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Westminster Hall

Tuesday 25 October 2011

[Mr David Amess in the Chair]

Business Rates (North-East)

Motion made, and Question proposed, That the sitting be now adjourned.—(Stephen Crabb.)

9.30 am

Julie Elliott (Sunderland Central) (Lab): It is a pleasure to speak under your chairmanship, Mr Amess. I am grateful for the opportunity to initiate this debate on an issue that will have a big impact on the north-east, as is evident from the number of my fellow north-east MPs who are present. The whole country is being affected by the difficulties in the economy, but it is fair to say that the north-east is suffering. Economic growth is stalling and unemployment rising. In the period from May to July of this year, the north-east had the highest unemployment level in the country at 11.3%.

Unfortunately, that is not altogether a new experience for our region. For decades, the north-east was undermined and overlooked as a place of economic growth. In the 1980s in my constituency of Sunderland Central, we saw the shipyards that had defined our city and been a source of pride for generations, employing entire families, almost disappear from the banks of the River Wear. At its peak, ours was the biggest shipbuilding town in the world. When it came to our efforts in world war two, we produced more than a quarter of the nation’s total tonnage of merchant and naval ships. However, in 1988, British Shipbuilders shut up shop. That was followed five years later by the closure, by a Tory Government, of our last coal mine, putting many thousands of people on the dole.

The economic history and future of the north-east is one of manufacturing and production. We are intensely proud of that. Sunderland is now world-famous for building cars. I applied for the debate as a result of the submission by the Association of North East Councils of its response to the consultation on the review of local government finance. That laid out a clear case of concerns about the Government’s proposals. It is worth mentioning that the response had cross-party support from across the region.

Despite our rich heritage, the north-east has not been able to keep up with the economic growth of other regions in our country, and we are still rebalancing our economy after the decline of our traditional industries. That is why the formula grant has been crucial to councils across the region, allowing them to provide the services needed for their residents, while trying to address growth in their areas. For Sunderland city council, the gap between the formula grant that it receives from the Government and the amount in business rates that the city collects is £60 million. In Durham, the figure is £80 million, and across the north-east there is a shortfall of about £400 million. Business rates make up more than 80% of the Government grant to councils, so this really is a critical issue.

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No one is arguing that the formula grant could not be improved, but what the Government propose with the localisation of business rates has the potential to make things worse. I am thinking particularly of the lack of information about top-ups and tariffs. The Minister has said that the formula grant method is incomprehensible, far too complex and lacking in transparency and that councils are left at the whim of the formula setter in Whitehall. I agree that the formula grant system is not perfect and it is certainly complicated. However, it does attempt to be fair, redistributing centrally pooled funds to councils according to their needs.

Under localisation of business rates, the system will change completely. The proposed system takes no account of councils’ ability to raise council tax, no account of differing abilities to generate business, no account of future needs and no account of a council’s ability to service the needs of its residents.

Let us examine the differences in council tax yields. In the north-east, most authorities have more than 50% of their properties in council tax band A, compared with Surrey, where the figure is just 2%. In Sunderland, only 9% of the housing is in band D, compared with Surrey, where the figure is 75%. People can see the unequalness in the ability of local authorities to raise revenue. In real terms, that means that an area such as South Tyneside can raise £427 per person, whereas Kensington and Chelsea can raise £795 per person—a huge difference. The system of equalisation under the formula grant worked so that the actual difference was just £3 per person. That enabled local authorities to provide the services needed by their residents, regardless of the economic base of their area. It is a question of fairness, equality and need. If the Government are serious about making the proposed system fair, they need to deal with that issue.

Deprivation levels in the north-east are high: 33% of our population live in the 20% most deprived areas in the country; Sunderland has 34 neighbourhoods in the 10% most deprived areas nationally. That level of deprivation leads to a much greater demand on the services provided by local authorities. I am referring to more people receiving the home care service, more looked-after children and supported adults, more children on free school meals—the list is endless. As the ANEC report states, any system has to ensure that it does not create a spiral of decline in poorer areas, with an impact on health and social care.

The north-east has an ageing population. It is expected that by 2030, 23% of the population will be over 65, leading to an even greater pull on resources. It is right that any new system should take that into account. At the moment, I cannot see how the Government’s proposals will do that. I hope that the Government’s plans for top-ups and tariffs, of which we have yet to see the details, will fully respond to that situation. The gap between the north and south of England is already stark; I am concerned that with these plans, it will only grow larger.

Pat Glass (North West Durham) (Lab): I congratulate my hon. Friend on obtaining the debate. Does she agree that the Government’s proposals would result in exactly what happened in America in the 1980s? Cities such as New Orleans and Detroit became derelict, with anyone

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who could move out of them doing so to obtain the services that they needed. What the Government propose would create derelict cities in the north.

Julie Elliott: There is a real danger that that could happen, which is why it is important that this debate highlights the issues for our region. The situation that my hon. Friend describes is the last thing we need. I cannot believe that is the Government’s intention, but it is the danger in the system that they propose.

Sir Alan Beith (Berwick-upon-Tweed) (LD): I, too, welcome the debate that the hon. Lady has introduced. Is there not also a problem for areas that have greater difficulty in attracting new business, which is liable to pay high business rates? It may go to city centres, but is much less likely to go, for example, to Northumberland, which at the same time faces the potential loss of its biggest single industrial business rate payer—the large aluminium smelter at Lynemouth.

Julie Elliott: I agree. The problems in the north-east are not just in the cities and urban areas. The rural areas of Northumberland and County Durham are as badly affected, but I think that is why the ANEC report has cross-party support. We have Liberals and Tories in government in the north-east, and of course Labour. I think that the reason for the cross-party support is that everyone understands the very difficult economic situation that our region faces.

Anne Marie Morris (Newton Abbot) (Con): I want to put in a word for the south, because the south-west is equally deprived. There is a view that we live in a land of cream teas and lots of strawberries, but where I am in Teignbridge, we have the twelfth-highest share of small business rate relief. Some 40% of properties get that relief, so if the proposal pooled actual receipts rather than calculating by rateable value, we would lose out. I share the hon. Lady’s concern that for rural areas, such as mine, thought should be given to how money can be brought back to communities that need it, but I support the concept of pooling.

Julie Elliott: Other parts of the country are in similar situations; the issue for the north-east is that the entire region is struggling.

The system the Government propose favours the growth of retail space and distribution centres, rather than small and medium-sized businesses and, most crucially in the north-east, manufacturing. Practically, that means that a hectare of land used for retail in the north-east will yield £1 million, compared with £200,000 for manufacturing. It feels as if my region is being punished for manufacturing things. We must remember that manufacturing needs to be at the heart of any national strategy for long-term economic growth. The sector contributes £7.5 billion to the north-east economy per year. We export more than we import, which is helping to rebalance the economy in these difficult financial times. Business rates may value retail and commercial sites the most, but they just do not reflect the way our region’s economy is made up, and with so many people out of work, increasing the number of shops is not the answer and would not be sustainable.

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I would be interested to hear more from the Minister about the proposals for introducing mechanisms to overcome economic shocks, which are particularly relevant to the north-east, as we have already suffered from them.

Angela Smith (Penistone and Stocksbridge) (Lab): Yorkshire, particularly South Yorkshire, will also suffer quite badly under these proposals. Is it not important that any Government legislation makes clear the need for rebalancing by means of top-ups and tariffs, as areas such as ours diverge from richer, more prosperous areas? It should also give a clear indication of when that rebalancing would take place.

Julie Elliott: Absolutely. Again, that is why it is important to have this debate and to give the Government the opportunity to hear concerns from formerly heavily industrialised areas as we move forward and try to grow.

In the north-east, councils rely on a small number of larger businesses to generate business rates, but that arrangement can be volatile and vulnerable to shocks, as we have seen in shipbuilding, coal mining, textiles and, more recently, steel making. We need an effective mechanism to manage economic risks and provide protection for areas of poor growth. I support the Government’s view that some of the proceeds of the levy and the set-aside should be used to protect against volatilities.

The Government must recognise that some places have greater economic potential than others. A council’s ability to generate business rates is mainly the result of location, location, location, combined with some effort and a lot of luck. The Government must therefore take account of the issues I have outlined. In particular, they must take longer to consider the wider and unforeseen consequences of their proposals, put in place a regular review of the new system, create a mechanism to protect against volatilities and, most important of all, make sure the system is fair, equitable and based on need.

Mrs Sharon Hodgson (Washington and Sunderland West) (Lab): I think I just caught my hon. Friend before she reached her conclusion, so I am very grateful to her for giving way. She talked about the system being fair and equitable. We both represent the city of Sunderland, which will lose £60 million, as she highlighted. Does she think it fair or equitable that, according to what I have read, the City of Westminster will be able to keep all of the £1 billion it currently raises? How is that fair and equitable?

Julie Elliott: That is exactly the point. As currently proposed, the system is not fair and equitable, although we do not have the details. However, the Minister is listening to the debate, and we have an opportunity to highlight the real issues, as well as how unfair and unjust the Government’s proposed system will be if they do not introduce mechanisms to readjust it in more affluent and poorer areas. As the hon. Member for Newton Abbot (Anne Marie Morris) said, it is not just the north-east that suffers; we can find the problem in pockets right around the country. The question is how we get the balance right. We all want to promote growth—we are not opposed to promoting growth—but

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we must allow regions to do so sensibly, and we must support them so that they can provide the services their communities need.

9.44 am

Mr David Ward (Bradford East) (LD): I thank the hon. Member for Sunderland Central (Julie Elliott) for introducing the debate. I feel that I am gatecrashing a tad, but I will not take too long. However, we have many things in common, which I hope to bring out.

I have spoken at length with Councillor Janet Battye, who is vice-chair of Local Government Yorkshire and Humber, and there are real concerns about the proposals. The deadline for submissions is 27 October, so there is still time, and the important point about having the debate now is that it might encourage people to make submissions before the deadline.

There are two overall concerns, which I will detail. First, in terms of those with buoyant business rate bases, the concern is that this will be a case of “to those who have, more will be given”, with the proposals simply sucking in additional investment. As areas get more proceeds from business growth, they will invest them, which will result in more proceeds, which will result in more growth, and so on. There is also a concern about the historic and fundamentally important link between funding levels and the overall assessment of local needs. If that link breaks down, it will be to the detriment of many authorities that serve deprived communities.

As to the details, I am a member of the Chartered Institute of Public Finance and Accountancy, and I realised many years ago that the way to kill off a conversation at a party is to start talking about local government finance. None the less, the issue is crucial to millions of people.

There is a danger that the proposals are being rushed a bit, especially at a time when local authorities—especially many in the north—face huge reductions in their tax base and income, particularly as a result of front-loading. It is also difficult to look at the long-term repercussions of the proposals when local authorities face problems with the amount of Government grant they will receive for council tax.

The second point—perhaps it should have been the first point, because it was raised before the Localism Bill was considered in depth—relates to having a fundamental review of the relationship between central and local government. Such a review should come first; then we should have the structure, followed by the financing of local government. However, we have not really had a serious debate about the sort of relationship we want between central and local government.

There is also the false belief that business rates are the same as economic growth, but that is not necessarily the case. It is certainly not the case that there is a link between business rates and needs in an area. We are in the process—I think we are all signed up to this—of rebalancing the economy in many ways. Hopefully, the economy is being rebalanced from the south to the north, but we are also looking at different sectors in industry, at the type of growth we are likely to encourage and at whether it is likely to be in accordance with our

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stated rebalancing policy. SMEs and manufacturing have been mentioned, and we lost 15,000 manufacturing jobs in Bradford between 1998 and 2008. We desperately need those jobs back, but will the proposals incentivise the creation of manufacturing jobs, or will we take the more easy route of retail growth?

There is also the issue of the redistribution of wealth that might take place. About £3 billion more in business rates will be generated by 2014.

Pat Glass: On that point, one advantage of being a little older is that we have been around before and seen things before. We should remember where the formula grant system came from. Margaret Thatcher introduced it because local authorities—largely Labour ones—in cities were increasing their business rates, and businesses called for the formula grant system. The Government need to think about that because, although we need the detail of the proposed system, they are in danger of being seen as anti-business over this issue.

