux and other forms of general advice, I hope to be able to say something on Second Reading—I am making advances, but we will see how much we can come forward with. We think there are better ways of resolving problems, and I agree that CABs and other voluntary bodies sometimes provide better advice than adversarial lawyers.

In commenting on the probation service and other matters, the right hon. Gentleman asked where the savings are coming from. I have held protracted negotiations with the Chief Secretary to sort out my Department’s finances, in the light of some of the problems left behind. We have now resolved all those problems. Over this period we will be making £2 billion of savings a year on the total expenditure of my department, and we are looking elsewhere for another £100 million. We are not cutting any particular area but achieving efficiency, and half of that will come from administrative savings. If we have further policies to find the money we are not saving, I will come forward with them. I prefer to proceed with proper policies in joined-up writing upon which I have consulted, and got the approval of, my colleagues, and after that to come to the House. I am now considering how to ensure that the final touches to the major savings we are making in my Department can be achieved in the light of this consultation.

Sir Alan Beith (Berwick-upon-Tweed) (LD): Although the Justice Committee will continue to have concerns about the extent of the legal aid changes, may I press the Justice Secretary on sentencing? Do his Cabinet colleagues recognise that we will protect our citizens from crime not by tough talk or favourable headlines, but by appropriate sentences geared to making offenders face up to what they have done and changing their behaviour? Sometimes resources are required to do that and should not be commandeered by the prison system.

Mr Clarke: I agree with the right hon. Gentleman. Talking tough is easy and most politicians do it; delivering tough is rather difficult, as the Labour party discovered only too often. I will not use the quotes I have used before—the right hon. Gentleman knows them perfectly well. I agree that prison is of course the right punishment for serious and violent offenders, who will keep being sent there for long sentences whenever that punishment is justified, so that they can make reparation. However, we also tackle crime by trying to reform them, getting more of them to go straight, reducing reoffending and finding other ways of stopping the accumulation of more victims and more crimes committed by people coming through the system. I think that that is accepted by my colleagues. We are giving up the remorseless and hugely expensive increases in the prison population, and looking for a more intelligent way of protecting the public, which is our principal priority.

Sir Gerald Kaufman (Manchester, Gorton) (Lab): Is the right hon. and learned Gentleman aware—he certainly should be because I have told him a number of times—of

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the dire effect upon my constituents of the action he has taken already in attacking citizens advice bureaux, undermining legal aid and taking the wrecking ball to the South Manchester law centre? Is he further aware that what he has announced today will complete the process of making access to justice a prerogative of the rich?

Mr Clarke: I could answer each of those three things. Most of the cuts being made to citizens advice bureaux and so on are being made by local government; we are not the principal—[ Interruption. ] The Ministry of Justice is not the principal contributor to citizens advice bureaux. However, as I have already said, the Government as a whole will assist those who give quality, worthwhile advice of the kind required by the very many people who do not need legal aid and an adversarial lawyer, which is not the best way of proceeding.

We have debated court closures before. We inherited more than 100 underused buildings, which I am afraid we had to tackle and rationalise. Our package of legal aid reforms is tackling a system that has become bloated in recent years—a system that the right hon. Gentleman’s Government kept talking about reforming but never did, because an inability to take decisions about exactly what to do about an out-of-control Government was rather typical under the last Prime Minister. When we have finished what the right hon. Gentleman says are draconian reforms, we will still have by far the most expensive legal aid system in the world after I have made our so-called cuts.

Several hon. Members rose

Mr Speaker: Order. In the interests of maximising the number of contributors, I appeal to hon. and right hon. Members for short questions and short answers.

Anna Soubry (Broxtowe) (Con): Does the Lord Chancellor agree that it was the last Labour Government who, having introduced IPPs, then changed the law for no other reason than to reduce the prison population? As for the thoroughly good idea that we now scrap IPPs, would we not thereby ensure that the public—the victims and, indeed, the offenders—were better protected and had greater justice?

