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House of Commons

Tuesday 29 November 2011

The House met at half-past Eleven o’clock


[Mr Speaker in the Chair]

Business Before Questions

London Local Authorities Bill [Lords] (By Order)

Consideration of Bill, as amended, opposed and deferred until Wednesday 7 December at 4 o'clock (Standing Order No. 20).

London Local Authorities and Transport for London (No. 2) Bill [Lords] (By Order)

Transport for London (Supplemental Toll Provisions) Bill [Lords] (By Order)

Second Readings opposed and deferred until Tuesday 6 December (Standing Order No. 20).

Oral Answers to Questions

Foreign and Commonwealth Office

The Secretary of State was asked—


1. Chris Evans (Islwyn) (Lab/Co-op): What recent discussions he has had with his EU counterparts on Syria. [83281]

The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague): I speak regularly with my EU colleagues about Syria—most recently at the EU Foreign Affairs Council on 14 November, where we agreed a further round of sanctions on Syria.

Chris Evans: This week, we have heard Turkey call for President Assad to step down. Will the Foreign Secretary give us an update on how secure President Assad’s position is in Syria?

Mr Hague: It is not very secure. We absolutely agree with the Turkish Government. Indeed, my right hon. Friend the Prime Minister called in August for President Assad to step aside. We believe that the regime has lost all legitimacy, certainly in the eyes of the world, but clearly in the eyes of millions of its own people as well. So the regime should now understand that it has no future, that democracy should be introduced in Syria, and the regime should leave office.

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Mr Philip Hollobone (Kettering) (Con): What conclusions have the Foreign Secretary and his EU counterparts reached on Iran’s involvement in propping up the Syrian regime?

Mr Hague: There is no doubt that Iran has been involved in trying to prop up the Syrian regime. Iran is a country that has supported popular revolution in other parts of the middle east but then has been happy to collude in trying to repress such revolution in Syria—its ally. It has helped with technical equipment, expertise and advice on how to help the regime to deal with the situation, and it shows a hypocritical approach to events in the middle east.

Emma Reynolds (Wolverhampton North East) (Lab): Turkey is a vital ally of the United Kingdom and, indeed, the European Union. What discussions did the Prime Minister have with the Turkish President last week on what further specific measures Turkey can take to exert additional pressure on the Syrian Government?

Mr Hague: We discussed this at some length—the Prime Minister with the President—and I discussed it with the Turkish Foreign Minister in the margins of the state visit. We are all working closely—Turkey and the European Union nations—with the Arab League. Turkey is considering a range of measures that it could take on Syria, but, as the hon. Lady knows, the Arab League has led the way at the moment in announcing sanctions. I would not be surprised if further measures now follow from Turkey, on the basis of the discussions that we had last week.

Jo Swinson (East Dunbartonshire) (LD): I very much welcome the EU sanctions and, indeed, those from the Arab League, particularly in the light of the very grim UN report, showing that Syrian Government forces have killed at least 256 children. Following the recent visit to London by Syrian opposition representatives, what more can the UK and our EU partners do to support the development of a cohesive and peaceful political opposition in Syria?

Mr Hague: Cohesive and peaceful are two very important words. I met two separate groupings of the Syrian opposition last week: the Syrian National Council and the national co-ordinating body—a different grouping of the opposition. I encouraged them to find a common and cohesive platform together—at this extreme moment in their nation’s history, it is important for them to work together—and to maintain non-violent resistance to the Assad regime, to maintain their support around the world.

EU Economy

2. Mr David Ruffley (Bury St Edmunds) (Con): What recent representations he has received on the implications for his Department’s policies of economic conditions in the EU. [83283]

The Minister for Europe (Mr David Lidington): I have had a number of recent meetings with representatives of British business who have emphasised the immediate need for eurozone countries to act to restore stability to their currency and the need for the entire European Union to adopt policies to encourage growth and job creation through open markets and less-costly regulation.

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Mr Ruffley: Under the treaty on the functioning of the European Union, the financial transaction tax would have to go to the Council of Ministers, which requires unanimity. Will the Minister confirm that Her Majesty’s Government will veto the new Franco-German euro tax that will only damage the City of London?

Mr Lidington: My right hon. Friend the Chancellor of the Exchequer made it quite clear at the most recent ECOFIN meeting that we would reject an EU financial transfer tax, and he was supported in his opposition by 11 other member states.

Mr Wayne David (Caerphilly) (Lab): Can the Minister tell us what practical actions his Government have taken to encourage our European partners to complete the single European market?

Mr Lidington: I have discussed this in the past two weeks with senior members of the Commission, and I have encouraged them to introduce measures under the Single European Act. Yesterday, in Berlin, other Ministers and I talked to our German counterparts about joint action both to deepen the single market and to reduce the cost of regulations, especially for small and medium-sized businesses.

Mr Peter Bone (Wellingborough) (Con): What discussions has the Minister had with his continental cousins about the fact that the euro is burning while Brussels is fiddling? Would it not be much better to have an orderly withdrawal from the euro, rather than the crisis that we have at the moment?

Mr Lidington: I think, as my hon. Friend would admit in private, the idea that the eurozone can somehow be dismantled in an orderly manner is rather far-fetched. The collapse of the euro and a prolonged recession in the eurozone would do profound damage to hopes for growth and job creation in the United Kingdom. It is our largest single trading partner.

Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab): Could the Minister for Europe tell the House how work on the Government’s stated aim of repatriating powers from the European Union is progressing?

Mr Lidington: My right hon. Friend the Prime Minister made it clear to the British people in his Mansion House speech the other week that we need a rebalancing of responsibilities in the European Union, with some things being done, yes, at the centre, but more things being done by member states in future. That work is ongoing.

Mr Alexander: Perhaps the Minister for Europe could be a little more forthcoming. How many staff in the Foreign Office are working full-time on this endeavour, will there be a White Paper on the repatriation of powers, and when, indeed, could the House expect such a publication?

Mr Lidington: I am afraid that the right hon. Gentleman will have to contain his excitement for a little longer. That work is ongoing, and of course, we shall keep Parliament acquainted with progress on it.

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3. Nic Dakin (Scunthorpe) (Lab): What representations he has made to the Chinese Government following recent self-immolations in Tibet. [83284]

The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague): The Minister of State, Foreign and Commonwealth Office, my hon. Friend the Member for Taunton Deane (Mr Browne), raised our concerns about the increasing number of self-immolations in Tibetan areas with the Chinese Vice Foreign Minister in Beijing earlier this month.

Nic Dakin: I advise the House of my entry in the Register of Members’ Financial Interests.

Recently, I met the Dalai Lama, who made clear his concern that all involved should work for a peaceful solution in line with the middle way. Does he share that approach?

Mr Hague: We are seriously concerned about recent reports that young monks and nuns in Tibetan areas of Szechuan province have immolated themselves. As I said, we have taken that up with the Chinese Vice Foreign Minister, and with the Chinese embassy in London. We encourage, of course, the resolution of grievances that have led to that situation. We will continue to encourage the Chinese Government to take that constructive approach.

Sir Malcolm Rifkind (Kensington) (Con): As the Chinese Government have been able to recognise and respect the autonomy of both Hong Kong and Macau in the People’s Republic, should they not allow autonomy for Tibet, to ensure that, within the People’s Republic, its unique culture and identity are properly respected and recognised, and will the Government try to encourage it to do so?

Mr Hague: My right hon. and learned Friend makes a very fair point indeed. As he knows, we recognise Tibet as part of the People’s Republic of China, but we call for meaningful dialogue between the representatives of the Dalai Lama and the Chinese authorities in the interests of autonomy in future. Of course, we always call for respect for human rights.

Martin Horwood (Cheltenham) (LD): I am sure that the Foreign Secretary welcomed China’s recent recognition of the aspirations and rightful demands of the Syrian people. Does he think that that is a positive development, as China may be beginning to realise that repression does not deliver genuine stability, and it should have the confidence to recognise the aspirations and rightful demands of the Tibetan people, too?

Mr Hague: Such language is positive and I continue to believe, as I said in the House yesterday, that the veto of our proposed UN resolution on Syria by Russia and China was a mistake and did not take into account the legitimate aspirations of the people of Syria. On the question of Tibet, we encourage the meaningful dialogue of which I spoke a moment ago.

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Equatorial Guinea

4. Steve Baker (Wycombe) (Con): What assessment he has made of the implications for the governance of Equatorial Guinea of the recent constitutional referendum in that country. [83286]

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham): We do not have an ambassador based in Equatorial Guinea, but we have an ambassador based in Cameroon who visits regularly and takes a close interest in developments there. He often raises directly issues such as human rights, good governance and lack of social development. We also raise those issues through the EU and the UN.

Steve Baker: As the Minister knows, hon. Friends and I published an excoriating report after our visit to Equatorial Guinea in the summer. Does he agree that certain principles of good governance, such as democracy, liberty and the rule of law, are universal and eternal?

Mr Bellingham: I agree that those principles are vital and they are ones on which we will focus and put a huge amount of emphasis. I thank my hon. Friend for his report, and I pay tribute to him and his colleagues for their energy and open-mindedness in reporting back to the Foreign Office on that visit.

Mr David Lammy (Tottenham) (Lab): Can the Minister update the House on the Government’s assessment of growing concern about the position in Malawi—unrest, autocratic rule and real oppression?

Mr Bellingham: I am grateful to the right hon. Gentleman for raising that. Although we are talking about Equatorial Guinea, I was in Zambia recently and had a chance not to visit Malawi, but to have an assessment of what was going on there. We are very concerned indeed about the way in which the Malawi Government evicted our high commissioner, but a high level delegation from Malawi recently came to the Foreign Office and we were able to have candid discussions with them. My right hon. Friend the Foreign Secretary made it clear that there are certain measures that need to be put in place before we resume normal diplomatic relations.

Mr Speaker: The Minister is both well travelled and, as he has just shown, dextrous in his response to questions.

Paul Flynn (Newport West) (Lab): May we assume from the Minister’s reply that the Government’s policy now is to encourage contacts with countries with records on human rights as despicable as that of Equatorial Guinea, and that hon. Members should accept private invitations for five-star business class visits paid for by the Governments?

Mr Bellingham: We have full diplomatic relations with Equatorial Guinea. We never hold back in telling that Government about our concerns regarding human rights and lack of good governance, and we have made it clear to the Government of Equatorial Guinea that they have a per capita income of $15,000 a year, yet that masks extremes of wealth between the very rich and the very, very poor. I welcome hon. Members going there with an open mind and reporting back to us.

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5. Yvonne Fovargue (Makerfield) (Lab): What recent discussions he has had with his EU counterparts on Iran. [83287]

The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague): We worked closely with our EU partners in responding to the International Atomic Energy Agency report about the Iranian nuclear programme, and I hope we will reach further conclusions on Iran at this week’s Foreign Affairs Council.

Yvonne Fovargue: What work are the Government doing to protect the safety and security of Foreign and Commonwealth Office staff in Iran, following the decision this week of Iran’s Parliament to call for drastic cuts in diplomatic ties? Will the Government respond to that with similar action if that call is agreed to by the Guardian Council?

Mr Hague: The hon. Lady is right to raise the issue. The Iranian Parliament voted on Sunday to downgrade relations with the United Kingdom. As she says, the further decision of the Guardian Council is awaited. I have made it clear that if they go ahead with that, we will respond robustly. We will do so in consultation with our European Union partners. There is no Iranian ambassador currently here in London. The embassy is headed by a chargé so we are not able to respond exactly in kind, but we will respond in other ways and we will do so robustly.

Mr John Baron (Basildon and Billericay) (Con): Given that the latest International Atomic Energy Agency report provides no concrete evidence of a nuclear weapons programme—there is no smoking gun—does the Foreign Secretary accept that implied threats of military force could be counter-productive in that they could rally the people behind the hard-liners and drive whatever programme there is further underground?