Mr Ward: The details are crucial, and that is why there is a need to take things slowly and not rush. At times trust between central and local government is tested to the limit. We need an established, agreed and fair starting point. At the same time that there are dampening effects on local government finance and a less than accurate assessment of spending pressures on local authorities, we are talking about a base of 2012-13. Many authorities have taken a real smack in the front-loading of the local government settlement and, if the base were 2010-11, that would paint a totally different picture of an area’s needs. That issue has been raised by the Association of North East Councils. We also need regular review, because things change rapidly, certainly in the economy. We need to review the baseline, and five years is too long. I would argue for the resets to be on a shorter time scale.

The point that I was making was about the possible transfer or redistribution of wealth, because £3 billion in additional business rates will be generated by 2014, but that will be happening at the same time that local authority budgets will go down. There may be a transfer of wealth to those areas that initially prosper well from business rate growth, from authorities that have large reductions in their revenue grant.

Angela Smith: To add to that point, it has been calculated that Sheffield and Barnsley would have to get significantly more growth in their business base and, under the new system, would have to grow at least at the national average, just to stand still. Does not that make the case for thinking again, and making sure that we get things right?

Mr Ward: Absolutely. That is the overall point. I have perhaps spoken too long, as I know other hon. Members want to get into the debate, but that point, more than any other, is the crucial one that we agree on. The issue is serious. The principle is good: we are signed up for the localism agenda. There may be good pressure to achieve growth, and many authorities will rise to that challenge, but the devil is in the detail, and in this instance the details are billions of pounds. There is a need to tread slowly and carefully.

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9.52 am

Mr Iain Wright (Hartlepool) (Lab): It is a pleasure to serve under your chairmanship, Mr Amess. I congratulate my hon. Friend the Member for Sunderland Central (Julie Elliott) on securing the debate, which I think we all agree is vital to the economic future of the north-east.

The Government’s proposals on business rates discriminate against the north in favour of the south, against smaller authorities with less potential for growth in favour of larger, more metropolitan areas with a wider economic and tax base, against deprived areas with greater social and economic problems, in favour of their more affluent counterparts, and against manufacturing industry in favour of retailing. If the proposed changes to the redistribution of business rates were to take place while everything else in local government finance remained equal, they could at best be given serious consideration. However, we all know that the proposals are made in the context of the most radical, disruptive and damaging changes to local government finance for more than a generation.

I shall concentrate on the borough of Hartlepool and the impact of the proposals there. For the two financial years 2011-12 and 2012-13, Hartlepool borough council’s cuts amount, in terms of the total expenditure slashed by central Government, to some 20%, or an annual change of £10 million. Put another way, the cuts to local government finance in Hartlepool mean a reduction in spending of some £150 for every man, woman and child in the borough, as opposed to a national average reduction of some £50. On top of that, if the business rates redistribution system were to be changed, the borough of Hartlepool could lose upwards of £13 million every year. That is the difference between the amount of business rates collected locally—£27 million—and the £40 million that is redistributed back to the town from the Treasury through the national business rates system. I think we would all agree that such a proposal could not be maintained in any sustainable way for Hartlepool.

James Wharton (Stockton South) (Con): With the proposed tariffs and top-ups, is not that exactly the sort of situation that should not arise? Hartlepool would receive a benefit, added to the business rates that it collects, to top it up to the relevant level, starting at a base point to maintain its funding level in the year of the introduction of business rate retention.

Mr Wright: Those last few words are the key phrase. It is what will happen after 2013 that I worry about. There will be potentially very damaging consequences for the north-east economy, and for the services that local government provides to the most deprived communities in our areas, about which we are most concerned.

A further difficulty in Hartlepool is the specific nature of the tax base. It is difficult to raise revenue locally. Forty-three per cent. of council tax is raised locally, as opposed to similar areas which could raise as much as 80% or 90% locally. Three quarters of properties in Hartlepool fall within council tax bands A and B. My hon. Friend the Member for Sunderland Central mentioned a figure of 9% for properties in band D. In Hartlepool that figure is 7%, so on top of the proposed changes in business rates, the borough’s ability to raise taxes locally

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is limited, and the Government are doing nothing to address that. The way they are stripping demand out of the local economy through cuts is making things worse.

I mentioned earlier that Hartlepool collected £27 million in business rates. The Hartlepool economy—my hon. Friend touched on this question with respect to the wider north-east economy—depends on a small number of business rate payers. Ten businesses contribute £11 million, or nearly 40% of the annual business rate revenue collected in Hartlepool. One business alone contributes 15%, or £4 million, of the rates collected. If one of those businesses were to relocate or cease trading, the effect on the finances of Hartlepool would be catastrophic. The Minister must appreciate that it would be impossible to regain such revenue for many years in the event of such a large business leaving. What will the Government do to mitigate that risk?

In his statement to the House on 18 July, the Secretary of State said at column 672 in response to a question from me that Hartlepool would not be worse off as a result of the proposals. Following the intervention from the hon. Member for Stockton South (James Wharton), I think it is fair to say that that will be true until 2013-14, but what happens afterwards? It is important for the council’s planning that it be given more details, so will the Minister provide more information on such matters as the basis for setting the baseline; setting the initial tariff and subsequent top-ups; whether such top-ups will be uprated through RPI, CPI or some other measure; and the frequency of resets within the system, to allow councils to plan?

The policy of the Government, certainly when it comes to tackling public finances, and particularly with regard to the relationship between central and local government finance, is to target higher grant cuts on those local authorities with relatively greater dependence on grants and with more deep-rooted social and economic problems. The proposals on business rates make such problems even worse and target the north-east and authorities such as Hartlepool particularly severely. I hope that the Minister will think again.

9.58 am

James Wharton (Stockton South) (Con): It is a pleasure to serve under your chairmanship, Mr Amess. I congratulate the hon. Member for Sunderland Central (Julie Elliott) on securing the debate.

It is not unusual, as a Conservative Member for a constituency in the north-east, to feel a little outnumbered, and today the odds are perhaps slightly on the side of the Opposition, as far as weight of contribution is concerned—although perhaps not quality; we shall find out about that.

The way we fund local authorities is very centralised and has been for some time. The OECD says that we have less funding autonomy for local government than France, Germany, Spain, the United States and Japan. That is not sustainable, and successive Governments have considered, and commissioned reports about, ways to move funding, to give local authorities more responsibility over what happens in their area, to allow them to benefit from success, and to transfer responsibility, so that local democracy can be more effective in holding to account the representatives who run an authority.

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More than half our local authority funding, on average, comes from central Government grant—money redistributed through the Treasury.

What the Government appear to be trying to do is to reverse that trend. We have seen in areas other than funding, such as localism legislation, that councils are going to have a general power of competence. Local authorities will be empowered to do things that are in the interest of the communities that they represent. In doing that, there is a need to reform funding and the way in which local authorities receive their funding, so that they will have autonomy, freedom and the local accountability that comes with such autonomy and freedom. I am prepared to believe—giving credit to the Government—that that is the foundation for the proposals on business rate retention.

Local authorities collect about £19 billion in business rates annually. That goes to the Treasury, which redistributes it. As the hon. Member for Hartlepool (Mr Wright) pointed out, some authorities get more back than they put in. That is quite right, because there is a discrepancy in the ability of different local authorities to raise rates from the existing infrastructure in their areas. The challenge for Government is to find a fair way of tying future growth and so incentivising councils to promote growth in their authority area without unduly disadvantaging areas that will find it more difficult to do so.

Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab): Does the hon. Gentleman not think that the Government’s policy at the moment is slightly counter-intuitive, given that the Tees valley local enterprise partnership has a manufacturing-led sector growth policy? If manufacturing per hectare brings in only a fifth compared with retail, does he not think that the new policy could hinder the sector growth policies of business-side LEPs?

James Wharton: The hon. Gentleman makes a valid point, and I will touch on that later in my brief comments. We are consulting on how the policy would work, and there is a challenge for the Government to ensure that the areas that promote a manufacturing base as the driver for economic growth are not disadvantaged. It is a valid point, but we must not jump the gun and assume that it will be a problem, because we do not yet know what the framework will be—it is a matter for consultation.

There are weaknesses with the current system, such as accountability, which I have touched on, and a weakness in the freedom of local authorities to respond, because they are so dependent on central Government grants. We have seen, over many years, the problems of the central Government grant funding system, which include its complexity and how it often plays out in ways that cannot be easily predicted and are not necessarily to local benefit. There is also a problem regarding the incentive that it gives to some local authorities and councils, which may perceive that they can get more benefit for their area by lobbying central Government for more support than by focusing on promoting growth and improving their area.

What are the Government doing? The first and most important point, which some hon. Members, to give them their due, have touched on this morning already, is that there is a consultation, which is an opportunity to feed in, talk about and outline proposals, and to ensure

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that the concerns of local authorities in places such as the north-east, where there is a genuine fear that they may be disproportionately disadvantaged by any move towards local retention of business rates, are properly taken into account.

Mrs Mary Glindon (North Tyneside) (Lab): It is well known that the Tory mayor of North Tyneside always supports Government policies. However, on this occasion, she supports the Association of North East Councils’ criticism of the consultation. Does that not show something?

James Wharton: The excellent Conservative mayor of North Tyneside, Linda Arkley, who is doing a superb job and is no doubt looking forward to her re-election by popular acclaim next year, has raised some concerns as part of the consultation process on behalf of the people whom she represents. I do not accept that it is a criticism of the consultation; it is feeding into the consultation in the hope of influencing the result in a way that will benefit the people whom she represents. The good mayor that she is, she is doing the right thing. I am delighted that the hon. Member for North Tyneside (Mrs Glindon) has given me the opportunity to raise that point.

Another important point, apart from the consultation, is that there should be no effect on what businesses pay. When the policy is introduced, we will not see business rates rising. Levels will be set, as I discussed briefly in an exchange with the hon. Member for Hartlepool, to ensure that the funding that councils receive at the point at which the policy is introduced is kept level. No council should initially be disadvantaged by the introduction of the policy. [Hon. Members: “Initially.”] I fully accept that. It will then be a responsibility for local authorities to engage—within a framework that we must all see as fair and to which we must contribute to ensure that it is fair, so that the rules do not disadvantage any area—with that new system, grow their local economy as best as they can and reap the benefit.

What are the Government going to do? They will set a baseline, tariffs and top-ups. Tariffs and top-ups will mean that wealthy areas—we have heard of some of the wealthy areas that take a lot of money in from business rates—will see some of that money taken away from them and redistributed, often to councils such as those that many of us here today represent in the north-east. The top-ups will be the benefits that some of our authorities receive.

There will be a levy for disproportionate benefit, so if a council sees a huge rise in its business rates that is disproportionate to the benefit that that council should receive, that will be redistributed again in some way.

Helen Jones (Warrington North) (Lab): The hon. Gentleman should accept that we should be specific. The Government’s proposal is to take back not the disproportionate benefit, but a share of the disproportionate benefit, which is an entirely different thing.

James Wharton: That is a fair point. As part of incentivising growth, it is important that local authorities are able to keep some benefit. Residents who have a large industrial complex built in their back yard may feel entitled to a share of the income that that brings to the Exchequer. There will be a levy that will allow for a

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redistribution of disproportionate benefit and for a safety net. For example, one of the questions raised by hon. Members was, what if a large industry disappears or if a large manufacturer or retail site closes down in the north-east? What about that potentially catastrophic effect? There is already in the consultation a potential mechanism for addressing that through the levy, which will create a pot of money that councils that find themselves disadvantaged will be able to tap into. We look forward to hearing from the Government how they will administer that and what their proposals for that are.

There will also be five-year revaluations to ensure that the system is seen to be and remains fair. Hon. Members have raised concerns about the frequency of revaluation, and the Government should look at those. The Government should also consider the balance between providing an incentive and ensuring adequate funding, and more frequent revaluation could form part of that formula. We have discussed the difference between the business rates brought in by retail and manufacturing. Again, that is a fair observation and should form part of the consultation, and I hope the Government will pay attention to that. We have also discussed dependency on small numbers of large businesses; I have just touched on that in my comments. I would like to see more detail of how a levy for disproportionate benefit will help those areas when a large industry or business closes down and potentially impacts local government finances.