Mr Clarke: I agree with my hon. Friend. I think that the reason the last Government introduced IPPs was that they were reducing the time of a sentence automatically served from three quarters to a half. They introduced what sounded like a tough measure, with these new indeterminate sentences. However, it immediately went wrong, and they introduced more legislation after two years to try to reduce the numbers. I regret to say that my first effort was to go in the same direction and reduce them even more. I hope that I have my hon. Friend’s support in saying that the best thing is to get rid of them and return to a sensible system of long, determinate sentencing.

Mr George Howarth (Knowsley) (Lab): The right hon. and learned Gentleman should be aware that part of the problem with his original proposals was his failure to establish the case for community sentences as

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an alternative to prison. In his statement he refers to new, tough community sentences. Can he describe what the characteristics of a tough community sentence might be?

Mr Clarke: I never advocated—nor did the Government —the replacement, as it were, of short prison sentences with community sentences. I have some very curious opponents in sections of the media, and this was one of the bees they got in their bonnet almost as soon as we started, but we never proposed that. Community sentences need to carry public confidence so that magistrates can consider them properly as an alternative to prison in suitable cases—they do now, but more would. What I have in mind with tougher sentences is better organised sentences, so that, for example, unpaid work—which is one of the best community-based punishments that one can impose—doing genuinely worthwhile things for the community should be better organised and better disciplined. It should not have to be fitted in on the odd day over several years; it should be better organised on the day and based round a pretty normal working pattern of so many hours each week when it is under way. There are plenty of things that we can do—that and making more use of curfews and tagging—to build up public confidence in community sentences, which I am sure the right hon. Gentleman and I both agree would be a good thing to do, but which we would also agree is lacking at the moment.

Mr Edward Leigh (Gainsborough) (Con): What on earth did my right hon. and learned Friend mean when he said that he would introduce drug-free wings in jails? Does he not understand that, for the public, that is an extraordinary statement? They believe that all parts of all jails should be drug-free. To them, this sums up the irretrievably soft attitude of our entire prison system. In particular, will he protect our people—vulnerable old people—from burglars, and promise the House today that all burglars of private dwelling houses will be put in prison?

Mr Clarke: On the first point, I share my hon. Friend’s amazement, as I am sure anyone would on their first introduction to the criminal justice system. The fact is, however, that drugs are very widely available in our prisons, and 9% of people who have taken heroin say that they first did so in prison, where they were introduced to the drug. I am sorry that I have had to refer to “introducing drug-free wings”, but that is what we are proposing to do, and we are going to address the problems of security and rehabilitation in order to do it.

Of course burglary is always a serious offence. It is actually one of those that are rising at the moment, although that has nothing to do with the sentence level. It is going up rather alarmingly compared with a year ago. I regard all burglary, but particularly household burglary, as a very serious offence. In the end, however, the punishment has to fit the particular crime. I shall consider what my hon. Friend has said, but I think that there should be a limit to the number of automatic sentences according to what it says on the label. Proper sentencing should be directed towards what we both agree is the first priority—namely, the proper protection of the public.

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Fiona Mactaggart (Slough) (Lab): In view of the mistakes that the right hon. and learned Gentleman’s team have made in their policies relating to women, what risks does he see in making domestic violence a gateway to access to legal aid? Does he think that that will make people sceptical about victims’ claims of domestic violence?

Mr Clarke: We have defined domestic violence, and we are not sceptical at all. Indeed, I hope that the hon. Lady will be pleased that we have looked again at this matter and extended legal aid to cases of domestic violence more than we had originally proposed. I think that our policies towards women probably have her fairly wholehearted support. We have a particular policy towards women in prisons; indeed, we are following the policy of the previous Government and the recommendations of Lady Corston. At the moment, the number of women prisoners is going down; it is the number of adult males that is still rising slightly.