Mr Hague: To be clear, the IAEA report of earlier in November speaks of its serious concerns at credible information about Iran’s nuclear weapons programme, so we should be clear about that. As my hon. Friend knows, we are not advocating military action. We are pursuing a twin-track approach of being open to meaningful negotiations but increasing the peaceful and legitimate pressure on Iran through sanctions, and we will continue with that approach.

Luciana Berger (Liverpool, Wavertree) (Lab/Co-op): I welcome the Government’s newly announced sanctions in response to Iran’s nuclear programme. Ahead of the right hon. Gentleman’s forthcoming meeting with European counterparts in December to discuss the issue, what is he doing to encourage financial institutions across Europe to take action?

Mr Hague: The Government made an important announcement on that a week ago. Last Monday my right hon. Friend the Chancellor announced that the British financial sector is required to sever all financial ties with Iranian banks. Similar action is being taken by the United States and Canada. I expect some other nations to follow suit and, as I mentioned earlier, we are now discussing within the European Union additional measures that will follow shortly.

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6. Jason McCartney (Colne Valley) (Con): What the outcomes were of the Istanbul conference on the future of Afghanistan. [83288]

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt): The principal outcome of the conference, which I attended on behalf of the United Kingdom, was an agreement by Afghanistan’s regional partners on the future of Afghanistan, involving commitments to non-intervention, to the inviolability of its borders and to support Afghan-led efforts on reconciliation and the political process. The group has agreed to meet again in June next year.

Jason McCartney: Given that Pakistan is vital to Afghanistan’s security, how will the Government assess the impact on relationships between Pakistan, Afghanistan and the United States, bearing in mind the tragic incident over the weekend involving NATO forces?

Alistair Burt: It was tragic indeed. My right hon. Friend the Foreign Secretary spoke with the Foreign Secretary of Pakistan on 26 November to convey the United Kingdom’s condolences to the families of those involved and to the armed forces and people of Pakistan. We support an urgent inquiry by the international security assistance force into the circumstances and encourage Pakistan to take part. In the meantime, all parties should do their utmost to rebuild trust and confidence between them and take no action that would make that more difficult.

Meg Munn (Sheffield, Heeley) (Lab/Co-op): The Minister will recall that I wrote to him a year ago having met a number of Afghan women MPs who were extremely concerned about the future and who regularly put their lives at risk in seeking to represent people in their country. What is he doing to ensure that the rights of women in Afghanistan will be supported in future?

Alistair Burt: If I do not remember the individual letter, I certainly remember the sentiments, which have been echoed by a good number of colleagues over the past few months. Yesterday I received a delegation of non-governmental organisations expressing their concerns about this and a large petition. We have ensured that the Minister for Equalities, my hon. Friend the Member for Hornsey and Wood Green (Lynne Featherstone), the Minister responsible for combating violence against women, will attend the Bonn conference with my right hon. Friend the Foreign Secretary and that commitments to women in Afghanistan will be uppermost in our presentations. It is vital that the situation for women does not go backwards in Afghanistan and that the Government honour their commitment to equality.

Mark Lancaster (Milton Keynes North) (Con): Will conditions be attached to the withdrawal of our provincial reconstruction team in Helmand, such as an increase in the capacity of provincial government in the region, or will the team simply be withdrawn in line with the removal of combat troops by 2015?

Alistair Burt: We fully expect that the withdrawal of the provincial reconstruction team and those who support it will be in line with the timetable announced. We welcome the fact that further districts of Helmand were

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included last week in President Karzai’s announcement of a further tranche towards transition. We of course keep the closest watch on conditions on the ground, but so far our assessment is that the timetable will be able to be kept.

Mr John Spellar (Warley) (Lab): I welcome the Minister’s responses, but this was clearly the precursor to next week’s conference in Bonn on the future of Afghanistan. What are the Government’s objectives for the conference?

Alistair Burt: Our objectives are to fulfil the three themes of the conference: to look at future commitments from the international community to Afghanistan; to support the political process; and to discuss civilian transition in Afghanistan. It is a very important conference and we hope that all parties will be able to attend. It is not a NATO conference, for example, and we hope that it will be possible for Pakistan to send representatives, as its future security is intimately bound up with that of Afghanistan.

Mr Spellar: May I also thank the Minister for his very full response to my hon. Friend the Member for Sheffield, Heeley (Meg Munn) on protecting the significant gains that women have made in Afghanistan? What are the Government doing to ensure that the voices of Afghan women are heard at that conference and in subsequent discussions?

Alistair Burt: I appreciate the right hon. Gentleman’s questions. Civil society in Afghanistan and women’s involvement in it are growing. We have made representations over a lengthy period to the Government of Afghanistan to ensure that their own delegation includes a significant number of women representatives, which it will do, and they will voice their aspirations. Our delegation has also ensured that those issues are well up on the agenda, and it is important that the advances made by women in recent years, including that of 2.5 million girls now going to school, are not knocked backwards.


7. Alun Michael (Cardiff South and Penarth) (Lab/Co-op): What progress has been made towards establishing a process to resolve the status of Somaliland. [83289]

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham): Our position on recognising Somaliland is well known, but of course we understand fully the aspirations of the Somaliland people. The Somali people themselves must decide their future, but in the meantime we urge Somaliland to play a very full role in the Somali peace process. It is for neighbouring countries and the African Union generally to take a lead in responding to any changed political circumstances.

Alun Michael: I understand the position that the Minister has spelt out, but does he agree that everybody, including the transitional federal Government in the south, needs to respect and acknowledge 20 years of relative peace and exemplary democratic development in Somaliland, which means that we need a process that

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enables Somaliland, as the Minister has suggested, to be a part of the solution to the problems in the horn of Africa?

Mr Bellingham: The Prime Minister has called an international conference on Somalia, which will take place on 23 February, and of course Somaliland will be invited. I recently had a meeting with President Silanyo and extended that invitation to him, and he indicated to us that he may well attend. It would be a very important step forward if Somaliland played a really full role in the Somali peace process.

Tony Baldry (Banbury) (Con): Will my hon. Friend confirm that, if the Somalilanders take part in next February’s London conference, they will be able to do so without prejudice to their claim for de jure status, and that if they come to London they will be afforded the courtesy of separate talks with him and my right hon. Friend the Foreign Secretary, so that they might put forward in detail why they believe they should be granted de jure status?

Mr Bellingham: Somaliland will certainly be invited, and I hope that it will accept the invitation. It is very important that all the different parts of Somalia attend the conference and play a full role, and we also expect the main Intergovernmental Authority on Development—IGAD—countries and a number of other international players to attend. I simply say to President Silanyo and to Somaliland that we understand their aspirations, which they need to push in such a way that it looks as though they are being constructive in the wider Somali peace process.


8. Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): What assessment he has made of the risks to regional stability posed by Iran. [83290]

The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague): Iran’s nuclear programme and its support for terrorism are serious threats to stability in the middle east. We and many other nations are resolute in our response to those threats, and Iran must show that it is serious about addressing international concerns—or face increasing isolation and pressure.

Jonathan Reynolds: Given Iran’s involvement in the brutal Syrian crackdown, as well as its support for Hezbollah, the threat to Lebanese security and yesterday’s assertion that Egypt could be the new Iran, is the Foreign Secretary concerned that a nuclear-armed Iran would further be able to curtail freedoms in the region?

Mr Hague: Yes, of course. There are many dangers in a nuclear-armed Iran, the prime one being that Iran is a signatory to the non-proliferation treaty, that it would be a great breach of that treaty, and that nuclear proliferation throughout the middle east might then multiply greatly and become a threat to the peace of that region and to the world. The hon. Gentleman is also correct to argue, however, that a nuclear-armed Iran could feel in a stronger position to pursue other activities that were against the peace and the human rights of other countries in the region.

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Jack Lopresti (Filton and Bradley Stoke) (Con): In tackling Iran’s nuclear programme, the international community must present a united front. Russia and China retain extensive trade links with Iran and appear unsupportive of additional UN sanctions. What progress have the Government made on persuading those other states to introduce and to implement robustly tougher sanctions on Iran?

Mr Hague: It is important to recognise that Russia and China have supported all the United Nations Security Council resolutions that have been passed so far on this subject, and that they are part of the so-called E3 plus 3 process of negotiation with Iran. Those countries have certainly played their part in this. It is true, however, that they are not currently in favour of further tightening of the sanctions regime on Iran. We will continue to discuss that with them, but in the meantime we are pursuing tighter sanctions with the United States, Canada and the European Union in the ways that I described earlier.

Mr Nigel Dodds (Belfast North) (DUP): In the context of sanctions, diplomatic efforts and intergovernmental discussions, does the Foreign Secretary agree that public opinion here in the United Kingdom, and across Europe and the west, is extremely important, and that more needs to be done to explain the exact nature of the threat that Iran poses to the public so that the public come along with whatever we are trying to do?

Mr Hague: Yes, I fully take that point from the right hon. Gentleman. I think there is a very wide recognition of this issue. However, since it is a matter of escalating tension, and certainly of escalating pressure from our point of view over the coming months, we will make every effort to explain its importance and why we cannot simply ignore it.

Robert Halfon (Harlow) (Con): Is my right hon. Friend aware that Hezbollah continues to be funded both with money and weapons, and that last night it launched four missiles from Lebanon on to Israel? Will he take urgent steps to ensure that the Lebanese Government fulfil United Nations resolution 1701?

Mr Hague: Yes, it is deeply concerning that rocket fire has again taken place from Lebanon into Israel. I believe that it is the first time since October 2009 that we have seen such rocket fire. We strongly condemn any such action that stokes tension in the region, and we urge restraint on all sides.

Trade within Africa

9. Chi Onwurah (Newcastle upon Tyne Central) (Lab): What recent progress his Department has made in promoting trade within Africa. [83291]

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham): When I was in Zambia, Mozambique and Namibia earlier this month, I saw for myself the excellent work that officials from the Foreign and Commonwealth Office and the Department for International Development are undertaking in support of our African partners to improve the conditions

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for intra-African trade. The African free trade initiative remains the main vehicle for Her Majesty’s Government’s efforts on this important issue.

Chi Onwurah: I thank the Minister for his response. There are still many obstacles to trade in Africa, including transport, trust relationships and intra-regional trade barriers, that countries such as China seem to be much more successful at overcoming. After his Nigerian mission in July, the Prime Minister pledged the UK to work with Nigeria and other partners towards enhanced west African trade integration. Will the Minister update us on progress?

Mr Bellingham: Yes, indeed. The hon. Lady is absolutely right. Trade between sub-Saharan African countries currently stands at 14% of the region’s total trade, compared with Europe’s 60%. That is why DFID is making £160 million available to support the African free trade initiative. We have made good progress in east Africa with the east African trademark and in southern Africa with the Southern African Development Community trademark, and we are now looking to make similar progress in the west of Africa.

Pauline Latham (Mid Derbyshire) (Con): How often does the Minister take trade delegations out to countries in Africa, and what criteria does he use to select the countries that he goes to and the businesses that go along with him?

Mr Bellingham: My hon. Friend is absolutely right to raise this. We are putting a huge amount of emphasis not only on breaking down these trade barriers but on making sure that UK businesses are fully aware of the opportunities available. UK Trade & Investment is now being not just reactive but very proactive in identifying companies that might be able to get contracts in Africa. It costs five times as much to send a container from Mombasa to Bujumbura as it does to send one from Tokyo to Mombasa.

South Kordofan and the Blue Nile States

10. Helen Jones (Warrington North) (Lab): What recent assessment he has made of the situation in South Kordofan and the Blue Nile states. [83292]

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham): We are very concerned about the ongoing violence in South Kordofan and the Blue Nile states. We are working very closely with our international partners to push for an immediate cessation of hostilities, full humanitarian access, and the establishment of an agreed process to address the root causes of violence in both states.

Helen Jones: I am grateful to the Minister for that answer, but given the role that Britain has played in trying to resolve this conflict, will he tell the House what pressure is being brought to bear on Khartoum to end the conflict in both regions, to allow full humanitarian access and to return to the terms of the comprehensive peace agreement?