Overall, however, the Government are pushing power back down to people, empowering local authorities and communities to take control of and responsibility for the areas in which they live, and incentivising councils to create and foster growth. That should be welcome in the north-east, where we need to see greater private sector growth. I hope that we can have a constructive engagement with the consultation to deliver the best for our region, not simply to score political points, which may appear on Tyne Tees later this evening—one never knows.

10.7 am

Mr Alan Campbell (Tynemouth) (Lab): It is a pleasure to serve under your chairmanship, Mr Amess. May I begin by commending my hon. Friend the Member for Sunderland Central (Julie Elliott) for securing this important and timely debate? It is a pleasure to follow the hon. Member for Bradford East (Mr Ward)—clearly the north-east has just got bigger—and the hon. Member for Stockton South (James Wharton), who, if I have interpreted his speech correctly, has just taken personal responsibility for the success or failure of Government policy in the north-east.

James Wharton: I have not.

Mr Campbell: If we are talking about what the hon. Gentleman has not done, he has not shared the information that, of all the councils in the north-east, only Stockton council stands to gain from the proposal—some £4 million.

Whatever argument there is for localising business rates, concern has been expressed on both sides of the Chamber today about the impact that the policy might

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have on the north-east. We welcome the opportunity to play a constructive part in the consultation and the wider debate.

Why should the north-east have cause for nervousness? I am reminded of the comments of the then Leader of the Opposition, now Prime Minister, on the eve of the general election. He said that when the changes and cuts in public spending are made, it will be the north-east that can expect to be hit hardest out of any region. That is why local authorities in the north-east are united across the parties under the banner of the Association of North East Councils in the information that they are providing to the consultation. I believe that that is also why the wider business community shares those concerns.

I want to address the concerns not from a political point-scoring perspective, but in the context of what the Government say they are trying to achieve for the region. Under this change, my local authority, North Tyneside, stands to lose £19 million, which is half as much again as the level of cuts that are necessary because of local government funding changes. The region as a whole stands to lose a third of a billion pounds. Compare that with an area such as Westminster that generates £1.8 billion in business rates each year. The fundamental question is how local economies in the north-east can compete with areas that have a large business rate tax base and the resources to invest not only in attracting future jobs, but in continuing to provide local services. The Government’s own local growth strategy aims to rebalance the United Kingdom’s economy, but if we are not careful, this proposal will have the opposite effect. London and the south-east are not the only areas that stand to do well. Scotland will continue to have Scottish Enterprise, which will attract businesses and jobs. The north-east is losing its development agency and its regional growth fund is proving ineffective.

Tom Blenkinsop: My hon. Friend is making a good case. Middlesbrough stands to lose £27.5 million a year as a result of these changes and Redcar and Cleveland borough council stands to lose £18 million a year. Is my hon. Friend also aware that the unemployment rate in Middlesbrough is 14.3% and it is 12.4% in Redcar and Cleveland? Many of the issues outlined by the Government in the consultation are counterintuitive to their own growth agenda, especially in an export-led manufacturing recovery.

Mr Campbell: As ever, my hon. Friend makes a better argument than me. His point is precisely the one that I am trying to make. If we are not careful, the results will be counterintuitive to what the Government say they want to achieve. We all want to see economic growth in the north-east. It is not only good for the region but the best way in which to cut the deficit. The Government want to see economic growth, but I am not sure whether they know how to achieve it. The north-east has a good record of growing small and micro-sized businesses, yet those are the very businesses that do not generate high levels of business rate income, at least in the short term.

The Government also say that they want to see the growth of manufacturing. Again, we all want to see that. The north-east has a proud manufacturing tradition, but it cannot make a living in a modern world on tradition alone. The manufacturing sector is still an important part of the north-east economy, but the most

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recent report from the north-east chambers of commerce expresses concern about the weakness of manufacturing in the area. Again, as we have already heard, manufacturing tends to generate less business rate income than large retail businesses. Therefore, if a local authority is looking to regenerate an area to increase its business rate and to create jobs in an area, would it be better to have a retail or a manufacturing development?

If we are to see a more level playing field with regard to public spending, we should do what was done in the past and bring infrastructure project investment to the north-east. We are told that the Government are considering bringing forward infrastructure spending to get growth started. Certainly, investment over and above the return of business rates will be necessary if we are to unlock the potential of the north-east economy. Take for example the next stage of the improvement of the A19 at the junction of the Silverlink roundabout. The previous Transport Secretary had a very strange view of cost-benefit analysis. In his new role, such a view would equate to him requiring soldiers to pay for half of their tanks and sailors to pay for half of their ships. If the Government are looking to grow businesses that then pay business rates and to rebalance the economy at the same time, it really will require a joined-up approach. They must be careful about the impact of this particular policy.

If these changes go ahead, can the Government assure us that councils will be given time to adjust? How large will the safety net be? Will there be a long-term approach to adjustment? If not, the situation for councils will deteriorate year upon year. Will any adjustment mechanism take into account inflation, which is high and rising? Above all, will the new system be fair? Will it have a national element? The localisation of business rates in the north-east is important, but so too is the localisation of business rates across the country as a whole. If we do not have a national element, the system will not be redistributive in any way.

What would be indefensible is for richer areas in a region or council to have to subsidise poorer areas. We need to see richer areas of the country subsidising areas that require support. Will the new system be fair? Despite the improvements of the past decade, we have higher than average levels of deprivation. Child poverty and the calls on the health services are high and we have an ageing population. This is not special pleading, but a request to the Government to give the north-east a fair deal. Without a careful examination of their proposals to ensure that they are fair, the north-east will be in for an even more difficult time than we imagined.

10.16 am

Ian Swales (Redcar) (LD): It is a pleasure to serve under your chairmanship, Mr Amess. I congratulate the hon. Member for Sunderland Central (Julie Elliott) on securing this important debate.

As an accountant for ICI in the mid-1980s, I remember signing cheques for more than £6 million for local authority rates and the furore in 1988 when the then Conservative Government decided to centralise business rates, take money from the industrialised north and move it to the leafy south—as it was portrayed at the time. It is somewhat ironic, therefore, that we are now having this debate about taking money from the deindustrialised north and again moving it to the leafy

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south. Although I speak for the Government I also speak very strongly for my constituency and as a member of the north-east community of MPs; both of those come ahead of my party or Government loyalty on this issue.

My constituency and that of my hon. Friend the Member for Bradford East (Mr Ward) share the distinction of being the two constituencies on the Government side of the House with the worst unemployment rates, so it is a pleasure to see my hon. Friend in the Chamber. My constituency also shares a lot of characteristics with Sunderland, Hartlepool and a number of the other areas that have already been mentioned.

We have not spoken about the views of business. Some 66% of businesses have spoken in favour of the move, and only 20% against. It is important that we listen to them as part of the consultation. Businesses want to be part of their local communities. They want their success to be shared in the local community. Most of them do not want to see any benefits being siphoned off to Whitehall. Apart from Malta, we have the most centralised tax system in Europe, so some move towards localisation of tax raising is surely sensible.

I do not know how many hon. Members are friends of the complex formula grant system. Only last weekend, I joked in a speech that I thought that my hon. Friend the Minister was probably the only person who really understood the full detail of the formula. Of course most north-east councils are not happy with the current formula grant system. It is too complicated and too subject to the whim of Whitehall. I do not know who its friends are, but I would not mourn its passing.

There seems to be a lot of misreporting or misunderstanding of the scheme the Government propose. As I understand it, no one will be worse off in the first year, although some speakers today have suggested that they will be. Both the Deputy Prime Minister and the Secretary of State for Communities and Local Government have said that the starting point will be equalisation, top-ups and tariffs, so in the first year of launch all councils will be in the same position. Obviously what happens after the first year is a concern. We have talked about industries dying and being born. I think that the Government have spoken about what they will do in those circumstances but we need more detail, as previous speakers have said. I hope that the Minister will respond to that point.

The proposals include provision for a full 10-year review of where the system has got to, but nobody seems to be recognising that. Hopefully, the Minister will give us more detail about the review.

There is nothing to stop councils pooling resources or using other arrangements, if they feel that they want to share the benefits or issues in their area. We should all welcome the freedom that local councils will have. Nobody has spoken about the effect on local councils of the new Government scheme; I hope that the Minister will do so. From the way people have been speaking so far in the debate, there seems to be an assumption that every council is unitary, but I have had a letter from the Cleveland Local Councils Association asking what the effect of the new scheme will be on its members. Our parish, town and district councils are not clear about how the new scheme will work for them. As I say, I hope the Minister will address that point too.

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Some interesting points have been made in the debate, but the overwhelming feeling of the speakers so far has been pessimism. That is one of our problems in the north-east; we are generally seen to be pessimistic.

Tom Blenkinsop: The pessimism among Labour MPs that the hon. Gentleman is probably referring to might be born from, for example, the Government’s programme on the regional growth fund. We have waited six months for funding. It will be welcome funding, for example for a potash mine in my constituency, but it still has not arrived. That type of practical example might lead to pessimism.

Ian Swales: The local enterprise partnerships are doing a good job, certainly in our area, and with the regional growth fund there is a simple due diligence process going on. There is a project starting in my constituency right now, with holes being dug in the ground this week. That project has attracted £7 million of regional growth fund money. The time lag has simply been to ensure that the schemes that will be supported are the right ones.

I want to pick up on the point about manufacturing versus retail. Clearly, it is a fallacious comparison, because manufacturing takes up more space than retail. Right now, a manufacturer in my constituency wants another acre of land to add to the acre that they already have. There is no retailer asking for another acre of land, so the basis for saying, “It’s all about retail, not manufacturing”, does not stand up at all.

I am optimistic, because we have enormous potential in the north-east. The other night, I went to the launch of Energi Coast, when 19 companies involved in the offshore renewable energy industry came together to launch joint marketing. They are all talking about a boom time, like the start of the North sea oil industry.

Nevertheless, I worry about the proposals. We need a lot more detail, but we also need a can-do attitude. I say that to my local council all the time, because it often does not have a can-do attitude when it comes to new business. Sharing the benefits of business growth is in all our interests.

Mr David Amess (in the Chair): The Front-Bench responses to the debate are due to start at 10.40 am. I think that there are just two hon. Members left who wish to speak.

10.23 am

Phil Wilson (Sedgefield) (Lab): It is a pleasure to serve under your chairmanship today, Mr Amess.

I congratulate my hon. Friend the Member for Sunderland Central (Julie Elliott) on securing this debate, which is on a very important issue. We can tell that from the number of hon. Members who are here in Westminster Hall.

For me, the point about the proposal in the consultation is what it will actually do for economic growth in the north-east of England, where manufacturing, for example, is worth £7.5 billion. I think it is the only region in England that actually exports more manufacturing goods than it imports. We have Hitachi coming to Newton

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Aycliffe in my constituency, which will create 500 jobs in a train-building facility and thousands of jobs in the supply chain.

I am concerned that in the future local authorities will have to generate more money from business rates because of cuts in other rates. For example, County Durham will lose £125 million in grants over the next four years, including £64 million this year. That money must be made up from somewhere. Under this proposal, however, we also know that the county could lose up to £80 million, but its annual budget is only £300 million. At the moment, leisure centres are closing and in many areas we are now able to provide only statutory services to local communities; we are no longer able to provide discretionary services.

The big thing for me is that the Association of North East Councils has said:

“Business Rates are not a suitable measure of economic growth. Rewarding growth in Business Rates income gives disproportionate benefit to the encouragement of growth in retail space and large distribution centres, rather than encouraging growth in small businesses (whose Business Rates attract substantial levels of relief), technology businesses that do not require much physical space, and manufacturing.”

In the future, local authorities might not pursue major manufacturers to come to the area, as they have done in the case of Hitachi, but instead they might pursue major distribution centres and major retail providers, because they cover more space.