Andrea Leadsom (South Northamptonshire) (Con): Will my right hon. and learned Friend assure the House that, in spite of the proposed changes, support for children will remain, and that legal aid will be available in cases of domestic violence, child abuse, child abduction and enforced child adoption, to ensure that children do not suffer?

Mr Clarke: To give a short answer, I agree with my hon. Friend that all of those are an important priority.

Mr David Hanson (Delyn) (Lab): Just so that we can judge the Lord Chancellor’s performance, will he tell us how many fewer foreign national prisoners there will be in our jails in June 2012? Perhaps he could also tell us which new countries he expects to sign agreements with over the next 12 months. From experience, I think that he will find that that is not as easy as he thinks.

Mr Clarke: The right hon. Gentleman will be surprised to learn that there are 1,000 fewer foreign national prisoners now than there were when the previous Government left office. I agree with him that this is very difficult to achieve, although we are pursuing transfer of prisoner agreements, and the new transfer arrangements with the EU are coming into effect. We are also working with the UK Border Agency to try to improve its effectiveness in moving people promptly. We are working at this, and so far, we are doing 1,000 better than he did.

Robert Halfon (Harlow) (Con): Harlow Welfare Rights and Advice and the citizens advice bureau are deeply concerned about the proposed centralised telephone service for all but emergency cases. Will my right hon. and learned Friend assure us that that will not add an unnecessary level of impersonal bureaucracy or prevent advice from reaching vulnerable people? Will he also look into the availability of legal aid in cases of criminal negligence, so that those who have been harmed can have access to justice?

Mr Clarke: I had better refer my hon. Friend to the consultation document. He has taken up this matter in the past, and we have readdressed the question after listening to his and other people’s recommendations.

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We have defined much more closely the use of the telephone advice system and concentrated on those areas in which we think that it is of value. When he looks at our response to the consultation in detail, I think he will find that we have gone in the direction that he would have wished.

Grahame M. Morris (Easington) (Lab): I note that the Justice Secretary has said that legal aid will no longer be routinely available in clinical negligence cases. That will cause a huge problem: people will be denied justice and compensation after suffering injury or worse as a result of malpractice or clinical negligence. Will he explain his justification for that decision?

Mr Clarke: Well, 80% of clinical negligence cases are already undertaken on a no win, no fee basis. Only 20% by number are done using legal aid. That is why we think that no win, no fee is probably the better way forward, and also why we will implement Sir Rupert Jackson’s recommendations to ensure that the costs to all parties are kept down and in proportion. Far too often under the pre-Jackson rules, the health service has found itself paying out at least as much in legal costs as in compensation to victims. On the whole, negligence cases have moved steadily towards no win, no fee arrangements for those who cannot afford the fees. That gives wider access, because legal aid is restricted through a very tight means test.

Mr David Ruffley (Bury St Edmunds) (Con): Longer sentences on their own have clearly failed to cap reoffending. May I therefore urge the Lord Chancellor to press ahead with his radical and right-wing plan to get private companies into prisons to deliver serious rehabilitation that actually works?

Mr Clarke: I am grateful to my hon. Friend, with whom I agree. Of course one of the things that we should address is the cost of running prisons. We all want to address the efficiency with which prisons are run, just as much as we wish to address who is sent there and how many we can accommodate. I am glad to say that we have carried out a very successful tendering exercise and saved a lot of money, and I hope also potentially improved the regimes in those prisons. We intend to do the same thing again. Personally, I have no ideological hang-up about whether the successful bidder is a public sector or private sector bidder: we want the best bidder and the best quality regime at the lowest cost. That has to go hand in hand with sentencing reform. This is exciting, but it is also a much better way of running a prison system.

Mr Speaker: Order. May I gently and in a jocular fashion say to the Secretary of State that he should not be like a cruise ship in rotation? The House wishes to hear him. He swivels around, but it is helpful if he faces the House; I would be obliged to him if he did so.

