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House of Lords

Tuesday, 23 October 2012.

2.30 pm

Prayers—read by the Lord Bishop of Leicester.

European Defence Agency

Question

2.37 pm

Asked By Lord Anderson of Swansea

To ask Her Majesty’s Government what has been the outcome of the review of the status of United Kingdom membership of the European Defence Agency announced in October 2010.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever):My Lords, first, I am sure that the whole House will wish to join me in offering sincere condolences to the families and friends of Lieutenant Andrew Chesterman of 3rd Battalion The Rifles, Lance Corporal Matthew Smith of 26 Engineer Regiment, Guardsman Jamie Shadrake of 1st Battalion Grenadier Guards, Guardsman Karl Whittleof 1st Battalion Grenadier Guards, Sergeant Lee Davidsonof The Light Dragoons, Lance Corporal Duane Groomof 1st Battalion Grenadier Guards, Sergeant Gareth Thursbyof 3rd Battalion The Yorkshire Regiment, Private Thomas Wroeof 3rd Battalion The Yorkshire Regiment, Sergeant Jonathan Kupsof the Royal Electrical and Mechanical Engineers, Captain James Townleyof the Corps of Royal Engineers and Captain Carl Manleyof the Royal Marines who died on operations in Afghanistan recently.

My thoughts are also with the wounded, and I pay tribute to the courage and fortitude with which they face their rehabilitation. Once again, we are reminded of the immense danger that our Armed Forces operate in to uphold our safety and security. Their families and the whole country should rightly be proud of their heroic service and we shall always remember them.

Turning to the Question, Ministers are still considering the case for UK membership of the European Defence Agency with the aim of announcing the outcome of the review before the end of the autumn. As part of that review, we are looking at the activities of the agency’s four main directorates of capability, research and technology, industry and markets and armaments to assess the benefits received by our membership, including on our international relationships and what improvements there have been in the agency since 2010.

Lord Anderson of Swansea: My Lords, we all join the Minister in those condolences and tributes to our brave soldiers.

The two-year period of review has now passed with no outcome. Does that mean there is some rift within the coalition? Will the Government now recognise, as

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indeed EU Sub-Committee C recognised, that we benefit from the pooling and sharing within the agency and that the agency does valuable work in niche areas such as counter-IED, medical support, helicopters and cyber warfare? Further, if there were not a positive response, there would be an almighty row with our French partners.

Lord Astor of Hever: My Lords, there are no rifts and there is no hidden agenda. We said that we would review our membership after two years. We will then provide an Explanatory Memorandum and notify both Houses in the normal way as soon as possible. I am aware of the benefits that the EDA has delivered, but we need to review the full benefits and improvement goals that it has set for itself. In an age of financial austerity, we must ensure that every pound of taxpayers’ money counts for defence.

Lord Jopling: My Lords, did the Minister see the recent report of the same sub-committee which the noble Lord just referred to? The committee’s report said that given that the EDA,

“is deemed to be well directed under its current management, it should be given the proper tools and commitment to do a proper job. The UK and France should take the lead”.

Will the Government take that opinion into account in coming to a decision?

Lord Astor of Hever: My Lords, I have read the report of Sub-Committee C and, as I said in my reply, we will take this into account in the review.

Lord Liddle: My Lords, does the Minister accept that, in the age of financial austerity that he referred to, there is a very strong case for common defence procurement if it can be done economically within Europe, and that potentially the agency has a huge role to play in making that work much better than it has in the past?

Lord Astor of Hever: My Lords, I agree with that. If we can do it economically, this makes a lot of sense.

Lord Palmer of Childs Hill: My Lords, first I wish to identify these Benches with the sad condolences expressed by the Minister. Does my noble friend agree that some of the successful examples of European Defence Agency initiatives are both the air-to-air refuelling and the helicopter training exercises which have been completed this week? Could he detail any other recent achievements of the EDA?

Lord Astor of Hever: My Lords, the EDA has seen significant success in a number of capability areas; for example, as my noble friend said, helicopter training which has directly increased the number of pilots available for operations in Afghanistan. By enhancing the capabilities of smaller member states, we receive an indirect benefit through better burden-sharing in operations. I understand that 114 crews—that is 1,300 personnel—have been trained, of which 63 have been deployed to Afghanistan. My noble friend mentioned the air-to-air refuelling initiative. As part of pooling

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and sharing, the EDA is taking a lead in facilitating European capability development in this area. This has not yet delivered results but the initiative is at an early stage. This issue was highlighted in operations over Libya where the US provided the vast majority of air-to-air refuelling capability. If I may, I will write to my noble friend on the other achievements—European military air-worthiness, the requirements initiative, industry and markets, and the capability development plan.

Lord Soley: Are the Government looking at sharing with the French the facilities recently opened at RAF Waddington for the control of UAVs?

Lord Astor of Hever: My Lords, I went up to RAF Waddington a couple of weeks ago and saw for myself what the noble Lord has talked about. I cannot answer from the Dispatch Box whether the French will be involved in that. As I have said previously from the Dispatch Box on many occasions, I welcome as much co-operation with the French as possible. We are working with them in a lot of areas. Noble Lords may have seen in the Daily Telegraph today the photograph of our Royal Marines training off Corsica with the French marines.

Lord Hamilton of Epsom: My Lords, would not European defence co-operation have been enhanced if the merger between BAES and EADS had gone ahead? Was it not a tragedy that this deal was bombed by Chancellor Merkel?

Lord Astor of Hever: My Lords, I agree with my noble friend that there would have been some benefits from the two companies joining up. However, having said that, I think that BAE will continue to thrive on its own. It has some wonderful products and Ministers in the Ministry of Defence do their very best to help BAE sell them.