I have some figures for retail sites. They can generate more than £1 million per hectare in business rates, but manufacturers can only generate £250,000 per hectare. However, what we get with manufacturing is high-value jobs. With Hitachi, it is not just the 500 jobs that are being directly created but the thousands of jobs that will be created in the supply chain. In my area, I want young people to have high-value jobs, providing a future for our local communities, and I am not sure whether the Government’s proposals will achieve that aim.

I want to mention E.ON’s plans for my constituency. E.ON wants to build the largest wind farm in the country, with 45 wind turbines. It will cover 7.5 square miles, which is 5% of my Sedgefield constituency, but it will generate less than £1 million in business rates. There will be no jobs; there will be reindustrialisation of the landscape without any jobs and less than £1 million in business rates will be generated.

I am really worried, not because I do not think that Durham county council and other authorities in the region will not want manufacturing industry to come to the area, but given the cuts that they are already struggling with, the incentive for them will be to look for big retailers and distribution centres rather than the manufacturers of the future. If we want to rebalance the economy and bring in lots of private sector jobs, we have to look at the quality of the jobs that we are creating. I need more businesses on the science park at NETPark—the North East Technology Park—such as Kromek, which is creating major jobs for the area and actually saving jobs at Thorn Lighting, because of the quality of the people who work for Thorn Lighting.

Ian Mearns (Gateshead) (Lab): The hon. Member for Redcar (Ian Swales) accused Labour MPs of being unduly pessimistic. However, from my constituency’s perspective, in an area such as Gateshead we have

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actually been very can-do and built things such as the Metro centre and the Team Valley trading estate, which employs more than 20,000 people. We also have a £150 million development in Gateshead town centre at the moment, but my council is still very pessimistic about what will come from this set of proposals. Why would that be?

Phil Wilson: My hon. Friend is absolutely right. As a person, I am optimistic. I know what we did with Hitachi, to attract it to the north-east of England. We brought the Government—struggling—to the table on that project. When the north-east of England stands together, we achieve great things.

We have to look at the location of the north-east of England. It is a long way from here. My constituency is 263 miles away, according to the sat-nav in the car. To the north, we have Scotland, which has its own regional development agency. The regional development agency for the north-east of England is being done away with. The regional growth fund is offering only a third of the money that we used to receive under the previous Government. To the south of us, there is a burgeoning economy. The number of distressed businesses has gone up by 20% in the north-east, but the number in the south-east has actually fallen by 6%. We ask the Government to look at these proposals and take into consideration the great concerns that we have about our area.

I keep mentioning Hitachi because I am proud of what we have achieved, but Hitachi has said that it came to England and the UK not only because it is a great place but because it is in Europe. We are part of Europe and should remain so.

Finally, I want to ask a few questions of the Minister. Will the readjustments be over five years, or is he thinking of reducing that time scale? What guarantees are being offered to manufacturing. Under the proposals, will incentives come to areas? Will any grants take inflation into consideration, as was mentioned? Will that be the consumer prices index, the retail prices index or another measure of inflation?

10.30 am

Alex Cunningham (Stockton North) (Lab): Thank you, Mr Amess, for calling me to speak this morning on a subject that has far-reaching implications for my constituency and the north-east as a whole. I congratulate my hon. Friend the Member for Sunderland Central (Julie Elliott) on securing the debate.

The Government’s ambition to “incentivise” councils to boost local economic growth by linking it to a meaningful increase in funding for local services is laudable in its aims. However, I feel strongly that their proposals will have a raft of unintended consequences which will have a damaging effect on the north-east and other less developed areas of the country, such as Yorkshire. They will not encourage strong, sustainable growth in local areas but rather undermine the manufacturing companies that are so vital to the north-east’s economy. There is no doubt in my mind that the Association of North East Councils is correct when it says that wealthy areas could grow stronger and poorer areas weaker if business rates are localised as proposed. The 12 councils warn that wealthy parts of London and the

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south-east, led by Westminster and the City of London, could have resources reallocated to them while poorer areas lose out. The new system must take account of local needs, including cost pressures resulting from deprivation.

The current system recognises the systemic inequalities in Britain, providing different councils with different levels of resource to meet different needs and ensuring that the service needs of the poorest areas are met. That is fundamental, as there is substantially greater need in the north-east in terms of pressures on local services and the smaller commercial and business areas. One example is children’s services. Proportionately, several times more children are on free school meals in my Stockton North constituency than in the affluent areas of the south-east, so our local authority’s costs are proportionately much higher on children’s services alone. Some may claim the Stockton borough will benefit marginally—it would only be marginally—from the changes, but any small benefit will be dwarfed by the total loss across the north-east. This is about the north-east region and not about individual authorities—it is about a regional, shared economy.

Despite the diversification of the region’s economy and considerable action over the 13 years of Labour Government on health and poverty, the region sadly still has the largest percentage of its population—around 33%—living in some of the most deprived areas of England. The proposals will make it much worse. If the Government’s proposals were applied to the 2011-12 or 2012-13 grant settlements for the north-east, it would result in grant losses above the national average in percentage terms and substantially above average reductions in cash grant. That significant reduction means that councils would inevitably have to make deeper cuts in their budgets, thereby putting greater pressure on the delivery of the most essential local services.

The Government should realise that not only do different areas of the country face different levels of need and dependency on public services, but they have different business and economic structures. The north-east is very proud of its manufacturing sector, which currently, as my hon. Friend the Member for Sedgefield (Phil Wilson) pointed out, contributes £7.5 billion to the regional economy. However, the sole focus on business rates as a means on incentivising local business growth will hugely undermine that sector.

Business rates from retail or commercial developments are significantly higher, as others have pointed out, than from manufacturing and, under current proposals, it is likely that manufacturing developments will be seen as less attractive propositions, despite the wider economic benefits such as exports, supply chain industries, jobs and skills, compared with retail developments which have the capability to secure greater levels of business income.

Ian Swales: Does the hon. Gentleman believe that his area of Stockton has unlimited potential for more and more retail development, which would thereby stop manufacturing investment, which seems to be his proposition?

Alex Cunningham: One of the things that I have fought for over the years is to restrict the growth of retail outside our town centre, which, as with so many

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town centres throughout the country, is suffering. We will not get anything extra for the empty properties sitting in our high streets; I want to see them filled up with new businesses and contributing to our economy.

There seems to be a contradiction between the Tory-led Government’s rhetoric and their actions. When the Tory leader first became Prime Minister, he claimed that he wanted to give manufacturing “another chance” and sang the praises of small businesses by saying that they were the “lifeblood” of the economy. During the general election campaign, he—not then Prime Minister—told the north-east media that the region would be safe in his hands. Sadly, he has failed to keep any promise in that direction, delivering less investment, a laughable growth fund that has yet to achieve any single thing of note, enterprise zones without any real, up-front, hard cash to support them and a banking sector that ignores his pleas for loans to businesses. Now his proposals for business rates fail our north-east region.

I also have strong reservations, as does my local Stockton borough council, about the lack of a clear mechanism for adjusting to changes in the needs of local authorities. I was encouraged that the hon. Member for Stockton South (James Wharton), who has now left his place, agreed that that is a major issue. Under the present formula grant system, needs are adjusted every year through changes in data and every three years by considering changes to the actual formulae. To move to a much more infrequent reassessment of need in the proposed rates retention scheme would be a worrying move, particularly in such uncertain economic times. It is therefore of the utmost importance that the Government forecasts of business rate yield are realistic, and that updated estimates are based on adjustments arising from continuing economic indicators.

I started with how the Government want to incentivise local authorities, but it is important to emphasise that the notion that local authorities in the north-east do not promote economic growth in their area because they do not benefit from increased business rates is fundamentally flawed and, I would go so far as to say, deeply insulting. People in the north-east are working extremely hard to develop, to grow our local economies and to create jobs. Local authorities, including those in the north-east, have embarked on economic development in their area for countless years because they will attract jobs and benefit their area. The Government reforms are not only likely to hinder the prospect of a strong business sector in the north-east but very likely to worsen public services when they are needed most. That “survival of the fittest” model is simply the wrong policy, with the north-east again paying the price.

10.37 am

Helen Jones (Warrington North) (Lab): It is a great pleasure to serve under your chairmanship, Mr Amess.

I congratulate my hon. Friend the Member for Sunderland Central (Julie Elliott) on securing the debate. She is a powerful advocate for her region, as are my other hon. Friends who have spoken today. For instance, my hon. Friend the Member for Hartlepool (Mr Wright), who is a former Local Government Minister, highlighted the problems that might occur after 2013. My hon. Friend

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the Member for Tynemouth (Mr Campbell) highlighted the need for infrastructure to unlock potential in the north-east. My hon. Friends the Members for Sedgefield (Phil Wilson) and for Stockton North (Alex Cunningham) highlighted the work that has already been done to attract manufacturing industry to the region. However, what is clear from the debate, in all parts of the Chamber, is a deep suspicion of the Government’s motives. The Government document consulting on the localisation of business rates contains some ringing phrases, and “No more will proud cities be forced to come to the national government with a begging bowl” has been one comment. That sounds good and, to be fair to the Government, it has some history: lots of investigations into local government finance have suggested more control and more autonomy for local councils. So why are we so suspicious?

In the first place, the Government have form, do they not? In their Localism Bill, we saw all the fine phrases about devolving power to local authorities and more autonomy, yet the Bill contains 100 new powers for the Secretary of State. Their local government finance settlement manages to centralise power and devolve blame. Now they are trying it again. The whole local government resource review is based on a wrong premise. It says clearly that

“local authorities can be reluctant to allow commercial development and promote economic growth.”

I say to the Minister: name one. I know of no local authority, especially in the north-east, that is not desperate to attract jobs and growth.

The reason why our economy is not growing is not local authorities; it is this Government’s policies, which have made it flatline and stifled growth. What is more, the Government do not have a plan for growth. In fact, they are proud of not having one; they tell us there is no plan B. We are back to the ’80s and our old friend TINA—“There is no alternative”. Local authorities did not cause that recession, and they did not cause this one.

We will scrutinise the Government’s plans carefully. We support measures that stimulate growth but, as with all this Government’s policies, the devil is in the detail, and the detail is often well hidden. The Government propose to set the baseline using the 2012-13 formula grant. It must come within the expenditure controls set out in the 2010 spending review, but that spending review is inherently unfair to many local authorities. It began by making in-year cuts to specific grants in 2010, which mostly targeted the most deprived local authority areas, and over the next two years, it will make spending cuts in the most deprived authorities. Newcastle city council has produced a heat map showing where the cuts will fall: the north-east, the north-west, Yorkshire, part of the midlands and inner-London boroughs. Funnily enough, most of those places overwhelmingly vote Labour. I am sure that that is entirely coincidental.

By 2012-13, the cumulative cuts in per capita spending will be £183 in Hartlepool and South Tyneside, £156 in Middlesbrough and £144 in Newcastle—I could go on—although the national average is £47 and the average in the south-east is £31. The Government are starting from a position of unfairness before introducing their top-ups and tariffs. They say they will include equalisation, but no system can be fair unless it starts from a fair base.

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Moreover, the Government will give no assurance that local authorities will not lose out after the first year. The Deputy Prime Minister told the Local Government Association:

“The new system will start on a level playing field. Where you progress from there is up to you.”

Life is simple for Liberal Democrats, is it not? Both those sentences are wrong. We will not start with a level playing field, and it is not entirely up to local authorities how they will progress, as hon. Friends have mentioned. Some local authorities already have a large business rate base. Westminster has been mentioned. If it got all its business rates back, it would be £1 billion better off. By comparison, Hartlepool receives £13 million more than it collects. That is equivalent to 18 more supermarkets, which I doubt Hartlepool could sustain. Newcastle would be £39 million short, or the cost of 16 airports.

Even that is not the whole story. We know that councils that already have a large business rate base find it easier to attract more investment. Westminster, with its multi-million pound national and international company base, finds it easier to bring in investment than Consett does. Cambridge, which has a fine high-tech hub centred on the university, is much more likely to attract more such firms than a council starting from scratch. The worry is that, if the Government get it wrong—to be honest, their record so far is not encouraging—they could increase the gap between north and south. Tony Travers of the London School of Economics said to The Times:

“The risk is that northern authorities will find it impossible to attract businesses as fast as councils in the south. If that happens, the gap between the south and north will widen”.