Sheila Gilmore (Edinburgh East) (Lab): The Secretary of State has made much of his desire to have alternative dispute resolution, which he considers to be better—in family law, for example. Presumably, he is thinking of mediation. Has he made any realistic assessment of the costs and of on whom those costs would fall? Will they

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fall on individuals or will there be some cost to his Department, which might undermine the reductions he hopes to achieve in legal aid?

Mr Clarke: My apologies, Mr Speaker. Probably the problem with my political career is that I have not swivelled enough on occasions.

I believe mediation is a much better way of resolving all kinds of family and other disputes. The taxpayer will continue to pay for mediation; indeed, the mediators will be trained lawyers. Many people will take part in a much better process of resolving disputes. We are planning to increase the amount spent on mediation by £5 million, as the Under-Secretary of State for Justice, my hon. Friend the Member for Huntingdon (Mr Djanogly) tells me, in order to make savings by reducing the amount of unnecessary adversarial litigation that we fund.

Mrs Helen Grant (Maidstone and The Weald) (Con): Does my right hon. and learned Friend agree that mediation is no panacea and that it can fail badly in family cases where there is an imbalance in power?

Mr Clarke: My hon. Friend has much greater expertise on the practice of family law than I do, so I rely on her and listen to her opinions with great attention. I have discussed these matters with her before. We have to get the balance right. At the moment, the generosity of the legal aid system compared with other systems is bringing more things into adversarial litigation than would otherwise be the case. Expansion of mediation is the better way of proceeding, and I hope that my hon. Friend will contribute her expertise to our development of the mediation system.

Lisa Nandy (Wigan) (Lab): The Secretary of State has spoken about the need for alternatives to the courts, so will he tell us what alternatives are available to victims of human rights abuses by multinationals, as in the Trafigura case, if the success fee on which many of those cases depend is no longer recoverable?

Mr Clarke: If, as I gather from her question, that case was conducted on a no win, no fee basis—I am not sure about that—as I announced a few weeks ago, such cases will become much cheaper for all parties as a result of the changes that we propose to make in the light of Sir Rupert Jackson’s recommendations. Legal aid will still be available in suitable cases concerning human rights. We are not resiling from those areas where the taxpayer needs to finance the small man against the state or the giant administration.

Tom Brake (Carshalton and Wallington) (LD): I welcome many aspects of the Justice Secretary’s announcement, including greater clarity on sentencing, measures to tackle drugs, and improvements in the original legal aid proposals. Will he confirm that the Government remain committed to restorative justice, which victims give a high satisfaction rating, to probation, which is key to the tackling of reoffending, and to the not-for-profit sector? Will he confirm that no further cuts will be made in the legal aid budget or the probation service, and that he will work hard to ensure that the not-for-profit sector receives additional funds to support its work?

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Mr Clarke: We have recommended the extension of restorative justice from the start. The more I come across it, the clearer it is to me that it is very welcome to victims and can be made very successful. We are continuing unswervingly in that regard, and intend to make more use of the system.

I agree with the hon. Gentleman about the importance of the probation service in tackling reoffending. We should perhaps try to make the probation service better where it needs improving, but we will not be able to improve reoffending rates if no one is supervising the offenders or their behaviour on licence. I have seen reports suggesting that we are going to fill the so-called gaps in our funding—which are pretty small in comparison with what we are saving overall—by cutting the probation service, but I assure the hon. Gentleman that it has not been singled out more than any other area. We are looking for efficiencies everywhere, but we are not bouncing away from one possibility in order to cut the probation service simply to save money.

Yasmin Qureshi (Bolton South East) (Lab): Will the Lord Chancellor reconsider provision for citizens advice bureaux, given that last year my local CAB dealt with 14,000 of the most disadvantaged and vulnerable people in my constituency?