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Mr Bellingham: I had the chance to visit Khartoum in July. I had a meeting with Sudan’s Foreign Minister, at which I made it very clear that the lack of humanitarian access, the lack of progress on the CPA and the action on both sides of sponsoring proxies were completely unacceptable. We also robustly condemned the recent bombing of Yida and Quffa. We need a negotiated political settlement to move this issue forward.


11. John Howell (Henley) (Con): What assessment he has made of the UK’s relationship with Turkey; and if he will make a statement. [83293]

The Minister for Europe (Mr David Lidington): Turkey is a key partner in trade and investment, and in building international security. Last week’s state visit by President Gul demonstrated the vitality of our bilateral relationship.

John Howell: Economic growth in Turkey was 9% last year and its trade in goods with the UK is expected to reach £9 billion this year. Should not those be clinching factors in ensuring that we have a positive relationship with Turkey, and that the EU does not foolishly turn its back on that country?

Mr Lidington: We strongly support Turkey’s ambitions for EU accession. We think that Turkish membership of the EU would be extremely good news for the single market and for British and wider European business opportunities.

Ann Clwyd (Cynon Valley) (Lab): When the Turkish Foreign Minister met the Foreign Affairs Committee last week, he brought a representative all-party group of Members of Parliament with him on the delegation. Is that not a good idea? Why does the Foreign Secretary not take a cross-party group of Members of Parliament with him to the Bonn conference on the future of Afghanistan, particularly with regard to the issue of women in Afghanistan?

Mr Lidington: I think that my right hon. Friend the Foreign Secretary can speak with confidence not just on behalf of the Government but for the strong cross-party consensus in this House for a peaceful, constructive and democratic future for Afghanistan.

Mr David Burrowes (Enfield, Southgate) (Con): Does the Minister agree that a key aspect of the UK’s relationship with Turkey is its responsibility to Cyprus as a guarantor power? Will the Government ensure that the opportunities arising from the exploration of hydrocarbon reserves on the coast of Cyprus are fully respected, and that the resulting benefits for all Cypriots are fully preserved?

Mr Lidington: Like all countries that are signed up to the UN convention on the law of the sea, we support the right of the Republic of Cyprus to exploit its exclusive economic zone. We continually urge the leaders of both communities in Cyprus to work actively towards a settlement.

Mr Andrew Love (Edmonton) (Lab/Co-op): Further to the Minister’s previous comment, Cyprus would have been high on the Government’s agenda in their discussions

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with President Gul last week. We have to break the current deadlock in the talks. What more can the Government do to foster that aim? Will it include inviting the President of Cyprus to London?

Mr Lidington: It has not yet been possible to arrive at a date for President Christofias to visit London, but there is no objection in principle to that happening. Our role is to encourage and support the leaders of both communities to work with the Secretary-General of the United Nations to reach a comprehensive settlement. That is in the interests of every community in Cyprus.

Middle East

12. Bob Blackman (Harrow East) (Con): What recent assessment he has made of the status of the middle east peace process; and if he will make a statement. [83294]

13. Mr Rob Wilson (Reading East) (Con): What recent assessment he has made of the political situation in Palestine; and if he will make a statement. [83295]

The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague): We continue to support the resumption of negotiations on a two-state solution, based on the timetable set out by the Quartet. Political will and leadership are needed from both sides to break the current impasse. We welcome the progress that the Palestinian Authority has made in building the institutions of a functioning state. We continue to call on Israel to revoke its decisions to withhold tax revenues and to accelerate the construction of settlements. We remain concerned about the impact of the restrictions on Gaza.

Bob Blackman: I thank my right hon. Friend for that answer. Does he agree that it is time that the Palestinians returned to meaningful negotiations with the Israeli Government to ensure that there is a proper peaceful settlement, as we would all wish, rather than pursuing admission to the UN?

Mr Hague: It is absolutely time for both sides to return to meaningful negotiations. The framework for that now exists, with the timetable set out by the Quartet at the end of September. Under that timetable, by 26 January both sides are meant to present their own substantive proposals on borders and security. I of course encourage the Palestinians to do that without preconditions, but I also encourage Israel to do so in a decisive and convincing manner.

Mr Wilson: The humanitarian crisis is still ongoing in Gaza. What action is my right hon. Friend taking to support trade and the banking system, to help the economy grow, and to ensure that ordinary people have the basic services that they need for a decent life?

Mr Hague: We are clear that more needs to be done on Gaza. Israel’s decision to move from a list of 120 permitted goods to a list of specific prohibited items was a positive step, but there has been no fundamental change in the crossings regime or in the economic stagnation of Gaza. We are working alongside our colleagues in the European Union to try to achieve some real changes on the

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ground, and that means helping Israel to meet its target of reaching pre-2007 levels of exports, with resumed access to traditional markets.

Jeremy Corbyn (Islington North) (Lab): It is very hard to see how there can be any confidence in Israel’s proposals while the settlements continue, the settler roads and the wall continue to be built, there is not free movement of Palestinians on the west bank, and the encirclement of Gaza continues. Will the Foreign Secretary put real pressure on the Israeli Government not just to stop settlement building but to remove all the settlements from the west bank?

Mr Hague: The Israeli Government are in no doubt about opinion in this country and the opinion of this Government about that. Settlements on occupied land are illegal. We are very clear about that and have condemned recent decisions to accelerate settlement building, and I condemn them again today. That is a mistake by Israel, which does not bring peace any closer or help us arrive at a two-state solution. The right approach for Israel now is to embrace the negotiations of which I have spoken, and to do so in a decisive and generous spirit.

Richard Burden (Birmingham, Northfield) (Lab): The current situation on negotiations is that the Quartet has asked both sides to put forward proposals on security and borders. The Palestinians have put forward initial proposals, but Israel has failed to do so. If we get to 26 January, the end of that period, and settlements continue to be built and there has been no progress in negotiations, what will the Foreign Secretary’s view be of Palestine’s application for full membership of the United Nations?

Mr Hague: There have been initial proposals from Palestinians, but both sides are required to present more substantive proposals by 26 January. If that does not happen and the Quartet process does not succeed, the peace process will be entering a new crisis and a very troubling and concerning phase. I do not want to anticipate now how we will react to that in future at the United Nations. I set out our current position in my statement of 9 November.

Richard Ottaway (Croydon South) (Con): In view of the complete lack of trust between Israel and Palestine, we have to dig deep to find common ground between the two sides. Does my right hon. Friend agree that in the short term we should focus on confidence-building measures to provide a platform for the resumption of negotiations in the future?

Mr Hague: Yes, all confidence-building measures will be welcome; indeed, the Quartet and its representative Tony Blair have often worked on them. We would welcome such measures alongside the Quartet process of which I have been speaking, but we still have not seen any such measures in recent times.

John Woodcock (Barrow and Furness) (Lab/Co-op): Has the Foreign Secretary ruled out accepting that Hamas can be part of any peace process unless and until it signs up to the Quartet principles?

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Mr Hague: Hamas rules itself out by its behaviour at the moment, there is no doubt about that. That is the current position. Of course, there is discussion of Palestinian reconciliation. As the hon. Gentleman knows, we talked about that in the House yesterday. We look to a reconciled and new Palestinian Authority to have independent figures in it, to respect non-violence, to be in favour of a two-state solution and to respect previous agreements made by the Palestine Liberation Organisation.

Bosnia and Herzegovina

14. Eric Ollerenshaw (Lancaster and Fleetwood) (Con): What recent assessment he has made of the political situation in Bosnia and Herzegovina. [83296]

The Minister for Europe (Mr David Lidington): We are very concerned about the limited progress that Bosnia and Herzegovina has made over the past year in implementing the reforms necessary for both EU and NATO accession.

Eric Ollerenshaw: Given that we have now had nearly 14 months without the formation of any Government in Bosnia, does my right hon. Friend think that we, neighbouring states or the international community could be doing anything extra before there is very serious economic damage to that country, on top of the political instability?

Mr Lidington: We continue to urge on the leaders of all political parties in Bosnia and Herzegovina the need for urgent progress to establish that state-level Government. I talked about that to EU Special Representative Peter Sørensen and the international community’s representative, Valentin Inzko, a week ago. Every actor with influence on the Balkans needs to work towards greater stability in Bosnia and Herzegovina.

Mr Denis MacShane (Rotherham) (Lab): Yesterday two German soldiers were shot and wounded by Serb thugs in northern Kosovo. It is a huge problem. Will the Minister and the Foreign Secretary appeal to President Tadic, whether it is in Bosnia and Herzegovina or in Kosovo, to assume responsibility? The proposed talks next week about Serbia joining the EU cannot get under way so long as there is no democratic law-and-order authority in Kosovo—or, indeed, in Bosnia and Herzegovina.

Mr Lidington: I deplore the incident that the right hon. Gentleman described, and I discussed it with my German counterpart yesterday. The Commission’s report on EU enlargement clearly sets out the fact that Serbia needs to address its relations with its neighbours if it is to make progress towards EU accession, as it hopes to do.

Topical Questions

T1. [83306] Mr Aidan Burley (Cannock Chase) (Con): If he will make a statement on his departmental responsibilities.

The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague): Tomorrow and Thursday I will attend the EU Foreign Affairs Council, where we will discuss Egypt, Syria, Yemen and the European

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neighbourhood policy, and we will also examine the latest developments in the western Balkans and in the middle east peace process.

Mr Burley: In his last middle east statement the Foreign Secretary called on the Israeli Government to make a more decisive offer than any that they have been willing to make in the past. Israel made profound offers during the peace talks, unilaterally withdrew from Gaza and has accepted the Quartet’s peace initiative. What representations has my right hon. Friend made to the Palestinian Authority to make similar genuine efforts towards peace?

Mr Hague: It is very important, as we discussed a moment ago, that both sides embrace the opportunity of negotiations and respond to the Quartet timetable of substantive proposals by 26 January. In my view, that requires Israel to make that decisive offer, but it also requires Palestinians not to set preconditions for entering into such negotiations, and both sides to have the necessary spirit of compromise.

Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab): I join the Government in deploring the Iranian Government’s recent threats to downgrade diplomatic relations between Iran and the United Kingdom, and I welcome the sanctions imposed by the Chancellor of the Exchequer, which cut all ties with Iranian banks. Will the Foreign Secretary confirm whether those recent measures cover foreign subsidiaries of British banks, and foreign banks operating in the UK?

Mr Hague: The measures apply to the UK financial sector—to credit and financial institutions here in the United Kingdom. They do not, therefore, apply to foreign banks that happen to operate in the United Kingdom. Of course, the necessary defining measures will set that out in detail. The sanctions will be quite far-reaching, particularly as we are joining the United States and Canada in the measures, and I expect other countries to join in as well.

T2. [83307] Stephen Metcalfe (South Basildon and East Thurrock) (Con): Does my right hon. Friend agree that the European Union has centralised too much power, and that it should be one of the Government’s stated aims to return powers and competences to London from Brussels as soon as possible?

Mr Hague: Certainly, it is true that the European Union has not only too much centralised power but too much power in total, in my view. As my hon. Friend knows, I have long stated that I wish to see the repatriation of powers to the United Kingdom.

T3. [83308] Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab): During the visit of President Santos of Colombia, did we, the British Government, make representations about the appalling human rights situation in that country, particularly the attacks on and killings of human rights defenders? If so, did he give a concrete response?

Mr Hague: Yes, I can assure the right hon. Gentleman that we raised those issues. I raised them myself with President Santos at my meeting with him last week.

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The Colombian Government are well aware of opinion in this country about those issues. However, it is fair to point out that President Santos’s Government are very clear about their commitment to human rights and have made a renewed, much stronger, commitment in Colombia to their observance in that country. I believe in his Government’s sincerity and their commitment to dealing with those issues.

T7. [83315] Mr Rob Wilson (Reading East) (Con): As small businesses in my constituency are keen to export goods and services to new markets, what is the Foreign Office doing to develop business and trade opportunities overseas?

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham): UK Trade & Investment is reinvigorating its efforts not just to increase foreign direct investment in the UK but to encourage firms to export all round the world. That is one reason why the Foreign Office has gone ahead with its network shift, so we have 50 new people in China, for example, and we have new missions including four new embassies in Africa.