The Government say they will deal with that using a levy on disproportionate gains. Let us be clear that they are discussing recouping not the whole disproportionate gain but only a share of it, and that the review contains no definition of “disproportionate” or any clarity about how the levy will work. They say that it could be 1p in the pound. In that case, local authorities with a high tax base will generate much more revenue from the same amount of growth than those with a lower tax base. The levy could work similarly, but place local authorities in bands. In that case, we will face the problem of a huge disparity between local authorities at the top of one band and those at the bottom of the next. The Government say that the levy could also involve an individual rate for each local authority. They could change the ratio of business rate growth to revenue growth. Would that not be returning to the central control that the Government say they want to avoid?

The Government want the power to reset the system. It is obvious that resetting will be necessary. Hon. Friends have asked for clarity on that. The Government say that they might reset the system based on a completely new assessment of need rather than on formula grant. If I were still serving on a local authority, a shiver would go down my spine at that. This Government have shown no capacity to assess need properly in any of their decisions on local government finance. The system is open to yet more political manipulation and interference.

The other point, as hon. Friends have mentioned, is whether business rate growth is a proper test of economic growth. The Government’s proposals would make large retail developments much more attractive to local authorities

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than manufacturing, because they generate higher income. There would be no similar incentive to develop manufacturing or to support small businesses, despite the wider benefits to the community. We need such businesses. We need the skills that they generate, the exports that they develop and the effect that they have on the supply chain, just as we need the innovation that comes from small, high-tech companies, yet the proposals carry a risk that local authorities in the north-east and elsewhere could lose out by supporting the growth that the country needs. As hon. Members have said, retail in the region will generate between £800,000 and £1 million per hectare, while manufacturing and small businesses will generate between £100,000 and £200,000. I say to the hon. Member for Redcar (Ian Swales) that it has nothing to do with the space that businesses occupy. We are talking about returns per hectare.

Regional growth often depends on national policies. Northumberland, for example, has a sparse population, a huge national park and poor infrastructure. In order to grow, it needs huge national investment in infrastructure, yet we have heard nothing from the Government about how they propose to make that necessary investment, nor have they told us how they will manage risk in the system. Most importantly, we have heard nothing about need, or about the services that local authorities must provide for the elderly, children and families in distress. The huge question that the Government are ignoring is this: if a local authority’s future income is linked to business rates, what will happen if a big business fails and the anticipated level of growth is not reached?

We will support a sensible review of local government finance, but as usual this Government are going too far, too fast. They have a system that begins with unfairness, that is progressing through muddle, and that has the potential to lead to a postcode lottery in services. They have to think again.

10.50 am

The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell): It is a pleasure to serve under your chairmanship, Mr Amess. I congratulate the hon. Member for Sunderland Central (Julie Elliott) on securing the debate. I think that this is the second time that she and I have found ourselves discussing matters of importance to the north-east in this Chamber. The proposed reforms are important, not just for local authorities in the north-east but, as some Members have noted, for areas throughout the country. There are implications beyond the north-east.

I thought that there was general agreement and consensus that this country has the most centralised and complex local government finance system in the world, with the possible exception of Malta, which has a much simpler governance structure in any case. In all my time in local government—I served on three different local authorities in the north-west of England—I never liked the decisions of any Government on local government finance. I have seen a series of disastrous mistakes, resulting in more power and responsibility being taken away from local authorities and their being subjected to choices—sometimes arbitrary and, clearly on many occasions, not taking account of local services—made in Westminster and Whitehall.

Mr Iain Wright: Will the Minister give way?

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Andrew Stunell: I will give way to the hon. Gentleman, who is a former Communities and Local Government Minister and one of those who has delivered so many arbitrary decisions to people like me.

Mr Wright: I am grateful to the Minister, who is my successor at the Department for Communities and Local Government. Does he think that, with tariffs, top-ups, resets and redistribution, the system that he has to implement will be less complex than the current system?

Andrew Stunell: Yes, most certainly. It will be transparent. I think that the hon. Gentleman, for whom I have a great deal of respect, knows that the formula system, which was made even more convoluted during his period in office, has clearly passed its sell-by date. It is impenetrable, even to chief finance officers of local authorities, not to mention voters on the street.

In the time remaining, I will explain some of our proposed scheme’s features and talk about the consultation process. The aim of the proposals is to change the dynamic from a centrally controlled system to a locally controlled system. That is the purpose of the reform.

Alex Cunningham: The Government do not let local authorities set the business rate and they dictate the council tax through freezing, so where is this great accountability and devolution of power to our elected councillors when it comes to finance?

Andrew Stunell: I do not want to go too far astray, but I point out to the hon. Gentleman that the referendum proposal in the Localism Bill, which will change who is accountable to the local electorate for excessive council tax rises, is a huge transfer of control from Whitehall to local communities over the council tax income-raising power of councils. The transfer of business rate distribution from a formula determined by central Government to one that gives local councils a real incentive to build their own income base is a fundamental change in both of the aspects that have been mentioned. I am sure that the hon. Gentleman, like me, would like to go much further than that, but let us be clear: these are significant steps.

The consultation was published on 18 July and was backed up by the publication of eight technical papers on 19 August. They included an interactive, electronic paper that allows councils to feed in different parameters of the consultation so that they can establish what the outcome would be for their local authority. I can only suppose that local finance officers in the constituencies of certain Members who have spoken during the debate have not shared that information with them, because there is a clear gap between the worst possible case constructed by that interactive model and the worst case presented in this debate.

I want to make it clear that the baseline will be based on the formula grant that would have been received by a local authority had there been no reform of the system, and that it will be neither better nor worse than that. We made that clear in the consultation. That baseline will not get lost in the future, so local authorities in the north-east will have it as their fixed point for the future. Once we get beyond the period of the comprehensive spending review, growth beyond that baseline will be theirs to have.

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Mrs Hodgson: The Minister is short of time, so I am grateful to him for allowing me to intervene. Will he clarify whether Sunderland will not be worse off by £60 million, but that we will retain our current funding level, upon which we can grow?

Andrew Stunell: That is exactly what I said and it was clear in the consultation document from the very beginning. I am sure that the former Minister, the hon. Member for Hartlepool (Mr Wright), had his tongue in his cheek when he said that he thought that Hartlepool faced a drop of £13 million. That is not the case. If the figure for Hartlepool is £40 million—which is the figure that he quoted—that is the baseline from which all further development for Hartlepool will be taken.

Helen Jones: The Minister is being generous in taking interventions. Will he confirm that the only promise from the Government is that local authorities will not lose out in the first year that the scheme comes into operation? There is no guarantee after that first year.

Andrew Stunell: The hon. Lady misunderstands what the Government have said. The baseline is fixed permanently in the system. The losses and gains come from changes in the business rate income that an authority might receive. I point out to Members who represent constituencies in the north-east that, over the five years from 2006, the total business rate income in England rose by 5% per year—not 5% overall, but per year—and by 5.1% in the north-east. In other words, the rise in business rates in the north-east during that five-year period was greater than that in England as a whole. Furthermore, a rise of 5% per year is significantly higher than RPI, CPI or, indeed, any rise in formula grant that any of those authorities gained. This is not a zero-sum reform. Beyond the CSR period, there is every prospect that the north-east will do well out of this system of having an increasing flow of business rates.

A number of points have been made about whether or not this is an incentivising system. If, during that five-year period, the north-east was able to secure an annual rise of 5.1% in its business rate income without any incentive, it seems to me that, even if the incentive effect turns out to be quite weak, it is likely to be better than that, than RPI and than the increase in formula grant, which the previous Government, in their munificence, decided was appropriate for north-east authorities. It is important that we nail some of the misunderstandings that have arisen.

My hon. Friend the Member for Redcar (Ian Swales) made the point that the regional growth fund is active and effective. Fourteen companies in the north-east have had support, and that will provide more than 5,200 direct jobs and 8,300 indirect jobs.

The Chief Secretary to the Treasury has announced a £500 million growing places fund for infrastructure in England, for which local authorities in the north-east will be eligible. I am sure that the hon. Member for Tynemouth (Mr Campbell) will make sure that his local authority makes a suitable proposal to deal with the roundabout on the A19 that he mentioned.

The consultation is still—

Mr David Amess (in the Chair): Order. It is time for the next debate.

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Sex and Relationship Education

11 am

Andrea Leadsom (South Northamptonshire) (Con): It is a pleasure to serve under your chairmanship for the first time, Mr Amess. I am delighted to have secured a debate on the important issue of what is being taught in our primary schools about sex and relationships. There is no doubt that children need to be taught about sex and how to be responsible and safe, as we try to tackle issues such as teenage pregnancies and sexually transmitted diseases. However, experiences in my constituency, as well as organisations’ campaigns such as “Too much, too young”, have highlighted material being used that is completely inappropriate and that sends out totally the wrong message.

At the moment, schools often ask their local authorities to recommend material, but there is no process for sourcing age-appropriate material; instead, material that may be completely inappropriate is provided by unlicensed suppliers for use in primary schools. At a time when there is widespread concern about the sexualisation of childhood, using sexually explicit and inappropriate materials in primary school classrooms can only make things worse.

The aim of holding this debate is, first, to call on the Government to make sure that material taught in primary schools is appropriate, not sexually explicit and not exploitative of our young children. Secondly, I would like to ensure that school governors are required to be actively aware of what kind of material is being used in their schools and to take a sensible and responsible view on the matter. Thirdly, and most importantly, I want parents to be able genuinely to have their say and to be made actively aware of what kind of sex education is being taught to their children. I want there to be a system whereby parents take a decision on whether to allow their children to be taught sex education and have to opt into the lessons, rather than having to opt out as is the currently the case.

Before I am accused of putting too great a burden on hard-working parents, let us not forget that all of us with school-age children—I have three of my own—are expected to sign up proactively to music lessons and school trips. Therefore why should we not have to proactively sign up to one of the most important learning experiences of a child’s early life?

Kevin Brennan (Cardiff West) (Lab): Notwithstanding the hon. Lady’s point about the opt-out for parents, does she think that all primary schools should teach sex and relationship education?

Andrea Leadsom: It should be for the schools, the parents and the governors to make that decision as is appropriate for their school. There is no one-size-fits-all solution.

Moving on, at the moment, parents can only choose to opt out of SRE, and I have been given several examples in my constituency alone of instances where parents have been made to feel extremely uncomfortable for deciding that they do not want their children to attend SRE lessons.

I am a huge fan of our Government’s localism agenda and I want to make it clear that I am not trying to change the way decision-making for SRE is delegated to schools and parents. It is entirely right that we should

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trust our local communities to run local services and to make the correct decisions. I also absolutely do not advocate censorship and do not want central Government dictating to every school what is appropriate. However, guidance should be given to aid local authorities, school governors and parents in finding the right material to use in SRE in our primary schools.

So what is the best form of guidance? We already have the perfect template that we can follow and implement with minimal distraction or disturbance: that of the British Board of Film Classification. That organisation does an excellent job of classifying films, videos and DVDs, and it has done so since it was set up in 1912. The BBFC gives guidance on what is suitable for certain ages in cinemas and for home viewing. It is important to note that rather than being a body of censorship, the main job of the BBFC is to guide and classify films. Statutory powers on film remain with local councils, which may overrule any of the BBFC’s decisions. Local councils can pass films the BBFC rejects, ban films it has passed and even waive cuts, institute new ones or alter categories for films exhibited under their own licensing jurisdiction.

The BBFC bases its classifications on three main qualifications. First, it considers whether the material is lawful. Secondly, it considers whether the availability of the material at the age group concerned is clearly unacceptable to broad public opinion. It is on that basis, for example, that the BBFC intervenes in respect of bad language. Thirdly, and perhaps most importantly, it considers whether the material either on its own or in combination with other content of a similar nature may cause any harm at the category—in other words, the age—concerned. That includes not only any harm that may result from the behaviour of potential viewers, but any moral harm that may be caused by, for example, desensitising a potential viewer to the effects of violence, degrading a potential viewer’s sense of empathy, encouraging a dehumanised view of others, suppressing pro-social attitudes, encouraging anti-social attitudes, reinforcing unhealthy fantasies, or eroding a sense of moral responsibility.