Mr Clarke: Only 15% of CAB funding comes from my Department, and about 50% of CABs receive no legal aid funding at all. However, I agree with the hon. Lady about the value of good CABs. Their quality varies, but the best are very good. I am anxious for us to do what we can to strengthen CABs, as are my colleagues in other Departments: we are considering what we can do to help them across Government. I am doing my best, and we will settle on some support eventually. It will not be as much as the CABs want, but I think that we will be able to help.

Philip Davies (Shipley) (Con): I congratulate my right hon. and learned Friend on listening to the consultation and rowing back on some of the more damaging proposals. There is clearly much in the statement—although by no means all—that we can support. I understand, however, that the Government are proposing to make breaching suspended prison sentences punishable by a fine. Will my right hon. and learned Friend take this opportunity to make clear that only one punishment should be available to anyone who breaches a suspended prison sentence, namely being sent to prison?

Mr Clarke: I am grateful for the kind remarks with which my hon. Friend began his question. It seems that he agrees with a fair number of the judiciary on the proposal for a discount for early guilty pleas, and I hope that he is equally in line with the judiciary on such matters as the abolition of indeterminate sentences. We shall all begin to make some worthwhile progress on the whole field if we collaborate.

Those who breach suspended sentences are normally punished by having to serve the suspended sentence on top of any other sentence that has been imposed. However, all such cases require a little more flexibility. All that we are adding is the possibility of flexibility in some cases.

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Adding a fine might be preferable to making the total sentence far too long: it might be best to find some other way of dealing with an offender.

Parliament is, of course, entitled to specify sentences, but if we do that in too much detail we will fail to deliver justice, because we will not leave enough leeway and enough options for the judges and magistrates who sit and hear about all the facts of a particular case and all the circumstances of the offender.

Steve McCabe (Birmingham, Selly Oak) (Lab): Is the Justice Secretary now on probation, and does he anticipate time added on or early release?

Mr Clarke: I think that I have been on probation for the past few decades. Sooner or later I will get the hang of it, but I am working at it. I am not going to launch into a description of reports in the newspapers. I am sure that most of my colleagues envy my ability to get into the headlines, but the truth is rather far away from all that.

The Prime Minister and I, and the Cabinet, have developed these policies together. We have moved along together—[Laughter.] Yes, we have. We were saying the same things about policy 12 months ago, and we are saying the same things about policy today. What matters is whether the policy actually works. These proposals will be judged on whether in three or four years’ time people can see that we have sorted out the appalling mess in the criminal justice system that we inherited from Labour.

Tony Baldry (Banbury) (Con): Reducing reoffending will require not only painstaking work in prisons, but working with reoffenders when they leave prison—actually at the prison gate and afterwards. Will my right hon. and learned Friend say a little more about the funding for that, and about how voluntary and community groups will be able to access it to support offenders when they leave prison and in the critical few weeks and months afterwards?

Mr Clarke: That is why we have proposals to improve rehabilitation and reduce reoffending by introducing a payment-by-results system. That will normally involve consortia of people coming together to rehabilitate prisoners, and payment will be based on the results they achieve. The first pilots are already in place: we have contracts in Peterborough and Doncaster, and others are about to start in Manchester and several other local authority areas. Ideally, they will involve, for example, a private sector body raising the capital with a voluntary body and a not-for-profit organisation; they can come together in a suitable consortium, first to start doing something about the offender when he is in prison and then following up on that and trying to make it far less likely that he will reoffend after he leaves prison. The payment-by-results approach to rehabilitation is one of the Government’s most significant innovations in this field, and it is making very good progress.

Yvonne Fovargue (Makerfield) (Lab): What assessment has the Secretary of State made of the availability of face-to-face welfare advice from advice agencies such as

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citizens advice bureaux and law centres in 2013 when the Welfare Reform Bill will come into effect at precisely the same time as welfare benefits are removed from scope?