T4. [83310] Robert Flello (Stoke-on-Trent South) (Lab): I heard what the Secretary of State said about the commitment by President Santos on human rights abuses in Colombia. May I press the Foreign Secretary on that? Before we go ahead with programmes such as “Britain open for business” and others that support commerce between the two countries, will he ensure that, as far as possible, there are not only binding commitments but observed improvements?

Mr Hague: Yes, there are already observed improvements in the behaviour and performance of the Colombian authorities in this regard. The UK and Colombia signed a joint statement on human rights during the president’s visit, so we never underestimate the importance of this issue. Our strong engagement with Colombia and our commitment to strong bilateral relations with it are part of encouraging the continued improvement in human rights observance by the Colombian Government. These strategies fit together.

Caroline Dinenage (Gosport) (Con): What does my right hon. Friend see as the political implications of recent events in Egypt?

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt): My right hon. Friend has made repeated requests of the Egyptian authorities that they should announce a timetable for a rapid move from military to civilian rule. To that extent the elections yesterday, and the pride with which a huge number of people took part in them, are a very important step in the process. We wish it well, and we wish to see the transition to civilian rule move as quickly as possible.

T5. [83313] Alun Michael (Cardiff South and Penarth) (Lab/Co-op): What assessment have Ministers made of the current political situation in Moldova, especially in view of the news of a delay in electing a new president?

The Minister for Europe (Mr David Lidington): The further delay in electing a new president is dismaying, but we welcome the fact that the 5 plus 2 talks are due to

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commence formally again very soon. It is in the interests of the whole of Europe for Moldova to move as swiftly as possible towards entrenching democracy, human rights and the rule of law.

Tim Farron (Westmorland and Lonsdale) (LD): Will my right hon. Friend act urgently to ensure that much more humanitarian aid reaches the Syrian refugees currently in Lebanon, and will he also act to bring about an international arms embargo covering all UN states to ensure that Syria is not armed further?

Mr Hague: We are certainly assisting: Ministers at the Department for International Development have committed a sum of £20 million to support international organisations helping with the relief of humanitarian suffering in or around Syria. My hon. Friend will understand that humanitarian access in Syria is one of the great problems, because of the appalling behaviour of the regime, which means that we are not able to get that help to all the people who want it. Syria should certainly no longer be purchasing any arms from any EU country.

T6. [83314] Graham Jones (Hyndburn) (Lab): At the end of October the Foreign Secretary announced plans to put guards on merchant vessels. Yesterday he said that action would be taken briskly, but did not confirm a time scale. [ Interruption. ] Will he today confirm what has happened since October, especially with regard to the establishment of procedures, protocols and various rules? When can we expect to see the pledge fulfilled? [ Interruption. ]

Mr Speaker: Order. I understand that the House is excited, but I am sure that when the Foreign Secretary traverses the globe his statements are greeted in respectful silence. It would be magnificent if that could happen here as well.

Mr Hague: Yes, that is universally the case, Mr Speaker—particularly with announcements on tackling piracy, which the hon. Gentleman asked about. The Department for Transport has, in consultation with the shipping industry, produced national guidance for maritime security contractors. He may be happy to learn that this is due to be announced and published later this week. The regulation will require such companies to comply with DFT guidance and to apply to the Home Office for licence to carry firearms. This is an important change in our policy with regard to tackling piracy, and it will soon be able to take effect.

Karl McCartney (Lincoln) (Con): Does my right hon. Friend agree that we should use our presidency of the Council of Europe to push through reform of the European Court of Human Rights, so that it does not consider cases that have been properly considered by national courts but concentrates instead on serious and systemic human rights abuses?

Mr Lidington: That is the clear top priority of the British chairmanship of the Council of Europe, which I discussed with members of the Parliamentary Assembly and the secretary-general last Friday.

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Mr Frank Roy (Motherwell and Wishaw) (Lab): The Secretary of State will be aware that there are hundreds of journalists lying in Turkish jails without trial or sentences. Some of them have been there for nearly nine years. When the Secretary of State next meets his Turkish counterpart, will he mention this distasteful situation?

Mr Hague: Yes, Mr Speaker. Human rights are at the core of our foreign policy all over the world. The hon. Gentleman raises an important issue, which we have of course discussed with Turkey. However, as he raises the matter now, I will make a particular point of mentioning it again at our next meeting.

Angie Bray (Ealing Central and Acton) (Con): What representations did Ministers make to the Turkish President when he was visiting the country recently about continuing human rights abuses in Turkey? Some 70 journalists are currently in prison, which is a worrying trend.

Mr Hague: I refer my hon. Friend to the answer that I gave a moment ago.

Barry Gardiner (Brent North) (Lab): The Foreign Secretary will be aware that 90% of the species for which the UK has responsibility reside outside the UK in the overseas territories. They are therefore not the responsibility of the Department for Environment, Food and Rural Affairs but of his Department. Given that that 90% are his responsibility, can he assure the House that he is spending nine times as much as DEFRA on protecting biodiversity?

Mr Bellingham: We had a very successful overseas territories consultative council last week. The hon. Gentleman is absolutely right about the biodiversity issue, and I can assure him that we are putting a huge amount of emphasis on it. We spent £15 million last year on biodiversity and environmental schemes in the overseas territories; they are a key priority of the overseas territories.

Joseph Johnson (Orpington) (Con): Does the Foreign Secretary want to welcome the announcement by New Delhi on Friday of the partial opening up of the vast Indian retail sector to foreign supermarket groups such as Tesco, which has been a key objective of UK commercial diplomacy for many years?

Mr Hague: Yes, my hon. Friend points to a very important development. We have long advocated the liberalising and the opening up of the Indian economy. This will be vastly beneficial to the people of India and to the growth of trade. We want to see progress made on a free trade agreement between India and the whole of the European Union.

Mark Durkan (Foyle) (SDLP): Of all the principal concerns and exhortations that the Foreign Secretary has conveyed to the Israeli Government, to which, if any, have they paid most attention?

Mr Hague: I hope, of course, that they will pay attention to the entirety of our representations, and to the strong feeling in this House and across the world

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that it is important to make a decisive move to reach a two-state solution to help to avoid the future strategic isolation of Israel. It is, therefore, the entirety of our representations that I would urge upon them.

Duncan Hames (Chippenham) (LD): I share the Foreign Secretary’s concerns about the restrictions on Gaza. He reports that fewer than half of the agreed 15,000 vehicles a month are making it across the border to improve the humanitarian situation there. Most recently, Israel’s Deputy Foreign Minister spoke of further restrictions on energy and even water supplies in Gaza. Will the Foreign Secretary urge the Israeli Government to reject such collective punishments of the people in Gaza?

Alistair Burt: I was in Gaza a few months ago and able to observe the pressures on the state. I visited a United Nations Relief and Works Agency school to see the difficulties there. We will indeed continue to urge Israel to ease the restrictions on goods going in, because it is to the political and economic benefit of Gaza and Israel if that situation is eased.

Joan Ruddock (Lewisham, Deptford) (Lab): Two thirds of Afghan women think that their lives have improved, but nine tenths fear a return to a Taliban-style Government. When Ministers meet their counterparts in Bonn next week, will they make it clear that Afghan women’s rights must not be traded away in any future peace agreement?

Mr Hague: Yes, this is a very important issue. I shall be leading the UK’s delegation to Bonn next week, and we will underline that point in the make-up of our ministerial team, in everything that we say about the importance of human rights in Afghanistan, and in reiterating what I have said before—that a sustainable peace in Afghanistan will not be achieved without the extensive and wholehearted commitment of the women of Afghanistan.

Nick de Bois (Enfield North) (Con): During the UK’s presidency of the Council of Europe, will the Foreign Secretary make arrangements for himself and the Prime Minister to visit the island of Cyprus, particularly at this crucial time in the talks?

Mr Hague: Clearly, we are heavily committed during our presidency of the Council of Europe, but my hon. Friend can be sure that we will visit Cyprus, because in the second half of next year it will hold the presidency of the European Union. We will be there, and I shall, of course, attend the regular meetings of Foreign Ministers that take place in whichever country holds the presidency. The answer to his question, therefore, is yes.

John Cryer (Leyton and Wanstead) (Lab): Does the Foreign Secretary think that getting rid of elected Governments, in any circumstances, is a price worth paying for saving the euro?

Mr Hague: It is important, of course, that all Governments across the EU remain fully democratically accountable to their Parliaments and people, and so far as I am aware, that continues to be the case.

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Autumn Statement

12.31 pm

The Chancellor of the Exchequer (Mr George Osborne): Let me start by placing squarely before the House of Commons and the British public the economic situation facing our country. Much of Europe now appears to be heading into a recession caused by a chronic lack of confidence in the ability of countries to deal with their debt. We will do whatever it takes to protect Britain from this debt storm while doing all we can—[Interruption.]—all we can to build the foundations of future growth.

Today we set out how we will do that by demonstrating that the country has the will to live within its means and keep interest rates low; by acting to stimulate the supply of money and credit to ensure that those low interest rates are passed on to families and businesses; by matching our determination on the deficit with an active enterprise policy for business and lasting investment in our infrastructure and education so that Britain can pay its way in the future; and at every opportunity by helping families with the cost of living.

The central forecast that we publish today from the independent Office for Budget Responsibility does not predict a recession here in Britain, but it has unsurprisingly revised down its short-term growth prospects for our country, for Europe and for the world. It expects gross domestic product in Britain to grow this year by 0.9% and by 0.7% next year. It then forecasts 2.1% growth in 2013; 2.7% in 2014; followed by 3% in 2015 and 3% again in 2016.

The OBR is clear that this central forecast assumes that

“the euro area finds a way through the current crisis and that policymakers eventually find a solution that delivers sovereign debt sustainability”.

If they do not, the OBR warns that there could be a “much worse outcome” for Britain. I believe that it is right. We hope that this can be averted, but if the rest of Europe heads into recession, it may prove hard to avoid one here in the UK.

We are now undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis. Like the Bank of England and the OECD yesterday, the OBR cites the chilling effect of the current instability as one of the central reasons for the reduction in its growth forecast. I want to thank Robert Chote and his fellow committee members, Stephen Nickell and Graham Parker, and their team for the rigorous work that they have done. Their forecast today demonstrates beyond any doubt their independence, but—[ Interruption. ] This is an important point for the House. If we accept their numbers, we must also pay heed to their analysis. In addition to the eurozone crisis, the OBR gives two further reasons for the weaker forecasts. The first is what it calls the “external inflation shock”—the result, in its words, of

“unexpected rises in energy prices and global agricultural commodity prices”.

The OBR’s analysis—independent—is that this explains the slow-down in growth in Britain over the past 18 months. Secondly, the independent OBR—[ Interruption. ]

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Mr Speaker: Order. The statement by the Chancellor must be heard, and he should not have to fight to be heard.

Mr Osborne: Secondly, the OBR today has shown new evidence that an even bigger component of the growth that preceded the financial crisis was an unsustainable boom, and that the bust was deeper and had an even greater impact on our economy than previously thought. The result of that analysis is that the OBR has significantly reduced its assumptions about spare capacity in our economy and the trend rate of growth. That increases the OBR’s estimate of the proportion of the deficit that is structural—in other words, the part of the deficit that does not disappear even when the economy recovers. Our debt challenge is therefore even greater than we thought, because the boom was even bigger and the bust even deeper, and the effects will last even longer. Britain has had the highest structural budget deficit of any major economy in the world and the highest deficit in the entire history of our country outside war—and the last Government left it to this Government to sort that mess out.

The OBR’s analysis feeds directly through to borrowing numbers that are falling, but not at the rate that had been forecast. In 2009-10, the last Government were borrowing £156 billion a year. During the first year of this Government, that fell to £137 billion. This year the OBR expects it to fall again, to £127 billion, then to £120 billion next year, followed by £100 billion in 2013-14, £79 billion in 2014-15, then £53 billion in 2015-16 and £24 billion a year by 2016-17. However, I can report that because of the lower market interest rates that we have secured for Britain, debt interest payments over the Parliament are forecast to be £22 billion less than predicted.