Those criteria are all directly taken from the BBFC’s categorisation of its own activities. Regarding children, harm may also include retarding social and moral development, distorting a viewer’s sense of right and wrong, and limiting their capacity for compassion. All of those things are taken into account in the BBFC classifications and I would like those criteria to be applied to the material being used in our primary schools to teach SRE. The BBFC, with its 99 years of experience, should be asked to implement such measures.

So why do I think that that is necessary? Currently, schools are teaching SRE to young children with the best of intentions. However, it has been brought to my attention by numerous people in different organisations that some of the material being taught to children as young as five is completely inappropriate. I have seen cartoons of two people engaged in sexual activity with the caption:

“here are some ways mummies and daddies fit together”.

Other images depict two cartoon characters locked in an intimate embrace accompanied by a vivid explanation, using sexual terminology, of the act of intercourse. As well as cartoons, I have been shown a video of two people engaged in intercourse with a child’s voice over

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the top saying, “It looks like they’re having fun.” I have also been shown leaflets given out to primary school children that give graphic definitions of orgasms, masturbation and prostitution. That is the kind of material being taught to children as young as five and there are accounts of the traumatic experiences of those children, who have been put off having boyfriends and been left thinking, “Do grown-ups really do this? It looks absolutely horrific.”

Diana Johnson (Kingston upon Hull North) (Lab): I am listening very carefully to what the hon. Lady is saying. Has she come across some of the very good materials being used in the classroom that concentrate not on the biology of sex, but on relationships, children being kept safe, appropriate touching and things like that? For a five-year-old, that is much more important than the obsession some people have with the biology of sex.

Andrea Leadsom: I completely agree with the hon. Lady on that point. Of course, there is some excellent material. As I said, schools are teaching SRE with the very best of intentions. The problem is that there is no licensing regime and no sense of appropriateness of the material. A wide-range of material is used, with varying amounts of intervention and careful analysis by schools, parents and governors.

Stephen Gilbert (St Austell and Newquay) (LD): My hon. Friend says, on the one hand, that she wants to see a national licensing system and, on the other hand, that she thinks schools should be able to decide for themselves. Are those two positions compatible?

Andrea Leadsom: I think that they are. I am not talking about a national licensing regime; I am simply talking about material that is used in schools being rated as age appropriate by the BBFC. By the same token, I do not know if my hon. Friend has any children, but if he does and he wanted them to watch 18-rated videos when they were only 12, that would be down to him as a parent. However, he would take such action with the clear understanding that the BBFC does not consider that to be appropriate for his children. Likewise, I will not show my seven-year-old videos that are above the relevant classification. I take the advice of the BBFC and only show my children things that are deemed to be age appropriate for them. My point is that there is no such guidance where SRE is concerned. At the moment, it is left to county councils, schools, governors and parents to make that decision. Parents and governors are often very busy and do not look at the material that is being shown to their children, and some of it is extraordinarily inappropriate.

Alison Seabeck (Plymouth, Moor View) (Lab): I apologise for missing the beginning of the hon. Lady’s speech; she may well have already answered this question. What discussions has the hon. Lady had with the BBFC about whether it would want to take on this additional work?

Andrea Leadsom: I confess that I have not spoken to the BBFC. If the BBFC’s responsibility for rating a particular type of output was changed, I am certain

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that, as a licensing authority, it would be happy to do that. In a previous parliamentary inquiry on internet porn, the BBFC talked about what it could do to help in relation to inappropriate websites. It would be willing if it was asked, appropriately resourced and paid, so I do not consider that that is an issue. However, the hon. Lady makes a fair point that I will take up with the BBFC if the Minister of State, Department for Education, the hon. Member for Bognor Regis and Littlehampton (Mr Gibb) is minded to respond in a positive way.

I, and many parents who have contacted me, find that such material, shown to children as young as five, completely inappropriate. What should we be talking about in SRE lessons?

Kevin Brennan: The hon. Lady has cited specific material that she has seen. Will she tell us how prevalent the use of that material is, who produced it and what schools it is used in?

Andrea Leadsom: The hon. Gentleman will forgive me for not citing schools, because some are in my constituency and, as I have said several times, schools are teaching SRE with the best of intentions. There is no intention to harm, but I have talked to head teachers in my constituency who have said that they feel that the guidance they have been given is lacking, and that they would have appreciated more instruction on what is age appropriate in this very sensitive area.

Headmasters raised a separate issue, which is that many teachers find it extremely difficult to go through this type of material with very young children. They find it easier to provide something that, in response to the hon. Gentleman’s question, is often produced by television stations. For example, Channel 4 has provided some sex and relationship education, as has the BBC. However, such material is not licensed, so it is left to the discretion of schools, which feel ill-equipped to make the decision, as to what is appropriate for a seven-year-old. The hon. Gentleman will know as well as I do that, unless one happens to have a seven-year-old, which I do, one cannot really project oneself into a seven-year-old’s shoes very easily and decide what is appropriate for them. It would be far more helpful to have guidance from an organisation such as the BBFC, which has been providing guidance for 99 years.

Annette Brooke (Mid Dorset and North Poole) (LD): I congratulate the hon. Lady on securing the debate. Does she agree with me that the starting point ought to be about training teachers? I would not want my grandchildren to have sex and relationship education given by people who were not qualified to do so. Training teachers has to be the starting point. It would then follow that the best packages of education would be chosen.

Andrea Leadsom: My hon. Friend makes a good point. That is a significant concern for some schools. They lack confidence in knowing for sure what material is appropriate for each age group. I do not need to explain to the Chamber that that varies with age. What one might show a 13-year-old is vastly different from what one might show a seven-year-old. This is what I am trying to get at—the specific point about age-appropriate material. From the contact I have had, that is a big concern for schools and parents.

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Diana Johnson: My experience is that in the best schools head teachers buy in experts who know what is age-appropriate and bring in the relevant materials. Is that the hon. Lady’s experience? I saw a very good Catholic school in south London use such expertise not long ago. That would fit with the Government’s agenda around schools buying in services and getting the best expertise they need.

Andrea Leadsom: The hon. Lady makes another good point. That could certainly be one way of addressing the problem. However, I still advocate an easy and uniformly good way of dealing with the issue, which is to have some sort of classification of material from which all schools can benefit. As we know, some schools are more engaged with this issue than others. Some head teachers are more knowledgeable than others, and some governing bodies are more proactive than others. We need a level playing field, so that all schools have access to good advice without having to go out and seek the experts. Schools have said to me that access to experts is simply not there. When they talk to their county council about what to do on this subject, it often has no real advice for them, other than to point them in the direction of unlicensed material.

David Simpson (Upper Bann) (DUP): I congratulate the hon. Lady on securing the debate. It is an excellent idea for outside bodies to come into primary and secondary schools. In Northern Ireland, we have an organisation called Love for Life, which is approved by the health service and the education board to go into schools to teach children about relationships. However, it does not go into primary schools to deal with the explicit details to which she has alluded. Bringing in an outside body is one way of doing it, as I am sure she will agree.

Andrea Leadsom: I agree that that has some merit and is worth consideration. Equally, there is a counter argument that for very young children in primary schools, it is a fundamental principle to have one teacher for almost every subject. When introducing such an enormous topic as sex and relationship education to very young children, there is a case for sticking with the teacher pupils know and are often very fond of. To bring in an outside expert, no matter how sensitive and well informed, could be counter-productive in primary schools.

What should we be talking about in schools? We are talking today about sex and relationship education. I agree completely that, when we deal with the issue of teenage pregnancies and sexually transmitted diseases, our schoolchildren have to be aware of those issues and how to prevent them. Sex education is vital. However, relationship education is equally, if not more, important, particularly at a young age. Nowhere in the material that I have seen has there been any emphasis on building relationships. We should be teaching children primarily about relationships. We should be teaching them about emotions and responsibility. Our children need to understand that as well as fun, happiness and contentment, sex and relationships can evoke other feelings, such as jealousy, sadness and guilt. Our children need to understand that sex is almost always better when you are in love, or when you are in a committed relationship. Unfortunately, a lot of what is being taught at the moment does not address those issues.

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Finally, I want to consider who needs to have a say in what our children are being taught. I am concerned about the number of constituents who have said to me that they had no idea what was being taught to their children, and that when they found out they were horrified. I have three children. I allowed them to go to their RSE lessons and I have no idea what they were taught. I put my hand up to being a busy mum who was invited in one morning, on a work day, to watch what the children would be watching and who did not take the school up on the opportunity. The expectation that all parents have is that school knows best—it knows what it is doing, is best placed to do this, and that that is great as it gets me out of that extraordinarily awkward conversation.

Many parents have told me that they were completely horrified when they finally found out what their children were being taught. I believe that schools are acting with the best of honourable intentions, and I am not about to lay the blame at head teachers’ doors. Parents must share the responsibility, and there must, therefore, be better communication with them. They need proactively to know what their children are being taught on such a sensitive issue. Only parents can decide whether their child is ready to be taught about this subject. All of us who are parents and grandparents know that children mature at very different ages, and something that one seven-year-old finds funny and entertaining and is mature enough to deal with might not be appropriate for another.

Parents often simply trust schools and assume that they know best. That is no bad thing, but we must help schools to make the best decisions. Teachers and governors must make the decisions about whether material is appropriate, just as parents must be aware of what their children are being taught. We have the assumption that if parents are uncomfortable with the material they can opt out of SRE lessons for their children, but there should be the assumption that parents opt in, particularly for primary school children. Parents have to opt in to music lessons, school trips and even school lunches; no one assumes that they can take a child rock climbing or to a music concert without explicit consent.

Annette Brooke: I am concerned that a child living in an abnormal situation, with abuse taking place, will not know what a normal situation or normal touching is. If we have an opt-in, is there not a danger that such a child will have a prolonged life of misery?

Andrea Leadsom: My hon. Friend makes a fair point, but the problem with it is that we are saying that to catch the small minority for whom sex education might make a difference to what is going on at home we must inflict potentially inappropriate SRE on all children. I have quite a degree of knowledge of, and have had a great deal to do with, such situations through my nine-year chairmanship of the Oxford Parent Infant Project, a charity that has helped families in potentially extremely dangerous situations for many years. Simply forcing these children to have sex and relationship education at school will not make the difference—turning them into whistleblowers or giving them the ability to stop what is going on at home—and the harm done by inappropriate material could outweigh that potential. We should not inflict that type of material on all our children for the sake of, what I consider to be, a vain hope.

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I want to see all material used in sex and relationship education in primary schools licensed and given some kind of classification, and school governors and teachers deciding what is appropriate to teach on the basis of that guidance, and I want parents to be given the appropriate information and the final say on whether and when their child should opt in to SRE.

I would be grateful for the Minister’s thoughts, first on whether a classification system that used the BBFC’s certificates could be implemented for SRE material in primary schools, to ensure that the material was suitable and conveyed the right message and had a guide to what age it was suitable for. Secondly, I would like to hear his comments on a commitment to provide clear guidance to schools that would ensure that not just sex but relationship education was properly taught, including the discussion of emotions and consequences, and of the benefits of love and committed relationships. Thirdly, I would like to hear his comments on a requirement that governors and teachers work together to decide what material is appropriate, and on having a cast-iron guarantee that parents will be properly informed of the full facts about what their children are taught, and be allowed to make the final decision on whether it is the right time for their children to opt in to SRE, rather than their having to opt out. I look forward to his response.

11.24 am

Diana Johnson (Kingston upon Hull North) (Lab): I have listened to the hon. Member for South Northamptonshire (Andrea Leadsom) with interest, and feel that the ideas of a licensing regime and of parents opting in to sex and relationship education ought to be discussed. However, I am not convinced that that is the way to go on this important subject, and I am concerned about examples being cited of inappropriate information or resources being given to very young children. I have yet to be given explicit details of the schools, areas, teachers and materials involved, but I am open-minded, and if that evidence is available I would like to see it. Many comments are made, but where is the evidence that this is a problem in schools? I am concerned that we are not looking at the actual evidence. We should trust our teachers; our teaching profession is better educated and better resourced than it has ever been, and in most of our schools, most of the time, really good work is going on, especially in primaries. Teachers, on the whole, do their best, and use appropriate resources.