Mr Clarke: I have already stated that I am not in a position today to say what we can do to support citizens advice bureaux and similar organisations providing advice in the legal field and other areas such as welfare. The Government are actively considering that, and I hope we will be in a position to make an announcement soon. Part of the problem is relevant to my field, but it extends into other areas such as welfare reform. The Government are conscious of the fact that we must do something to fill some of the unavoidable gaps that have been left at present, mainly by local authorities being forced to cut the grants they can give.

Elizabeth Truss (South West Norfolk) (Con): This Government inherited the most expensive criminal justice system per capita in the world. As £100 million is being spent on administering legal aid through the Legal Services Commission, and as there are three different departments of the National Offender Management Service all doing separate kinds of commissioning—not to mention the extremely high cost per prison place—may I suggest that there are many areas where savings can be found without cutting front-line services?

Mr Clarke: We are abolishing the Legal Services Commission. One of the most frequent complaints that I get about the system is the sheer bureaucracy, and it has had serious problems in the past. The Under-Secretary, my hon. Friend the Member for Huntingdon (Mr Djanogly), tells me that we will save £8 million a year simply by bringing this in-house, as we are doing, but we intend to save quite a lot more on the administration of the system than that. It is hopeless, given our prime duty of protecting the public, if we waste money in that area and make it one of the most expensive and fast-growing areas of Government expenditure. We hope to make the system effective and targeted, and for it to do what we should be doing, which is protecting the public from crime and giving access to justice to the vulnerable.

Jack Dromey (Birmingham, Erdington) (Lab): Legal aid is a lifeline to those in need, often at a time of crisis in their lives. This Bill, and Government cuts to local government expenditure, will cut that lifeline to tens of thousands of citizens in Birmingham and threaten the future of our citizens advice bureaux and advice centres. Does the Secretary of State not accept that justice for the better-off alone is no justice at all?

Mr Clarke: That is just a very broad-brush defence of what the hon. Gentleman believes is the need to carry on paying £38 a head per taxpayer for the current legal aid system. Of course some legal aid is absolutely essential—crucial—to the liberties of our subjects and it is one of the standards of our society that we provide legal aid for people in extremis who would otherwise have no means of urging their cause. We have this grand, across-the-board system that finances what we can sometimes see is an inferior way of resolving disputes if we look for better methods of doing so. That will apply in Birmingham as elsewhere. The previous

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Government knew that the system had to be reformed; they simply could not make up their mind about what they were going to do to reform it. We are making some very well-considered proposals, which have been consulted on and thus modified to a certain extent, for getting the system back to a sensible size.

Mr William Cash (Stone) (Con): The Lord Chancellor said that he had been personally impressed by the representations of the senior judiciary. Given that they said it would not be right as a matter either of principle or of practice to go beyond the maximum discount of one third, who are the wishy-washy liberals who have induced this row and all the fuss and problems that we have witnessed in the press over the past few weeks?

Mr Clarke: We did have quite a lot of support and it was not all from wishy-washy liberals. We also had some opponents who opposed the policy for reasons that I completely disagreed with. I was impressed by the input I got from serious people in the criminal justice system who are all used to discounts for early guilty pleas. Anyone who has ever had anything to do with criminal justice knows that there has always been a discount for pleading guilty early. The public do not know that and they do not like it when they are first told it, but there are good reasons for it. However, a reduction by half proved to be too much and I could not find any other way of resolving the issue and getting over the undoubted difficulties, so if there are any bleeding-heart liberals left who still think we are going to have a reduction by half, I am sorry to disappoint them, but at least my hon. Friend and I are now agreed on where we are.

Kate Green (Stretford and Urmston) (Lab): The Secretary of State will be aware that many prisoners have very poor levels of skills and limited work experience. Will he tell us how his plans for prisoner working will improve their employability prospects when they leave prison and what plans he has to link education with prisoner working?