The House might also like to know, given the economic events described by the Office for Budget Responsibility, what would have happened to borrowing without the action that this Government have taken. The Treasury today estimates that borrowing by 2014-15 would have been running at well over—[ Interruption. ]

Mr Speaker: Order. I am sorry, I know that the Chancellor is proceeding, but his statement must be heard. There are strong passions on this subject. There will be plenty of time for people to come in on the back of the statement, but the statement must be heard with a degree of courtesy.

Mr Osborne: The Treasury today estimates that borrowing by 2014-15 would have been running at well over £100 billion a year more and that Britain would have borrowed an additional £100 billion in total over the period. If we had pursued that path, we would now be in the centre of the sovereign debt storm.

The crisis we see unfolding in Europe has not undermined the case for the difficult decisions we have taken; it has made that case stronger. We held our deficit-reduction Budget on our terms last year, not on the market’s terms this year, as so many others have been forced to. In that Budget we set out a tough fiscal mandate: that we would eliminate the current structural deficit over the five-year forecast horizon. We supplemented the mandate with a fixed debt target: that we would get national debt as a proportion of national income falling

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by 2015-16. To be cautious, I set plans to meet both those budget rules one year early. That headroom has now disappeared, but I am clear that our rules must be adhered to, and I am taking action to ensure that they are. As a result, the OBR’s central projection is that we will meet both the fiscal mandate and the debt target.

The current structural deficit is forecast to fall from 4.6% of GDP this year to become a current structural surplus of 0.5% in five years’ time, and the debt-to-GDP ratio, which is forecast to stand at 67% this year, is now set to peak at 78% in 2014-15 and to be falling by the end of the current Parliament. So borrowing is falling, and debt will come down. It is not happening as quickly as we wished, because of the damage done to our economy by the ongoing financial crisis, but we are set to meet our budget rules, and we are going to see Britain through the debt storm.

There is a suggestion from some in the House that if you spend more, you will borrow less. That is something-for-nothing economics, and the House should know the risks that we would be running. Last April, the absence of a credible deficit plan meant that our country’s credit rating was on negative outlook and our market interest rates were higher than Italy’s; 18 months later, we are the only major western country whose credit rating has improved. Italy’s interest rates are now 7.2%, and what are ours? They are less than 2.5%. Yesterday we were even borrowing money more cheaply than Germany. Those who would put all that at risk by deliberately adding to our deficit must explain this.

Just a 1% rise in our market interest rates would add £10 billion to mortgage bills every year: 1% would mean that the average family with a mortgage would have to pay £1,000 more; 1% would increase the cost of business loans by £7 billion; 1% would force taxpayers to find an extra £21 billion in debt interest payments, much of it going to our foreign creditors. In other words, 1% dwarfs any extra Government spending or tax cut funded by borrowing that people propose today—and that is the cost of just a 1% rise. Italy’s rates have gone up by almost 3% in the last year alone. We will not take this risk with the solvency of the British economy and the security of British families.

The current environment requires us to take further action on debt to ensure that Britain continues to live within its means. This is what we propose to do. First, there is no need to adjust the overall totals set out in the spending review. Taken all together, the measures that I will set out today require no extra borrowing and provide no extra savings across the whole spending review period. Secondly, I am announcing significant savings in current spending to make the fiscal position more sustainable in the medium and long term; but in the short term—over the next three years—we will use these savings to fund capital investments in infrastructure, regional growth and education, as well as help for young people to find work. Every pound spent in this way will be paid for by a pound saved permanently. That includes savings from further restraint on public sector pay.

For some work forces the two-year pay freeze will be coming to an end next spring, and for most it will be coming to an end during 2013. In the current circumstances, the country cannot afford the 2% rise assumed by some Government Departments thereafter, so instead we will

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set public sector pay awards at an average of 1% for each of the two years after the pay freeze ends. Many people are helped by pay progression—the annual increases in salary grades to which many are entitled even when pay is frozen. That is one of the reasons why public sector pay has risen at twice the rate of private sector pay over the last four years. While I accept that a 1% average rise is tough, it is also fair to those who work to pay the taxes that will fund it. I can also announce that we are asking the independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets, and we will ask them to report back by July next year. This is a significant step towards the creation of a more balanced economy in the regions of our country which does not squeeze out the private sector. Mr Speaker


Departmental budgets will be adjusted in line with the pay rises I have announced, with the exception of the NHS and school budgets, where the money saved will be retained in order to protect those budgets in real terms. This policy will save over £1 billion in current spending by 2014-15.

The deal we offer on public sector pensions is also fair to both taxpayers and public servants. The reforms are based on the independent report of John Hutton, a former Labour Pensions Secretary, and he says:

“It is hard to imagine a better deal”

than this. I would once again ask the unions why they are damaging our economy at a time like this and putting jobs at risk. I say call off the strikes tomorrow, come back to the table, complete the negotiations and let us agree generous pensions that are affordable to the taxpayer.

Let me turn to other areas of public spending, starting with overseas aid. This Government will stick by the commitments they have made to the poorest people in the world by increasing our international development budget—and the whole House should be proud of the help our country is providing to eradicate disease, save lives and educate children—but the spending plans of the Department for International Development meant that the UK was on course to exceed 0.7% of national income in 2013. That I do not think can be justified and so we are adjusting those plans so we do not overshoot the target.

Turning to welfare payments, the annual increase in the basic state pension is protected by the triple lock introduced by this Government. This guarantees a rise either in line with earnings, prices or 2.5%, whichever is greater. It means that the basic state pension will next April rise by £5.30 to £107.45—the largest ever cash rise in the basic state pension and a commitment of fairness to those who have worked hard all their lives. I wanted to make sure that poorer pensioners did not see a smaller rise in their income, so I can confirm today that we will also uprate the pension credit by £5.35 and pay for that with an increase in the threshold for the savings credit.

I also want to protect those who are not able to work because of their disabilities and those who, through no fault of their own, have lost jobs and are trying to find work, so I can confirm that we will uprate working-age benefits in line with September’s consumer prices index inflation number of 5.2%. That will be a significant boost to the incomes of the poorest, especially when inflation is forecast to be considerably less than that by

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next April. We will also uprate with prices the disability elements of tax credits, and increase the child element of the child tax credit by £135 in line with inflation too. But we will not uprate the other elements of the working tax credit this coming year; and given the size of the uprating this year, we will no longer go ahead with the additional £110 rise in the child element, over and above inflation, that was planned. By April 2012, the child tax credit will have increased by £390 since the coalition came into power. The best way to support low-income working people is to take them out of tax altogether, and our increases in the income tax personal allowance this year and next will do that for over 1 million people.

Let me turn to future public spending. Today, I am setting expenditure totals for the two years following the end of the spending review period: 2015-16 and 2016-17. Total managed expenditure will fall during that period by 0.9% a year in real terms—the same rate as set out for the existing period of the spending review, with a baseline that excludes the additional investments in infrastructure also announced today. These are large savings and we will set out in future how resources will be allocated between different areas of government.

I am also announcing a measure to control spending which is not for today or next year, or even for the next decade, but it directly addresses the long-term challenge Britain and so many other countries face with an ageing population. Our generation has been warned that the costs of providing decent state pensions are going to become more and more unaffordable unless we take further action.

Let us not leave it to our children to take emergency action to rescue the public finances; let us think ahead and take responsible, sensible steps now. Starting in 2026, we will increase the state pension age from 66 to 67, so that we can go on paying a decent pension to people who are living longer. Australia, America and Germany have all taken similar steps. This will not affect anyone within 14 years of receiving their state pension today. By saving a staggering £59 billion, it will mean a long-term future for the basic state pension.

We are showing a world that is sceptical that democratic western Governments can take tough decisions that Britain will pay its way in the world. That is the first thing that the Government can do in the current environment: keep our interest rates low and protect our country from the worst of the debt storm. But we need to make sure that those low interest rates are available to families and to businesses. It is monetary and credit policy that is, in a debt crisis, the principal and most powerful tool for stimulating demand.

Last month, the Bank of England’s Monetary Policy Committee decided to undertake further quantitative easing, and I have authorised an increase in the ceiling on its asset purchases to £275 billion. This will support demand across the economy, but we must do more to help those small businesses who cannot get access to credit at an affordable price.

We have already extended the last Government’s enterprise finance guarantee scheme, and we are today expanding it to include businesses with annual turnovers of up to £44 million and accrediting new lenders, such as Metro Bank. But this scheme is by itself not nearly ambitious enough and never will be within the constraints of state aid rules, so the Government are launching a

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major programme of credit easing to help small business. We have set a ceiling of £40 billion. At the same time, I have agreed with Mervyn King that we will reduce by £40 billion the asset purchase facility that the previous Government gave the Bank to buy business loans. Only a small proportion of the facility was ever used. I am publishing my exchange of letters with the Governor today.

We are launching our national loan guarantee scheme. It will work on the simple principle that we use the hard-won low interest rates that the Government can borrow at to reduce the interest rates at which small businesses can borrow. We are using the credibility that we have earned in the international markets to help our domestic economy. New loans and overdrafts to businesses with a turnover of less than £50 million will be eligible for the scheme, so that it stays focused on smaller companies. We expect that it will lead to reductions of 1 percentage point in the rate of interest being charged to these companies, so a business facing a 7% interest rate to get a £5 million loan could instead see its rate reduced to 6% and its interest costs fall by up to £50,000.

We have developed with the Bank of England a mechanism to allocate funding to different banks based on how much they increase both net and gross lending to firms. There will be a clear audit trail to ensure the banks comply, for we will use the experience of the European Investment Bank’s loans for SMEs programme here in the UK to ensure that it works. We are getting state aid approval, so that the national loan guarantee scheme will be up and running in the next few months. Initially, £20 billion-worth of these guarantees will be available over the next two years. Alongside it, we are also launching a £1 billion business finance partnership. That is aimed at Britain’s mid-sized companies—a crucial part of our economy, neglected for too long and now identified by the CBI director general and others as a future source of growth. The Government will invest in funds that lend directly to these businesses, in partnership with other investors such as pension funds and insurance companies. It will give these mid-cap companies a new source of investment outside the traditional banks.

If the business finance partnership takes off, I stand ready to increase its size; and we will develop further partnerships ideas and ideas for new bond issuance to help Britain’s small and medium-sized companies. No Government have attempted anything as ambitious as this before. We will not get every detail perfect first time round, but we do not want to make the best the enemy of the good. With the strain on the financial system increasing, the important thing is to get credit flowing to Britain’s small businesses.

The Government can use the low interest rates that we have secured to help young families, too, who want to buy a home but cannot afford the very large deposits that banks are now demanding. We will use mortgage indemnities to help 100,000 such families to buy newly built homes. We will also help construction firms that cannot get bank finance with a £400 million fund that will kick-start projects that already have planning permission; and we are going to reinvigorate the right to buy. This was one of the greatest social policies of all time. It brought home ownership within the reach of millions of aspiring families. It was slowly and stealthily strangled by the last Government, as discounts were cut

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and cut again. We will bring it back to life. Families in social housing will be able to buy their own homes at a discount of up to 50%. We will use the receipts to build, for every home purchased, a new additional affordable home—so new homes for families who need them; new home ownership for families who aspire to it; and new jobs in the construction industry, so that we get Britain building. That is what our new right to buy will bring.

In the years leading up to the crash, our economy became dangerously over-dependent on the success of a poorly regulated City of London. Meanwhile, employment by businesses in a region such as the west midlands actually fell. By 2007, the previous Government were relying on finance for £1 in every £8 raised in taxation. That left Britain completely exposed when the banks failed, and I can confirm that, next month, we will publish our response to the report that we commissioned from John Vickers to protect taxpayers better.