In the previous Parliament, there was an opportunity to make personal, social and health education compulsory in all primary and secondary schools, which would have ensured that the subject was given proper consideration and that resources followed. PSHE teachers could have been expected to be properly trained and have the necessary resources to deliver that part of the curriculum. In the last few months of the previous Government, I was the Minister trying to take the measure through Parliament and I was disappointed because we ended up with the Conservative party refusing to back what was a very sensible proposal. There was a specific issue with sex education, but, as the hon. Lady mentioned, there is the opportunity for parents to opt out. A parent can withdraw a child up to the age of 18, and the Government must consider the legal anomaly that that

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creates, because at 16 a young person can have lawful sexual relations. I hope that the Minister comments on that when he deals with the hon. Lady’s suggestion of opting in, because there is a knock-on effect.

Andrea Leadsom: On a point of clarification, I am looking for an opt-in in primary schools, for children up to the age of 11, and I share the hon. Lady’s concern about an opt-out up to the age of 18.

Diana Johnson: I am pleased to hear that because this whole area needs to be considered carefully. I am disappointed that the Government have so far turned their face away from addressing the important issue of teaching to produce rounded individuals, rather than narrowly focusing on the academic side. Our schools play an important part in educating children in the issues they will face as they become adults. I accept that the hon. Lady is dealing with primary schools in this debate.

Annette Brooke: I concur with the hon. Lady. I supported her in her desire to strengthen our PSHE, and during that time I found it bizarre that the teaching of the mechanics of sex was compulsory in the science curriculum but that the teaching of sex and relationships, which must be taken together, might not happen. Does she share my concern?

Diana Johnson: I pay tribute to the hon. Lady, who has long championed PSHE and children being given the information they need to make safe and good choices.

The hon. Lady is absolutely right: young people are taught the mechanics of sex under the science curriculum, but important issues such as relationships, confidence and saying no are not dealt with. In debates in the previous Parliament, the Minister, who is a decent and honourable man, took a close interest in this area. I hope he will say whether the Government are minded to include this in their review of the national curriculum.

In the good schools I have visited, parents and governors are very much involved in this issue. Parents can look at material and see what goes on in PSHE classes, and we should build on that rather than thinking about an alternative licensing regime.

Alison Seabeck: On access to information and a classification, the Sex Education Forum’s website is accessible to teachers, parents and governors. It sets clear criteria on relationships and the appropriateness of material, including whether it is age-appropriate. Does my hon. Friend recommend that people visit the site as a starting point?

Diana Johnson: My hon. Friend makes an important point. I think that that resource is well used by the teaching profession, and if people are struggling it is one of the websites people can visit.

I visited a Catholic school in south London. Its head teacher was fully engaged with parents, and as a Catholic school it has to ensure that particular sensitivities are addressed. He reassured parents and governors that what was happening in the school was good and fine and that the children were benefiting from it. PSHE is taught throughout the school. Children in the class I visited were given different items of clothing, and an

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expert who had been brought in was discussing which bits of clothing people would wear. It was fun, interesting and educational, but it had a serious point because they were discussing parts of the body and what clothing was used to cover them. It was age-appropriate and it allowed children to name parts of the body without embarrassment—without sniggering and laughing. The lesson was well organised, and the Catholic church and that school should be congratulated on their approach to SRE and PSHE.

The Department of Education might consider spreading that practice around other schools, but it is important that we begin in primary schools by talking to children about the key issues of relationships, keeping them safe and giving them the confidence to make wise choices. I agree with the hon. Member for South Northamptonshire about inappropriate materials not being used, although I am a little unsure about whether that happens. Most schools do their best and use appropriate material. Teenagers tell us that they wish they had received information much earlier about being confident about their bodies, about relationships and about what is acceptable. A survey recently conducted by one of the big charities showed that a high number of young women were in violent and verbally abusive relationships. I am greatly concerned that we are not giving our young women the confidence to say, “I am a valued human being and I won’t put up with this behaviour.”

Andrea Leadsom: I strongly agree with the hon. Lady: we cannot teach the mechanics of sex without teaching the relationship that goes with it. She gives an example of what happens if children are led to think that sex is fun and everyone does it without their being told that there are inappropriate sexual contacts; that they can end up feeling used, dirty and awful about themselves; and that somebody can deliberately put them in that position.

Diana Johnson: I think we can agree on that point.

The Government’s national curriculum review of primary education should consider whether this subject should be formally included in the curriculum. I do not want to pre-judge the Minister, but I suspect he will say that it will not be. The vast majority of people accept that giving good information to primary school children can help to deal with problems in secondary school. The rate of teenage pregnancy in my constituency is still too high and there are too many young people in inappropriate relationships. Let us start to deal with this issue early and let us get it right for our young people.

11.36 am

Stephen Gilbert (St Austell and Newquay) (LD): It is a pleasure to serve again under your chairmanship, Mr Amess, following our many deliberations on the Committee that considered the Localism Bill.

I congratulate my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) on securing this important debate. Although I am not a parent, I am an uncle to two children and a godfather to two more. I think we all agree that good parenting is about protecting childhood and preparing children for the future. I should like to explain what that future might be as some young people grow up.

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Last year, young people—who form just 12% of the population—accounted for half of all sexually transmitted infections in the UK. Twenty-five per cent. of sexually active 15 to 24-year-olds test positive for chlamydia; 75% of 16 to 24-year-olds report not using condoms when they have sex; in 1990 the proportion of women who reported first intercourse before the age of 16 was about 10%, but 10 years later the figure had doubled to 20%. The equivalent figures for men were 20% and 27%. Teenage pregnancy in the UK has been reducing in recent years, but we still have by far the highest levels in Europe.

Far from trying to move away from teaching sex and relationships, the Government should be doing a lot more to embed this, if Members will excuse the pun, in the curriculum. We talk a lot about the three Rs—reading, writing and arithmetic—but there is a fourth R that is equally important if we are to create happy and confident young people: relationships.

We know that good SRE gives children confidence. It teaches them about their body—how it changes as they grow up—and it gives them the self-awareness and confidence to start to combat some of the sexualised imagery and body fascism prevalent in so much of our media today. It helps to safeguard them by equipping them with the skills to negotiate safe sex and decent relationships—to understand, as my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke) said, when their relationship would not be considered normal and, at an extreme, when it might be considered abusive. It also helps them later, through biology lessons and other parts of the secondary school curriculum, to understand how to negotiate the kind of safe sex that will help to stop them from becoming one of the statistics we have all read about. I agree with my hon. Friend the Member for South Northamptonshire that SRE must be appropriate and sensitively delivered and that we must ensure that schools do not use inappropriate material, but I cannot agree with the “Too much, too young” campaign, whose tips on actions for parents at the back of its campaign material include seven ways of monitoring their child’s SRE, but do not include one positive way of talking to children about relationships and the consequences of unprotected sex.

That is quite ironic. Mr Amess, you may remember that The Specials had a number one record in 1980 called “Too Much Too Young”. I will not sing it, but it ends with the following lyrics:

“Ain’t you heard of contraception

D’you really wanna programme of sterilisation

Take control of the population boom

It’s in your living room

Keep a generation gap

Try wearing a cap.”

In the 1980s, when teenage pregnancies were rising significantly, that political song of the time said to a generation that relationship counselling and education needs to be embedded much further into the curriculum.

Andrea Leadsom: On a point of information, what do those song lyrics say about relationship education? Absolutely nothing, surely. That is a complete trivialisation and part of the problem, not part of the solution. There is no relationship guidance in those lyrics.

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Stephen Gilbert: I am grateful for my hon. Friend’s point. I am trying to make the point that the consequence of not embedding relationship guidance at primary school level leads to the consequences of teenage pregnancies and the rise in sexually transmitted infections that so damage our society. We have to make this a continuous process, which is why I agree with Opposition Members who asked the Government to put the programme on a statutory basis.

It is a shame that debates such as this perpetuate some myths. The first is that sexual relationship education does not work. It does work, when it is established, properly resourced, appropriate and embedded in the curriculum. The second is that it leads to young people engaging in more sexual activity. All the evidence is to the contrary. Continuous, proper sexual relationship education actually helps people better negotiate the point at which they want to take part in sexual activities.

We have the notion, mentioned by my hon. Friend, that parents are excluded from the process, that somehow they do not have the opportunity to monitor and consider what their children are exposed to. Most surveys suggest that eight out of 10 parents think that their children should be receiving sexual relationship education. I think 0.04% choose to opt out at the moment.

Andrea Leadsom: I have to make the point again. I do not want to show one-upmanship—having three kids to my hon. Friend’s none—but the fact is that most parents now work. Therefore, when the school invites them in on a Monday morning to come to see what the children are to be taught—when they have an important meeting with their boss—the tendency is to think that school knows best and to let it go ahead. I agree with my hon. Friend in principle that parents have the chance, but in reality life gets in the way. That is why it is important to ask parents to engage and not just, by default, go along with whatever is being taught.

Stephen Gilbert: Again, I think my hon. Friend is trying to find disagreement where there may be none. As I said earlier, I think the materials should be appropriate and they need to be monitored. I like her suggestion of a classification system. However, I do not like her suggestion that parents could opt out of something that is so important and such a fundamental part of being a fully functioning human being in the 21st century.

Alison Seabeck: We are exploring a very important point. As the mother of two daughters—one of whom went on to teach in primary school and was responsible for sex education—I think it is important that we can trust our teachers to understand what is going on in the classroom and what the children can cope with. As a busy parent, I did not get to the Monday morning meetings either; I trusted my daughters’ teachers. Now we have access to the worldwide web, and there are very good sites to which parents could be pointed by the school, saying, “This is what we intend to teach your children. If you cannot come along, look at the internet.” A vast number of parents—certainly the working ones—would have access to a computer and be able to do that.

Stephen Gilbert: The hon. Lady makes an eloquent point. The explosion and proliferation of modern technology make such supervisory duties much easier for all of us. In future, perhaps she will be able to do so in the Chamber from her iPad.

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David Simpson: Is the hon. Gentleman aware that the research papers with which we have been presented include an article from The Times Educational Supplement of 13 May 2011, which makes it clear that almost six in 10 parents do not think that sex education should be taught to children at school?

Stephen Gilbert: There are occasions when hon. Members have to say, “On that point I have to disagree.” Why would one not teach geology? Should parents be given an opt-out from geology or from history? If we are to create happy, confident, rounded citizens, we need to be embedding sexual relationship education from the earliest possible age. Of course, we need to do so in an appropriate way; it must be suitably delivered, well resourced and properly monitored. However, we must move away from the “No sex, please, we’re British” attitude, which has so damaged individuals and segments of our society. We need to demystify sex and relationship education. We need to see it as a spectrum and I think we need to move it on to a statutory basis. I will be interested to hear the Minister’s views on that. Rather than the three Rs, we should think of a fourth R: relationship and sex education.

11.46 am

Pamela Nash (Airdrie and Shotts) (Lab): It is a pleasure to serve under your chairmanship for the first time, Mr Amess.

I start in the unusual situation of agreeing with everything said by the hon. Member for St Austell and Newquay (Stephen Gilbert). I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on calling the debate, which is crucial and timely. It is right to discuss the matter now while the Government are reviewing the PSHE curriculum.

I also speak in the capacity of chair of the all-party group on HIV and AIDS, which has long campaigned for mandatory sex and relationship education at primary and secondary level. Its members are drawn from all political parties and we are extremely concerned about the rising levels of HIV infection in the UK, and the subsequent impact on public health. It is predicted that in 2012, the number of people in the UK who are HIV-positive will hit 100,000, a quarter of whom are unaware of their status. New HIV diagnoses in young people have risen by 48% in the past decade. That is horrendous.