Mr Clarke: I agree with all that the hon. Lady has said and we will try to produce programmes that deliver what she obviously hopes we will do. First, we have all the work experience in prison that we are going to provide. We will try to organise serious work as much as possible with the collaboration of outside businesses which, for social responsibility reasons, are often very attracted to getting involved in this area. The work inside prison should be more meaningful and more like the ordinary disciplines of working life outside. It should, with luck, add to the training and employability of those inside. Then we have to tie in with the Department for Work and Pensions’ Work programme and what it is doing to try to get people skills and employment outside. Having a job to go to greatly increases the chances that an offender might not offend again and have more victims—that they might start to go straight—so this is a very important area and we are proposing to make very significant changes in tackling that side of the problem.

Mr David Nuttall (Bury North) (Con): Last year’s Conservative party manifesto stated:

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“Many people feel that sentencing in Britain is dishonest and misleading.”

In order to start to restore the public’s trust and confidence in our justice system, if it is a good idea to introduce minimum prison sentences for certain knife crimes, why cannot we have such minimum sentences for other classes of crime?

Mr Clarke: The honesty in sentencing issue concerns the fact that it is not currently explained to people that sentences are likely to involve so much time in prison and a further amount outside on licence but subject to recall. We will see whether we can address that and make people understand more clearly what sentences actually imply. It was the previous Government, not us, who moved the amount of sentences being served from two thirds to half—a move that we intend to reverse in the cases of the most serious sexual offenders and violent criminals when we move away from imprisonment for public protection sentences to a more sensible system of determinate sentences.

Mrs Jenny Chapman (Darlington) (Lab): I welcome this latest and expertly executed U-turn from the Government. Cannot the Justice Secretary see that this whole row, as well as the cuts to probation, the cuts to youth offending teams, the banned people being allowed to volunteer in classrooms and the failure to close all the loopholes on the monitoring of sex offenders together create a very ugly picture of the Government’s attitude to victims of crime?

Mr Clarke: I have done many U-turns in my time. They should be done with purpose and panache when we have to do them, but I do not think this is a U-turn at all—[ Laughter. ] No, I do not. Let me explain—[ Laughter. ]

Mr Speaker: Order. I think Opposition Front Benchers have taken some sort of tickling powder. I have been listening with bated breath to the Secretary of State for the best part of 20 years and I want to continue listening to him.

Mr Clarke: We are aiming at a package of radical reform of sentencing to make it more effective in protecting the public, and at the same time making a substantial contribution to reducing the country’s deficit, which is vital to our economic recovery. We consulted on what is a leviathan of a Bill, with a huge range of proposals. We have changed some of it and have come up with what we intended, which is actually a better balanced package of good reform of the sentencing system. It achieves the savings we wanted. When I want to exercise a U-turn in future I shall give the hon. Lady notice, but this is not such a manoeuvre.

Mr Stewart Jackson (Peterborough) (Con): The opportunistic shroud-waving of the Opposition obscures the fact that Labour never enacted the Prisoners’ Earnings Act 1996, which would have allowed victims to be compensated by the work of prisoners. Will my right hon. and learned Friend confirm the welcome news for my constituents that vexatious, long drawn-out and costly taxpayer-funded immigration appeals are coming to an end?

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Mr Clarke: I am grateful to my hon. Friend for welcoming our moves on prisoners’ earnings and their use to support victims. I agree that we have too litigious a society, and we should not have a legal aid system that just contributes to it. Our legal aid reforms are much overdue and will get us back to looking at more sensible ways of upholding the rights of citizens and enabling them to settle their disputes.

Angela Smith (Penistone and Stocksbridge) (Lab): Will not this U-turn on sentencing mean that some of the long-term savings planned by the Ministry of Justice will no longer be achievable? If that is the case, which other parts of the justice budget will be cut to compensate?