It is this Government’s policy to ensure that we remain the home of global banks and that London is the world’s pre-eminent financial centre. That is why we will not agree to the introduction of an EU financial transaction tax. It is not a tax on bankers; it is a tax on people’s pensions. Instead, we have introduced a permanent bank levy to make sure that the banks pay their fair share. I have always said that we wished to raise £2.5 billion each and every year from this levy. To ensure we do that, I need to raise the rate of the levy to 0.088%. That will be effective from l January next year. We will also take action to stop some large firms using complex asset-backed pension funding arrangements to claim double the amount of tax relief that was intended. This will save the Exchequer almost £500 million pounds a year.

Financial services will always be a very important industry for the UK, but we have to help other parts of the private sector in other parts of the country to grow. That means uncongested roads and railways for businesses to move products that cannot be reduced to a screen on a City trading floor. It means providing secure power sources at reasonable prices. It means creating new superfast digital networks for companies across our country. These do not exist today. If we look at what countries such as China or Brazil are building, we see why we risk falling behind the rest of the world. So today we are publishing the national infrastructure plan. For the first time, we are identifying over 500 infrastructure projects that we want to see built over the next decade and beyond: roads, railways, airport capacity, power stations, waste facilities and broadband networks. We are mobilising the finance needed to deliver them, too.

The savings that I have announced in the current Budget have enabled me today to fund, pound for pound, £5 billion of additional public spending on infrastructure over the next three years. New spending by Network Rail, guaranteed by the Government, will bring £1 billion more. We are committing a further £5 billion to future projects in the next spending period, so that the planning can start now. This is public money. By exploring guarantees and letting city mayors borrow against future tax receipts, we are looking for new ways to deploy it. But we need to put to work the many billions of pounds that British people save in British

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pension funds and get those savings invested in British projects. You could call it British savings for British jobs, Mr Speaker.

The Government have negotiated an agreement with two groups of British pension funds to unlock an additional £20 billion of private investment in modern infrastructure. We can today give the go-ahead around the country to 35 new road and rail schemes that support economic development. In the north-west, we will electrify the trans-Pennine express between Manchester and Leeds, build the Manchester airport and Crewe link roads and work with Merseyside to turn the vision of the Atlantic gateway into reality. In Yorkshire and Humber, there will be new stations and new tram capacity, and we will halve the tolls on the Humber bridge. I want to pay tribute to my hon. Friends the Members for Beverley and Holderness (Mr Stuart) and for Brigg and Goole (Andrew Percy), and indeed other local MPs who have campaigned for years to make this happen. Under this Government it has.

In the north-east, we will bring forward investment on the Tyne and Wear Metro. In the midlands, the A45, the A43, the A453, the Kettering bypass, the Ml and M6 will all be improved. In the south-west, the Bristol link road and the A380 bypass will go ahead. For families across the south-west facing the highest water charges in Britain, the Government will cut the household bills of all South West Water customers by £50 a year. In the east of England, we are going to make immediate improvements to the Al4. In the south-east, we will build a new railway link between Oxford, Milton Keynes and Bedford that will create 12,000 new jobs. We are going to start working on a new crossing of the lower Thames, and we will explore all the options for maintaining the UK’s aviation hub status, with the exception of a third runway at Heathrow.

Here in London, we will work with the Mayor on options for other new river crossings, for example at Silvertown. We are going to support the extension of the Northern line to Battersea, which could bring 25,000 jobs to the area. Devolved Administrations in Scotland, Wales and Northern Ireland will get their Barnett share, and we are working with them to improve the links between our nations, such as the M4 in south Wales and the overnight rail service to north of the border.

This all amounts to a huge commitment to overhauling the physical infrastructure of our nation. We will match it by overhauling the digital infrastructure, too. The Government are funding plans to bring superfast broadband to 90% of homes and businesses across the country, and extend mobile phone coverage to 99% of families. This will help to create a living, economically vibrant countryside.

Our great cities are at the heart of our regional economies, and we will help bring world-leading, superfast broadband and wifi connections to 10 of them, including the capitals of all four nations. We will go ahead with the 22 enterprise zones already announced, plus two further zones in Humber and Lancashire confirmed today. I can also confirm that capital allowances of 100% will be available to encourage manufacturing and other industries into the zones in Liverpool, Sheffield, the Tees valley, Humber and the black country. Those allowances will also be available to the north-eastern enterprise zone, and we will consider extending to the

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port of Blyth to create new private sector jobs there, too.




This Government’s new regional growth fund for England has already allocated £1.4 billion to 169 projects around the country. For every one pound we are putting in, we are attracting six pounds of private sector money alongside it. I am today putting a further £1 billion over this Parliament into the regional growth fund for England, with support as well for the devolved Administrations. If we do not get the private sector to take a greater share of economic activity in the regions, our economy will become more and more unbalanced, as it did over the last 10 years.

Government should not assume that this will happen by itself. We must help businesses to grow and succeed, and we can do that at a national level too, with our commitment, for example, to British science. At a time of difficult choices, we made ours last year when we committed to protect the science budget. Today we are confirming almost half a billion pounds for scientific projects, from supercomputing and satellite technology to a world-beating animal health laboratory, and Government can encourage many more of our small firms to export overseas for the first time. We are doubling to 50,000 the number of SMEs we are helping, and extending support to British mid-caps, who sometimes lack the overseas ambition of their German equivalents.

We will make it easier for UK-based firms to compete for Government procurement contracts and make new applications out of government data. We will provide funds for smaller technology firms in Britain that find it difficult to turn their innovations into commercial success. We have listened to the ideas from business groups about encouraging innovation in larger companies, and we will introduce a new “above the line” research and development tax credit in 2013 that will increase its visibility and generosity.

We will give particular help to our energy-intensive industries. I have not shied away from supporting sensible steps to reduce this country’s dependency on volatile oil prices and reduce our carbon emissions. I am the Chancellor who funded the first ever Green investment bank and introduced the carbon price floor. Our green deal will help people to insulate their home and cut their heating bills. I am worried about the combined impact of the green policies adopted not just in Britain but by the European Union on some of our heavy, energy-intensive industries. We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers. All we will be doing is exporting valuable jobs from this country, so we will help them with the costs of the EU trading scheme and the carbon price floor, increase their climate change levy relief and reduce the impact of the electricity market reforms on those businesses, too.

This amounts to a £250 million package over the Parliament, and it will keep industry and jobs here in Britain. It is a reminder to us all that we should not price British businesses out of the world economy. If we burden them with endless social and environmental goals, however worthy in their own right, not only will we not achieve those goals, but the businesses will fail, jobs will be lost, and our country will be poorer.

Our planning reforms strike the right balance between protecting our countryside while permitting economic development that creates jobs, but we need to go further to remove the lengthy delays and high costs of the

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current system, with new time limits on applications and new responsibilities for statutory consultees. We will make sure that the gold-plating of EU rules on things such as habitats do not place ridiculous costs on British businesses. Planning laws need reform. So too—




Mr Speaker: Order. The House needs to calm down. One hon. Member has probably shouted enough for one day.

Mr Osborne: Planning laws need reform, and so too do employment rules. We know many firms are afraid to hire new staff because of their fear about the costs involved if it does not work out. We are already doubling the period before an employee can bring an unfair dismissal claim and introducing fees for tribunals. Now we will call for evidence on further reforms to make it easier to hire people, including changing the TUPE regulations; reducing delay and uncertainty in the collective redundancy process; and introducing the idea of compensated no-fault dismissal for businesses with fewer than 10 employees.

We will cut the burden of health and safety rules on small firms, because we have regard for the health and safety of the British economy too. This Government have introduced flexible working practices and we are committed to fair rights for employees. But what about the right to get a job in the first place or the right to work all hours running a small business and not be sued out of existence by the costs of an employment tribunal? It is no good endlessly comparing ourselves with other European countries. The entire European continent is pricing itself out of the world economy. The same is true of taxes on business. If we tax firms out of existence, or out of the country, there will not be any tax revenues for anyone. We have set as our ambition the goal of giving this country the most competitive tax regime in the G20. Our corporate tax rate has already fallen from 28% to 26%, and I can confirm that it will fall again next April to 25%.

We are undertaking major simplification of the tax code for businesses and individuals, including, this autumn, consulting on ideas to merge the administration of income tax and national insurance. We are publishing next week rules on the taxation of foreign profits, so that multinationals stop leaving Britain, and instead start coming here, and we will end low-value consignment relief for goods from the Channel Islands, which has been used by large companies to undercut shops on our high streets. We have supported enterprise by increasing the generosity of the enterprise investment scheme. Today, we are extending this scheme specifically to help new start-up businesses to get the seed investment they need. Even at the best of times they can struggle to get finance, and in the current credit conditions that struggle too often ends in failure. From April 2012, anyone investing up to £100,000 in a qualifying new start-up business will be eligible for income tax relief of 50%, regardless of the rate at which they pay tax, and to get people investing in start-up Britain in 2012, for one year only, we will also waive any tax on capital gains invested through the new scheme. We can afford this with a freeze on the general capital gains tax threshold for next year.

I also want to help existing small businesses which find the current economic conditions tough. Business rates are a disproportionately large part of their fixed

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costs. In the Budget, I provided a holiday on business rates for small firms until October next year. I am today extending that rate relief holiday until April 2013. Over half a million small firms, including one third of all shops, will have reduced rate bills or no rate bills for the whole of this year and for the whole of the next financial year too. To help all businesses, including larger ones, with next year’s rise in business rates, I will allow them to defer 60% of the increase in their bills to the two following years.

I also want to help any business seeking to employ a young person who is out of work. The OBR forecasts that unemployment will rise from 8.1% this year to 8.7% next year, before falling to 6.2% by the end of the forecast. Youth unemployment has been rising for seven years and is now unacceptably high. It is little comfort that this problem is affecting all western nations today. The problem is, of course, primarily a lack of jobs—[ Interruption .] But it is made worse by a lack of skills. Too many children are leaving school after 11 years of compulsory education without the basics that they need for the world of work.

Our new youth contract addresses both problems with the offer of private sector work experience for every young person unemployed for three months. After five months, there will be weekly signing on. After nine months, we will help pay for a job or an apprenticeship in a private business. Some 200,000 people will be helped in this way but, as the Deputy Prime Minister has said, this is a contract. Young people who do not engage with this offer will be considered for mandatory work activity, and those who drop out without good reason will lose their benefits.

If we are to tackle the economic performance of this country and tackle Britain’s decades-long problems with productivity, we have to transform our school system too, so that children leave school prepared for the world of work. My right hon. Friend the Secretary of State for Education is doing more to make that happen than anyone who ever had his job before him. The previous Government took six years to create 200 academies. He has created 1,200 academies in just 18 months. Supporting his education reform is a central plank of my economic policy, so today, with the savings that we have made, I am providing an extra £1.2 billion—as part of the additional investment in infrastructure—to spend on our schools.

Half of that will go to help local authorities with the greatest basic need for school places. The other £600 million will go to support my right hon. Friend’s reforms and will fund 100 additional free schools. These schools will include new maths free schools for 16 to 18-year-olds. This will give our most talented young mathematicians the chance to flourish. Like the new university technical colleges, these maths free schools are exactly what Britain needs to match our competitors and produce more of the engineering and science graduates so important for our long-term economic success.

To ensure that children born into the poorest families have a real chance to become one of those graduates, we will take further steps to improve early education. Last year, it was this coalition Government who not only expanded free nursery education for all three and four-year-olds, but gave children from the poorest fifth of

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families a new right to 15 hours of free nursery care a week at the age of two. I can tell the House today that we can double the number of children who will receive this free nursery care: 40% of two-year-olds—260,000 children—from the most disadvantaged families will get this support in their early years.

On education and early years learning, this is how we change the life chances of our least well-off and genuinely lift children out of poverty and that is how we build an economy ready to compete in the world. It will take time. The damage that we have to repair is great. People know how difficult things are and how little money there is, but where we can help with the rising cost of living, we will. I have already offered councils the resources for another year’s freeze in the council tax. That will help millions of families, but I want to do more.