My generation just missed the extremely successful Tombstone campaign in 1986. When I speak to my friends about HIV, it is not at the top of their list of priorities; they do not think it can affect them. The Minister recently told the Lords Select Committee on HIV and AIDS in the UK:

“When you have a survey that says one in four children are not taught about HIV, which is a deadly disease which can be simply avoided and simply caught, a lack of knowledge in this area is unforgiveable in our school system.”

A basic knowledge of HIV is essential to all our young people. HIV sadly remains a highly stigmatised condition, with the National AIDS Trust finding that one in three people diagnosed with HIV have experienced HIV-related discrimination. Research has shown a strong association between poor understanding of HIV and stigmatising attitudes. Good, comprehensive sex and relationship education would help to improve understanding of HIV, dispel myths and thus reduce stigma.

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Lord Fowler’s recent Committee in the House of Lords reported that current policies to tackle HIV in the UK are “woefully inadequate”. One in four young people did not learn about HIV at school, which was condemned by the Minister. Young people simply are not learning the facts about HIV and AIDS, and that has to change if we are to make any headway in reversing the number of new infections.

I shall move on to the “Too much, too young” report, already mentioned. The hon. Member for South Northamptonshire is a known supporter of the report, which she launched earlier this year. Unfortunately, many of its claims are at best alarmist, if not simply false. The campaign suggested that children as young as five are being shown explicit cartoons and taught about sexual pleasure. If we look at the small print in the report, which I have with me, it is clear that the majority of that imagery is actually suggested for older children. I have found no evidence that younger children have seen such material. The sexual health charities that I have spoken to, including the National Aids Trust, the Family Planning Association, Brook and the Terrence Higgins Trust, are not aware of any school where that has taken place. Furthermore, they would never endorse that type of teaching.

All schools currently have the right to decide which resources to use when teaching children about sex and relationships, and have the right to consult parents and governors to decide which materials should be used. The suggestion that the materials that have been referred to are used as a matter of course, or that sex education campaigners would like materials to be imposed on schools is misleading and misrepresents the excellent work that many of those organisations do in campaigning for comprehensive, high-quality and age-appropriate sex and relationship education for all children.

We might like to live in a time when children did not grow up so quickly and their “innocence” was preserved until a later stage in life, but unfortunately that era, if it ever existed, is long gone. Children are curious about sexual relationships. We cannot and should not shield them from all the influences of the modern world. If they want information, they will find it from another source: teen magazines, the internet and gossiping friends in the playground.

In a survey by UNICEF and the Terrence Higgins Trust, three quarters of young people said that they used the internet to obtain information about sexual health. That risks children receiving inaccurate information. My fear about the suggestion by the hon. Member for South Northamptonshire of opt-in sex and relationship education is that many children would miss out. They would not receive sex and relationship education at home; indeed, they might be in a damaging and abusive situation at home.

I have no interest in promoting specific sexual behaviour or introducing concepts to children before they are ready to hear about them. Children are naturally inquisitive and will ask when they are ready to be taught. Primary school sex and relationship education is essential for laying the foundations to ensure that, when old enough, young people receive good sex and relationship education that gives them the information they need to make the right decisions to protect their health and well-being. Given that we have the highest rate of teen pregnancy in

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western Europe—it is falling, but slowly—it is clear that we are not getting that right, so I welcome the current Government review.

I want to raise a point about homophobia and the positive role that sex and relationship education at an early stage can play in tackling homophobic bullying, which has never been more prevalent in our schools than it is today. A recent YouGov poll found that nine in 10 secondary school teachers and 40% of primary school teachers have witnessed children being subjected to homophobic bullying in their schools. In addition, 75% of primary school teachers have reported hearing the word “gay” shouted as an insult in the school playground. Such words are used commonly by children, without comprehension of their true meaning, as a form of abuse. If children are not taught from a young age about the different possibilities of relationships and about the normality of same-sex relationships, it is not surprising that they grow up with those prejudices. To become active, appropriately behaved citizens, children must learn at that age about the possibilities of different relationships.

As pupils generally start puberty at the later stages of primary school, it is important that schools have an open and intelligent approach to same-sex issues. Basic HIV education should be taught in an environment where same-sex relationships are normalised, not stigmatised or off-limits.

In a recent report by Stonewall, a London primary school teacher is quoted as saying that

“the younger it is addressed…the more receptive the children are to believing that other ways of life are acceptable. You don’t have to shove it in their faces, just teach them that some people have other ways of life and it is just as normal as the ways of life they are familiar with.”

Andrea Leadsom: There is an age below which children have no concept whatever of sex, so I cannot agree with the hon. Lady. A four or five-year old has no concept of what on earth sex is about. Until children are pre-pubescent at the very least, they cannot get their heads around it, so to talk to them about different sorts of sexual relationship would be entirely pointless and probably quite frightening.

Pamela Nash: I thank the hon. Lady for that intervention, but her earlier remarks showed how strongly she feels about the importance of relationship education and how sex and relationship education should be paired together. I suggest that homosexual relationships are separate from sex education and sex.

Alison Seabeck: We must also bear it in mind that there is an increasing number of single-sex families of all types. The children of those families will be in school and therefore it makes sense to talk positively about relationships in that context.

Pamela Nash: I completely agree.

Andrea Leadsom: I just want to clear this up. I am saying that people should absolutely talk about relationships, but not sexual relationships, because below a certain age there is simply no point. I agree with the hon. Lady that there is a need to talk about relationships, but there is no need to talk with very young children about sex.

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Pamela Nash: I thank the hon. Lady for that intervention, but I am not clear about the difference she is getting at between relationships of another sort and sexual relationships. My understanding from what she said earlier is that she is happy for people to talk about heterosexual relationships. I am happy to take another intervention to clarify the issue.

Andrea Leadsom: I thank the hon. Lady for her patience in giving way. I am specifically talking about very young children. For them, the focus needs to be on the relationship, not the sexual act. That is where a lot of the material being shown to children now is simply inappropriate, because they really do not get it. There is a point below which a child is not old enough to conceptualise what the act of sex means. I agree with the hon. Lady that it is entirely appropriate to teach that sometimes men love other men, but it is not appropriate to teach what sometimes men do with other men, for example. That is where I am drawing the line. I am saying that the relationship side can be separate from the sexual side at a very young age.

Pamela Nash: I thank the hon. Lady for that explanation. I am talking about relationships. I suggest that no images of sex between a man and a woman, between two men or between two women should be shown to very young children, of four or five. However, I do think that it is appropriate to teach young children about relationships, including same-sex relationships.

[Mr George Howarth in the Chair]

Stephen Gilbert: Without wishing to continue the love-in, I agree absolutely with everything that the hon. Lady is saying. As I said earlier, I have a four-year-old nephew who, from what he has said to me, is aware or beginning to become aware of sex as well as relationships. Does the hon. Lady agree that we need to deal with the world in which we live, not the world in which we would like to live?

Pamela Nash: I entirely agree. I have had similar experiences with the young children in my family. I have stories about comments on sex and relationships that they have made, even at the ages of three and four, that it would not be appropriate to tell here. They are inquisitive and they have that knowledge. They watch television and hear people speaking. They see people around them who are in relationships that might be different from what they see at home, and they should be taught that that is okay and why it exists.

I have been looking this morning at the UN convention on the rights of the child. Article 29 refers to the following:

“The preparation of the child for responsible life in a free society, in the spirit of understanding, peace, tolerance, equality of sexes, and friendship among all peoples, ethnic, national and religious groups and persons of indigenous origin”.

That is one of the rights of the child, and I believe that good relationship education is part of it and will prepare young people for a normal life.

Children must also be prepared to deal with their own sexuality. The high levels of self-harm among homosexual teenagers have been well documented. Again, high-quality and age-appropriate sex and relationship education will help to tackle that heartbreaking problem.

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Let us be clear: sex education is not about the sexualisation of children, nor is it intended to promote promiscuity or a certain kind of lifestyle above another. Taught well, sex education is about teaching children the facts of life and how to handle their personal relationships.

The challenge we face is that SRE is patchy and inadequate. An Ofsted report in 2010 said that the quality of PSHE is poor in a quarter of schools and that teachers lack the knowledge and skills to teach pupils the subject effectively. My experience of sex education, which was not so long ago, involved an expert visiting my school and telling the 14-year-old girls in my class that they should not let boys touch them from the neck down. That was the message in its entirety, and I do not believe it was entirely adequate.

There is strong support from parents for teaching SRE in schools. A poll run by the Department for Children, Schools and Families in 2009—I am sorry these are the most recent figures I could get—showed that eight in 10 parents thought their children should receive SRE lessons, while only 0.04% had withdrawn their children from SRE. To conclude, we need high-quality, age-appropriate and mandatory SRE in all primary and secondary schools throughout the United Kingdom.

Several hon. Members rose

Mr George Howarth (in the Chair): Order. Two Back Benchers are indicating that they want to take part in the debate. I intend to call the two Front-Bench spokesmen at 12.10. If people are restrained in their contributions, it may be possible to get the remaining Back Benchers into the debate.

12.1 pm

Fiona Bruce (Congleton) (Con): I thank my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) for raising this important issue. I congratulate her on an excellent speech on a subject that is of great concern to parents in my constituency and across the country. I welcome her positive contribution and her constructive ideas, as well as the fact that she has expressed concerns about some of the educational materials in primary school classrooms.

The debate is about how, when, where and what sex and relationship education should be promoted in primary schools. Crucially, it is also about involving parents in deciding content. Equally, it is about promoting the outcome I think we all want: a generation of young people who fulfil their potential in all areas of life, including personal relationships.

Although “Sex and Relationship Education Guidance”, which was published in 2000, gives schools guidance on working with parents, such work is not a requirement. The guidance says:

“Schools should always work in partnership with parents, consulting them regularly on the content of sex and relationship education programmes.”

In practice, that does not appear to happen, and there is no legal requirement for schools to enter dialogue with parents. The hon. Member for Kingston upon Hull North (Diana Johnson) queried whether graphic content of the type that has been described was causing parents

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concern, but a group of parents came to see me in my surgery because they were concerned about the content of the sex education materials that it was proposed to use in a primary school; I think they were based on some of the media productions mentioned by my hon. Friend the Member for South Northamptonshire. The parents felt there was no appropriate route for them to register their serious concerns about the content of those educational materials, so they had to come to see me about them. The opt-in requirement my hon. Friend proposes for parents would ensure that there was such a route.

My hon. Friend’s positive contribution is welcome. The previous Government should perhaps have considered rating the content that could be used in this sensitive and delicate subject. As the hon. Member for St Austell and Newquay (Stephen Gilbert) said, the evidence shows that this country should be far from proud of its levels of sexually transmitted disease, teenage pregnancy and relationship breakdown, and one cause among others for those things may be the lack of parental involvement in our sex education content.

We should be moving towards an environment where, as my hon. Friend said, parents make a more active choice regarding the material they believe is fit for purpose for their child, and where they can actively opt into the curriculum. If they participate in that way, it might improve the dialogue between themselves and their children, which might be a better way forward for our society.

Pamela Nash: I appreciate the point the hon. Lady is trying to make about parents being more involved in making these decisions in schools, but does she not agree that the children of parents who do not opt into SRE if they are given the option will be at serious risk of receiving no SRE at all?

Fiona Bruce: If we have a satisfactory procedure, such as that proposed by my hon. Friend, schools and the responsible teachers hon. Members have described should ensure that that does not happen.

Let me add another suggestion to those that have been made. To aid parents and schools, the Government could create a website where varied sex and relationship tools and programmes could be explained. That would offer schools, governors and, above all, parents a diverse range of options. The recently launched ParentPort website is a model of how we could move forward and engage parents and others who are concerned about content. The website was recently launched by the Prime Minister as a result of the Bailey review and is aimed at helping parents to navigate the regulatory media and broadcasting framework. I was struck by the fact that within a few days of its launch about three weeks ago, 10,000 people had registered concerns. That shows the desire of many—I am sure many parents were among those who registered concerns—to have a say over such issues.

I am glad the Conservative-led coalition Government are taking their localism agenda forward. For it to be a success, an informed citizenry is required, and that is as true in respect of relationship and sex education tools as it is of any other area.