Mr Clarke: Roughly, the spending reductions we are making are from £9 billion a year to £7 billion a year. The discount for early guilty pleas was meant to contribute about £100 million of that. The move away from indeterminate sentences to a more sensible determinate sentence-based system will in the long run save quite a lot of money, because at the moment thousands of people are in prison and no one has the first idea when or if they will ever get out. Of course we have to readdress the issue, now that we have consulted; we have now settled the financial position with the Chief Secretary and will look for more efficiencies and savings. I am quite confident that we will find them, because so far we are making very good progress in making considerable reductions in the bloated expenditure that we inherited.

Mike Crockart (Edinburgh West) (LD): Does the Secretary of State agree with me and my previous experience, not only as a wishy-washy liberal but as a serving police officer, that one of the major barriers to rehabilitating offenders is the Rehabilitation of Offenders Act 1974? Thirty-seven years is quite long enough to wait for a reform. When shall we see it?

Mr Clarke: I hope soon. I take on board the hon. Gentleman’s views, with which I have considerable sympathy. We take very seriously the workings of the Rehabilitation of Offenders Act and its impact on reoffending and rehabilitation, and policy is being finalised at the moment.

Diana Johnson (Kingston upon Hull North) (Lab): Will there be specific provision in the Bill on children and legal aid? In particular, will children in local authority care be able to access legal aid to challenge the local authority’s decisions?

Mr Clarke: Again, I am indebted to the Under-Secretary, my hon. Friend the Member for Huntingdon. In response to the consultation, we changed the measure in the direction the hon. Lady would like, so the answer is yes.

Jason McCartney (Colne Valley) (Con): I particularly welcome the plans to introduce a full working week across the prison estate, and the fact that the money earned by prisoners will go towards supporting victims. As a former RAF officer who was involved in convening courts martial, I wonder what opportunity my right hon. and learned Friend has had to look at the work ethic in the military corrective training centre in Colchester.

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Mr Clarke: I am grateful for my hon. Friend’s welcome for our policy. Let no one underestimate: it is going to be difficult to extend the work ethic and a work programme throughout prisons. It will steadily be achieved and we are embarking on it. There are good examples in the Prison Service now—one or two, where a working week is in place for the prisoners. That needs to be rolled out throughout the estate. I will certainly take advantage of looking at the approach in the military prisons and their work-based ethic, which I understand to be the case, though I have not visited one for many years.

Kevin Brennan (Cardiff West) (Lab): I am beginning to wonder whether it was a mistake to separate the Ministry of Justice from the Home Office, because we now seem to have one Ministry for arresting people and another for letting them go. If the right hon. and learned Gentleman wants to get rid of his reputation as a wishy-washy liberal, will he go the whole hog and rename his Bill the “Legal Aid, Sentencing and Punishment of Offenders (Hang ’em, Flog ’em and Birch ’em) Bill”. That might satisfy Members on the Conservative Benches.

Mr Clarke: I have to admit that I thought that was a rather extraordinary way of reorganising the Departments when it was first done, and so did the judges. They greatly resisted going into the Ministry of Justice because they could see that the vast explosion of expenditure on prisons would crowd out the budget for the courts. The Ministry of Justice is a bit like a nest with a cuckoo in it—[Interruption.] It is not me. The previous Government kept feeding the Prison Service—exploding the Prison Service—and then cutting expenditure on every other aspect of the Department’s activities as it was thrown out of the nest. We need to stabilise the prison population, get the costs under control, use it more effectively and have a more intelligent way of working with the rest of the Department to deliver things.

The long-term future of the Department will be looked at. In my experience, the reorganisation of Departments hardly ever achieves any worthwhile objectives, whatever the Prime Minister of the day thought he was achieving. Too much confusion is caused by moving them all around and it is best to stick with the structure that we have, but I would not have gone for the present structure in the first place, if I had had anything to do with it.

David Mowat (Warrington South) (Con): Even after these changes, we will be spending between four and 10 times as much on legal aid as other countries, some with similar jurisdictions to ours. Does this not imply that there is a structural issue in parts of our legal system, and is there not more that we could do to address this structural issue in the years ahead, in which case we would make real savings?