Commuters often travel long distances to go to work and bring an income home. Train fares are expensive and they are set to go up well above inflation to pay for the much needed investment in the new rail and new trains that we need, but RPI plus 3% is too much. The Government will fund a reduction in the increase to RPI plus 1%. This will apply across national rail regulated fares, across the London tube and on London buses. It will help the millions of people who use our trains.

Millions more use their cars to go to work, and pick up the children from school. It is not a luxury for most people; it is a necessity. In the Budget I cut fuel duty by 1p. The plan was for fuel duty to be 3p higher in January and 5p higher by August next year. That would be tough for working families at a time like this, so despite all the constraints that are upon us, we are able to cancel the fuel duty increase planned for January, and fuel duty from August will be only 3p higher than it is now. Taxes on petrol will be a full 10p lower than they would have been without our action in the Budget and this autumn. Families will save £144 on filling up the average family car by the end of next year. At this tough time, we are helping where we can.

All that we are doing today—sticking to our deficit plan to keep interest rates as low as possible, increasing the supply of credit to pass those low rates on to families and businesses, rebalancing our economy with an active enterprise policy and new infrastructure, and providing help with the cost of living on fuel duty and rail fares—all that takes Britain in the right direction. It cannot transform our economic situation overnight.

People in this country understand the problems that Britain faces. They can watch the news any night of the week and see for themselves the crisis in the eurozone and the scale of the debt burden that we carry. People know that promises of quick fixes and more spending that this country cannot afford at times like this are like the promises of a quack doctor selling a miracle cure. We do not offer that today.

What we offer is a Government who have a plan to deal with our nation’s debts to keep rates low; a Government determined to support businesses and support jobs; a Government committed to take Britain safely through the storm. Leadership for tough times—that is what we offer. I commend this statement to the House.

Ed Balls (Morley and Outwood) (Lab/Co-op): Let me start by thanking the Chancellor—[Interruption.]

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Mr Speaker: Order. I ask the right hon. Gentleman to resume his seat. I said very clearly that people should not shout and yell at the Chancellor. He should be heard in respectful quiet, as the public would hope. The same goes for the reaction to the shadow Chancellor. Let us try to operate at the level of events.

Ed Balls: Thank you, Mr Speaker.

Let me start by thanking the Chancellor of the Exchequer for advance notice of his statement, and the Office for Budget Responsibility for ensuring that the Chancellor is today setting out to the House the truth about the state of the British economy and the truly colossal failure of the Chancellor’s plan.

Let us be clear about what the OBR has told us today, which the Chancellor could not bring himself to say: growth is flatlining and will be down this year, next year and the year after; unemployment is rising; and there will be well over £100 billion more borrowing than he planned a year ago, and more than was set out in the plan he inherited at the general election. As a result, his economic and fiscal strategy is in tatters. After 18 months in office, the verdict is in: plan A has failed, and failed colossally. With prices rising and unemployment soaring, families, pensioners and businesses already know that it is hurting. With billions of pounds more in borrowing to pay for rising unemployment, today we find out the truth that it is just not working.

The Prime Minister likes to say, “You can’t borrow your way out of a crisis.” Will the Chancellor confirm that that is exactly what he has been forced to do? He has been forced into higher borrowing to pay for the crisis in growth and jobs in Britain, the higher unemployment and higher benefits bill that his failing plan has delivered.

The Chancellor’s out-of-touch and complacent hubris of a year ago now seems such a distant memory. The Prime Minister boasted that Britain was out of the danger zone and the Chancellor claimed that the UK was a safe haven, but we know the truth: cutting too far and too fast has backfired and all his claims of a year ago have completely unravelled. It is not as if they were not warned, including by their coalition colleagues. Before the election, we said that, like every country after the global financial crisis, we had to get our deficit down, which meant tough decisions on tax and spending cuts. The question is not whether that should be done, but how. That is why the Opposition warned that trying to cut spending and raise taxes too far and too fast risked choking off recovery and pushing up unemployment and borrowing. We said that the Chancellor’s plan was reckless, not cautious, and that he was ripping out the foundations of the house, leaving our economy not safe, but badly and deeply exposed to the growing global storm.

Let me remind the Chancellor what the managing director of the International Monetary Fund warned this summer. She said that

“slamming on the breaks too quickly will hurt the recovery and worsen job prospects.”

What has happened? Consumer and business confidence has slumped in the past year. Our recovery was choked off over a year ago. Since then, Britain has had slower economic growth than any G7 country other than Japan, and it had an earthquake. Unemployment is at a 17-year

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high and over 1 million young people are out of work. Today we hear that growth this year will be not the 2.3% he so confidently predicted in the June Budget this year, but just 0.9%. It will be even lower next year and lower than forecast the year after. It is the fourth time the OBR has downgraded his growth forecasts in just 18 months.

Today we learn that the Chancellor, even when judged by the one objective he set himself—getting the deficit down—is failing. With lower growth and rising unemployment pushing up the cost of failure, will he confirm that he will now have to borrow not £46 billion more than set out in his autumn statement last year, as he said in March, but a staggering £158 billion more? Will he also confirm that, despite the pain of the £40 billion of extra spending cuts and tax rises he boasted about a year ago, because the recovery has been choked off and unemployment is higher he will be borrowing more at the end of this Parliament than he would be under the balanced plan inherited from the Labour Government at the last election? That is a fact.

A year ago the Prime Minister told the CBI:

“In five years’ time, we will have balanced the books.”

That was not some kind of dodgy rolling target, but a clear commitment to eliminate the deficit by 2015. Can the Chancellor tell the House whether he will meet that fiscal mandate? Is not the truth that, with unemployment and borrowing up, going further and faster has been utterly counter-productive and self-defeating and has backfired? We have had all the pain, but none of the gain.

The OBR forecasts show that the Chancellor’s entire economic and fiscal strategy is now in complete disarray, yet all we get are excuses. He has blamed anyone and anything, including the Labour Government, the snow, the royal wedding, the Japanese earthquake, higher inflation, VAT, the eurozone and low-paid dinner ladies and teaching assistants—anybody but himself. [ Interruption. ] It is he who is to blame. It is his failing plan that has pushed up unemployment and borrowing. It is his reckless gamble that has made things worse here in Britain, not better.

If eurozone countries continue to fail to sort out their problems, of course that will have an impact here. [Hon. Members: “Ah.”] However, Britain’s economic recovery was choked off a year ago, before the euro crisis. The OBR has downgraded growth in Britain this year but upgraded growth in the euro area. Of the 27 countries in the EU, only Greece, Portugal and Cyprus have grown more slowly than Britain in the past year. Not only is it not too late for the Chancellor to change course, but the deepening euro crisis makes it even more important that he sees sense. Instead he is still clinging to the fantasy that any change of course would make things worse. He still clings to the illiterate fantasy that low long-term interest rates in Britain are a sign of enhanced credibility and not, as they were in Japan in the ’90s and in America today, a sign of stagnant growth in the economy. [ Interruption. ] This summer the head of the IMF warned the Chancellor—[ Interruption. ]

Mr Speaker: Order. The situation is very simple: however long it takes, the shadow Chancellor will be heard. That is all there is to it.

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Ed Balls: Thank you, Mr Speaker. They do not like it, but this is the truth. The Government set up the OBR, so maybe they should listen to its forecasts.

This summer the head of the IMF warned the Chancellor that

“growth is necessary for fiscal credibility”,

but he said that a change in his plans would lead to a loss of credibility, even though he has been forced to confirm today that his growth and borrowing targets are wildly off track. Last month the IMF advised the Government that

“If (economic) activity were to undershoot current expectations and risk a period of stagnation or contraction, countries that face historically low yields (for example, Germany and the UK) should also consider delaying some of their planned consolidation.”

With the world darkening and with today’s news that here in Britain we are set to see stagnant growth not just this year, but next, is it not time the Chancellor listened to the IMF? How much worse does it have to get? How many more young people have to lose their jobs, how many more businesses have to go bankrupt, and how many more times does he have to come here to downgrade his growth forecast and upgrade his borrowing forecasts? How many more billions in borrowing do we need to pay for failure before he finally sees sense?

These would be difficult times for any Chancellor, but our fear is that once again in his statement today the Chancellor is making a catastrophic error of judgment. He is refusing to learn the lessons of history or economics; he is refusing to switch to a more balanced plan; he got it wrong 18 months ago, and he is getting it wrong again today. Repeating the mistakes he made last year will only make things worse. Is it not now time to listen to the IMF, to cut taxes and to have a slower pace of spending reduction? Is it not time for him to change course before it is too late?

What do we have instead? We have a cobbled together package of growth measures, which the Chancellor must know, and the OBR forecast confirms, do not address the fundamental problem—that his rapid, reckless and deflationary plan is choking off recovery and pushing up borrowing. We have been here before. This is the third emergency growth package in a year, so the last thing our economy needs is yet another fantasy growth package.

Hon. Members do not have to take my word for it. Let us look at the OBR’s own forecast. Does the OBR think that the Chancellor’s plans are going to boost growth? No, it has revised growth down next year, from 2.5% to 0.7%; and for the following year it has revised growth down from 2.9% to 2.1%. Does the OBR think that the Chancellor’s plans are going to increase employment and cut unemployment? Let me tell the House two things from the OBR forecast which the Chancellor chose not to tell the House. Unemployment is not only higher next year than this year, but higher the year after than this year; and employment is expected to fall by 100,000 next year.

We were promised a game-changer of a statement and a growth plan that would secure recovery. Instead, we have a plan for growth which leads to lower growth and higher unemployment. It is not a game-changer; it is just more of the same.

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Let me turn to the measures that the Chancellor has announced. He has announced a new youth jobs fund, but why did he abolish the future jobs fund in the first place? The Government abolished it in their first month in office; their new plan will not be up and running until the middle of next year.

The Chancellor claims to have increased the bank levy, so why is he cutting taxes on banks this year compared with last year—down from £3.5 billion last year to £2.5 billion this year? Why will he not repeat the bank bonus tax and do something proper about youth jobs?

The Chancellor has announced a sensible halt to January’s fuel duty rise, but will he confirm that, as a result of last January’s VAT rise, motorists are paying 3p a litre more on petrol? He has belatedly announced a plan on Labour’s enterprise finance guarantee, relabelled as credit easing, but why did he wait so long, and why did he put his faith in Project Merlin, which has patently failed and, as the Bank of England confirms today, seen net bank lending to small businesses fall over the past year? As for his equally belated decision to set up a new infrastructure fund, this is from the same Chancellor who abolished the Building Schools for the Future programme at a cost of tens of thousands of construction jobs.

How much of this new investment has been pre-announced? How much will happen this year and next year? How much of it is pre-announced funding from the next spending review after the next general election? Will the Chancellor confirm that the new off-budget infrastructure fund will be subject to a National Audit Office value-for-money test to ensure that projects are not more expensive to the taxpayer than direct Government borrowing?

The Chancellor has also announced a rebate for energy intensive industries to correct the chaos caused by his botched carbon floor price. He has reinstated just 10% of his planned £4 billion cut in housing, but even in the past few minutes, as we have studied the small print, and despite all the bluster of the new measures, we have found that because this Chancellor is so determined not to break from his failing plan, he is once again giving with one hand and taking with the other.

How are these new growth measures being paid for? By hitting families and savers. How much will the Chancellor’s cut in tax credits cost a working family on average incomes? With inflation so much higher, is he still meeting the Prime Minister’s pledge to deliver real-terms rises in NHS spending in this Parliament?

As a result, and taking into account pre-announced measures in the Chancellor’s Budget and spending review, are the Government still hitting women harder than men? Are they still increasing child poverty and not reducing it? Given that he has already cut child care support by more than £1.5 billion, is he helping women who want to go out to work, or is he making it harder?

If we are all in this together, why with this Government is it always families, women and children who pay the price? It is clear: the Chancellor’s plan is not working. The OBR knows it, the markets know it, the IMF knows it, we know it and so, increasingly, do the Chancellor’s coalition colleagues. His arch rival, the Mayor of London, certainly knows it.

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We all know why the Chancellor cannot change course. We know why he cannot accept the IMF’s advice. We all know why—even as the euro crisis deepens and he is borrowing £158 billion more than he planned—this oh-so political Chancellor will not budge because to change course now would be to admit that he has got the key economic judgments of this Parliament absolutely, catastrophically wrong.

If, after just 18 months, the Chancellor’s plan is leading to falling growth, rising unemployment and £158 billion more in borrowing, the country needs either a new Chancellor or a new plan—a balanced and credible plan on jobs, growth and the deficit. We need real tax cuts, real investment, a real plan for jobs, growth and deficit reduction: Labour’s five-point plan for jobs, growth and deficit reduction.

Protecting our economy, businesses, jobs and family finances is more important than trying to protect a failed economic plan. For his sake, for his party’s sake, and in the national interest, the Chancellor needs to change course, and he needs to do so now.

Mr Osborne: As far as I can tell, the shadow Chancellor complains that we are borrowing too much—and then proposes that we borrow even more. It is completely unconvincing and a reminder to Government Members why we are so pleased that he is in the job that he is doing, for he is a constant reminder of everything that went wrong with Labour’s economic policy—a permanent advertisement for why we should never trust Labour with our money again.

Let me answer the right hon. Gentleman’s specific questions. He welcomes the fact that we have open and honest figures from the OBR. When did we never get them when he was at the Treasury? He complains about the bank levy. He was the City Minister, so why did he not introduce a bank levy? It will raise £2.5 billion a year. In the Labour policy document on the bonus tax that he proposes, his party costs its measure at £2 billion a year. That is less—a tax cut for banks, if can I put it like that.

The right hon. Gentleman complains about off balance-sheet borrowing. That is from Mr PFI. He says that we should have kept the future jobs fund, but 50% of all people who left that scheme were unemployed within 12 weeks, which is in part why we have an unemployment problem.

Yes we are committed to real increases in the health budget, and yes the OBR confirms that we will meet our fiscal mandate and our debt target—[ Interruption. ] In the terms set out by me in the emergency Budget.

The right hon. Gentleman told the House this extraordinary thing—that the OBR forecasts that growth in the UK will be less than in the euro area. That, I am afraid, is simply not true. I am not going to use unparliamentary language, but it is in the OBR document in black and white: 2012, 2013, 2014, 2015—every single year, growth unfortunately is slow in the eurozone and slower than in the UK. That is one of the problems we are facing.

Let me respond to the three arguments that the right hon. Gentleman advanced in his reply. First, he said that we should try to borrow our way out of a debt crisis; he talked about extra borrowing. His plans—the plans of the previous Government—would have led to

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an additional £100 billion on top of borrowing over the course of the Parliament. Let us look at the facts. There is not a single credible political party in the entirety of Europe that is proposing more spending at the moment, apart from—and it is not credible—the Labour party. This is what Tony Blair said this morning on the radio—




Go on—have a go at booing him! Tony Blair said on the radio this morning:

“frankly whatever government is in power it is going to be pursuing a pretty tough programme at the moment”.

Blair or Balls—I think the British public made their mind up on Labour politicians long ago.

The second astonishing argument that the right hon. Gentleman deployed was to say that low interest rates in Britain were a sign of failure. Presumably that means that he wants interest rates to be higher in Britain. Presumably the fact that Italian interest rates are over 7% is a sign of success. Presumably the fact that Greek interest rates are 30% is an economic miracle. His policy for higher interest rates would put families’ mortgage bills up, increase debt interest charges for taxpayers, increase the cost of loans for small businesses, and put people out of work. Now people know—you vote Labour, you get higher interest rates.

The third and final argument that the right hon. Gentleman advanced is that the events happening in Europe will have almost no impact on anyone in Britain or on the British economy. [Hon. Members: “That’s not what he said.”] He mentioned it once in passing. That flies in the face of what the Bank of England says and what the OECD said yesterday. He quoted the IMF. The IMF supports our deficit reduction plan. It explicitly asked itself the question, “Should Britain change course?”, and said no. He quoted the independent OBR’s numbers, but he refuses to accept its analysis. Anyone who turns on the television and listens to the news knows that his argument is completely absurd, so we have to ask ourselves why he advances it. Why does he alone advance the argument that Britain is not affected by what has been going on in the world—by the external oil shocks, by the size of the financial crisis, by the eurozone crisis? There is a very simple reason: because if he admits that we are in a debt crisis, then he has to admit that we borrowed too much when he was in office, that the crash here was deeper than anywhere else, and that the effects were longer lasting. It would be an admission of his personal failure.

The right hon. Gentleman was the City Minister who let the City explode. He is the author of the golden rules that failed. He does not have the excuse of the Leader of the Opposition that he was only photocopying orders: he gave the orders; the orders came from him. Labour’s economic credibility will never recover while he remains the shadow Chancellor.

Mr Andrew Tyrie (Chichester) (Con): The whole country, I think, will welcome the supply-side measures announced today, which are an essential counterpart to the deficit reduction plan. Britain’s recovery depends on thousands of small businesses in our constituencies that need the confidence and the cash to invest and grow. That is why the credit easing package that has been announced today is so welcome. Does my right hon. Friend agree, though, that the recovery can be secured in the long term only when we have banks that are operating normally —when we have a return to more normal lending

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conditions? Does not that reinforce the need for him to work extremely closely with the regulators and the banks to achieve this?

Mr Osborne: I agree with the Chair of the Treasury Committee that the impact of the financial crisis and the deleveraging in the British financial system and other financial systems are having a huge impact not just on our recovery but on recoveries around the world. I completely agree that we need to try to clear the impaired balance sheets of the banking system. We need to try to get new lenders on to the high street. That is why we took the decision we took on Northern Rock—to get Virgin Money out there on the high street. I will have more to say on the banking system next month when I respond to the Vickers report and to the very good report from the Treasury Committee.

Margaret Hodge (Barking) (Lab): I welcome the announcement of more investment in infrastructure, but the more I hear about the proposal, the more it sounds like PFI by any other name. Pension funds will invest in public projects only if it is a good deal for them. As with PFI, any sweetener that the Chancellor offers to the private sector will be at the expense of the taxpayer, both in the short term today and for future generations, so what precisely is he offering and proposing to attract pension fund investment, and how is he going to ensure that his scheme represents value for money for the taxpayer?

Mr Osborne: Let me explain to the right hon. Lady that what we are seeking to do is to get the pension funds investing in British infrastructure. We are not proposing to provide, in this respect, guarantees for these projects. There are some guarantees set out for specific Government infrastructure projects such as the Thames tidal waste tunnel. What I am talking about with the pension funds is not guaranteed projects like PFI; it is simply about trying to get private sector money invested in British infrastructure. [ Interruption. ] Let me explain, briefly.

We have Canadian and Australian pension funds investing in Britain, but not British pension funds investing on a sufficient scale. We are going to try to bring them together, through a private sector agreement, into vehicles where they can co-operate and then invest in infrastructure. This is not about the Government underwriting those investments; it is about trying to get the industry together to make private sector investments. There is a memorandum of understanding which sets out how this is done.

Andrea Leadsom (South Northamptonshire) (Con): I welcome the Chancellor’s statement. It is a great shame that the shadow Chancellor appears to be living in a parallel universe to that of Government Members. Does my right hon. Friend agree that in view of his desire to set up a better and a stronger economy for the future, it would be a good idea to look again at the prospect of account portability in the banking system to create a truly free consumer choice for the future in terms of personal current accounts and small business lending?

Mr Osborne: I agree with my hon. Friend that that is a very important part of making sure that customers get the best possible deal. It was the part of the Vickers

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report that got the least coverage because of the interest in things like ring-fencing. We are determined to introduce changes that allow people to switch their current accounts very easily, and we hope to have them in place before the end of the Parliament.

David Miliband (South Shields) (Lab): The Chancellor has recognised that 260,000 young people have been unemployed for more than 12 months—that is over 100,000 more than 18 months ago. He has rejected the argument for a job guarantee and instead embraced wage subsidies, which he says will help about 53,000 young people. For the sake of those young people, will he look at the similar scheme announced by his right hon. and learned Friend the current Secretary of State for Justice, in 1995? That scheme promised 130,000 jobs, but only 2,300 applications came forward. Will the Chancellor look at that experience to make sure that we do not have a repetition of the very low take-up of wage subsidy schemes?

Mr Osborne: We have worked with the business groups and businesses to make sure that the youth contract is going to be effective. I respect the fact that the right hon. Gentleman told us some days ago that the problem of youth unemployment was not invented by this Government. I respect his honesty in saying that. This is a problem that all western countries are facing at the moment. Frankly, in Britain youth unemployment has been going up for the past seven years. A subsidised job in the private sector is part of the answer. The work experience places are already working well, and we are adding to those. Of course, there is some conditionality in all this, so we are introducing, for example, weekly signing on after five months.

Stephen Williams (Bristol West) (LD): I welcome what the Chancellor has said about protecting our economy from the external pressures that we face and rebalancing and strengthening it for the future. Will he confirm that despite these difficult circumstances, this Government are acting to raise the income tax threshold so that the poorest in society do not pay income tax, are fully increasing out-of-work benefits by 5.2%, and are increasing the state pension by £5.30? Does not that demonstrate that this coalition Government are determined to protect the poorest in society despite the very difficult circumstances in which we operate?

Mr Osborne: My hon. Friend is right. We are uprating out-of-work benefits and the basic state pension. The coalition Government are committed to the triple lock. People can see the benefit of that today. He is also right that we are committed to real increases in the personal income tax allowance. We have already had two of those. The coalition agreement is absolutely clear on that. I also support it as a tool of economic policy. We want to lift more people out of tax altogether.

Mr Michael Meacher (Oldham West and Royton) (Lab): What is the right hon. Gentleman’s precise estimate of the overall growth, if any, that will arise from today’s package, given that there is no net increase in demand? Is not his core £5 billion infrastructure package—just 0.7% of current expenditure—merely tinkering at the edges and completely incapable of pulling Britain out of its deepening slump?

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Mr Osborne: As I said in my statement, I believe, particularly in a debt crisis, that monetary policy is the most powerful tool for supporting demand. The Bank of England has undertaken the quantitative easing programme, which the previous Government thought was the right policy as they authorised the Monetary Policy Committee’s request. We can also do a lot to try to improve the credit conditions for small businesses, which do a huge amount to employ people in our country. That is why we have taken action on credit easing. The right hon. Gentleman has to balance the cost that a 1% rise in interest rates would have for mortgage bills, debt interest bills, family business loans and the like, which I set out, with the need for the additional billions of pounds of borrowing that he is proposing on top of the borrowing that we are already doing and what that might do to the credibility of this country in international markets.

Brandon Lewis (Great Yarmouth) (Con): Does my right hon. Friend agree that the welcome opportunity for private pension funds to invest in infrastructure will also give a good return for those pension funds by unlocking the growth that can come from such infrastructure, particularly in rural areas such as East Anglia?

Mr Osborne: My hon. Friend is absolutely right. That is why we have made a particular commitment to two roads in East Anglia: the A11 and the A14. The A14 is a real challenge, as he knows, because it is a vital artery for the entire national economy. We are announcing particular commitments today to improve the A14. We want to work with local councils and local communities to make even greater lasting improvements to the A14 in the future.

Helen Goodman (Bishop Auckland) (Lab): The Chancellor ended his statement by talking about quack doctors. Of course, in the book “George’s Marvellous Medicine”, George makes a potion to shrink his grandmother. Does the Chancellor of the Exchequer not understand that he will not grow the British economy by cutting tax credits, because that will make it uneconomic for many women to go out to work?

Mr Osborne: As I said, we are not cutting tax credits, but uprating the child tax credit. The hon. Lady should have listened to what I had to say.

Claire Perry (Devizes) (Con): I am confused and am hoping that the Chancellor can help me to sort something out. On page 82 of its document, the OBR states that it has cut its forecast for European growth to 0.5%. On another page, it states that it has cut the British forecast to 0.7%. Under the shadow Chancellor’s quack-onomics theory, interest rates should therefore be higher in Britain than in the eurozone, but they are not. Can the Chancellor explain why?