Lord Williams of Elvel: My Lords, are the Government seriously considering withdrawal from the EDA? Is that one of the options under review?

Lord Astor of Hever: My Lords, it is an option; we are doing a review. As I said earlier, we will report back to the House as soon as possible.

Lord Pearson of Rannoch: My Lords, if the Minister and the Government had to choose between a row with our French partners and the lasting disengagement of the United States of America, which would they choose? When the Minister writes to the noble Lord, Lord Palmer, listing all the glorious achievements of this agency, will he commit to putting a copy of the letter in your Lordships’ Library?

Lord Astor of Hever: My Lords, to answer the noble Lord’s first question, I try to be as diplomatic as I can in relations with both the United States and the French, and I would certainly not want to get involved in any disagreement.

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Small and Medium-sized Enterprises

Question

2.46 pm

Asked By Lord Cotter

To ask Her Majesty’s Government what action they are taking to address the issue of late payments to small and medium-sized enterprises.

Lord Wallace of Saltaire: My Lords, central government policy is to pay undisputed invoices within five days and to pass 30-day payment terms down supply chains. Moreover, the Crown representative team in the Cabinet Office is encouraging prime contractors to pay more quickly than the 30-day commitment on a voluntary basis. We have tasked departments across Whitehall to manage their contracts to ensure that prime contractors pay their subcontractors within 30 days.

Lord Cotter: I thank the Minister for his Answer. Will he and his officials look at the important reports and surveys carried out by the Federation of Small Businesses and the British Chambers of Commerce and note their recommendations? There is a lot of very good information in there. I am glad that the Government have improved their record on payment, but it is still not satisfactory that local councils and other departments are not paying as promptly as they should. I am encouraged by the Minister saying that government departments are going to look at their suppliers. I ask him to ensure that they sign up to the prompt payment code.

Lord Wallace of Saltaire: My Lords, I have it in my notes that the Local Government Association, in the form of no less an important person than the noble Baroness, Lady Eaton, has agreed that local authorities will be encouraged similarly to follow best practice in this regard. The Cabinet Office has among other measures introduced a “mystery shopper” service through which small contractors who are dissatisfied with the service they are getting, either from a department or from a prime contractor, can anonymously feed this information through to the Cabinet Office.

Baroness Sharples: What is the average time taken by ministries to settle their bills?

Lord Wallace of Saltaire: I suspect that the answer is that because there are so many bills that have to be paid it would take a great deal of time, effort and cost to acquire that information.

Baroness Wall of New Barnet: My Lords, does the noble Lord take assurance from the fact that, certainly in the health service, we have penalties for not paying small and medium-sized businesses first, before we do anything else, no matter where we are in the budget? I think that that ought to apply perhaps in other places as well. I had intended to save my question for the next debate but I just could not resist saying that.

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Lord Wallace of Saltaire: Thank you. It is an aspiration of this Government to increase the proportion of government contracts which go to small and medium-sized enterprises. When we entered government, the proportion of government contracts going to SMEs was 6.5%. Our aspiration is to reach 25% by 2015. The latest figures we have are that we are almost at 10.5%, so we have some way to go but are going in the right direction.

Lord Borrie: The Minister has confined his answers so far to government or governmental bodies which owe debts to small and medium-sized firms. What about simply the failure of large firms to pay small firms the money they owe them? So far, it is left to the initiative of the SMEs. Since there is a significant Bill going through Parliament at the moment dealing with financial services, I wonder whether one might get more results if the public officials of those bodies that are to take over from the Financial Services Authority under the new Financial Services Bill had a responsibility to ensure that debts were paid.

Lord Wallace of Saltaire: My Lords, the Government are not yet convinced that we need to take legislative action, but we are thoroughly in favour of all pressure possible to encourage large corporations to pay their small contractors as fast as possible. There is indeed a new booklet produced by the Association of Chartered Certified Accountants, Experian, the Forum of Private Business and the Institute of Credit Management which is a guide on how to ensure prompt payment and has been produced in co-operation with the Government. I must say that a number of newspapers, including in particular the Telegraph, have been very helpful in exposing the tendency of some large corporations deliberately to delay payment to their subcontractors. We all know that transparency and reputational damage are things which multinational companies are well aware of, supermarkets included.

Lord Trefgarne: My Lords, if my noble friend wishes to increase the number of small and medium-sized enterprises which tender for and secure government business, will he have a look at the complexity of government tendering processes which tend to put off smaller companies from competing in those competitions?

Lord Wallace of Saltaire: My Lords, we are also well aware of that. My right honourable friend Francis Maude and others have been looking in particular at the complexity of the pre-qualification questionnaires. We are doing our best to get rid of those for all contracts below £100,000 per year and to simplify the pre-qualification questionnaires for all others.

Baroness Hollis of Heigham: My Lords, following the last question, I ask the Minister also to look at the contracts offered by the Department for Work and Pensions. In terms of getting people back to work, these contracts are going to very few, very large contractors, and as a result charities and voluntary organisations which in the past have done this work are now being pushed out of the bidding process.

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Lord Wallace of Saltaire: We are well aware of this problem. We are talking about a culture change within Whitehall. We are conscious that it is often easier when drawing up a large contract to give it to a prime contractor who will then subcontract, rather than having to go through the more onerous processes of distributing it around the country. That is part of the culture that we are trying to change.

Baroness Brinton: My Lords, the Minister’s earlier response on the problem with large companies was illuminating. However, if we are going to rely on investigating journalists to uncover such cases, would it not be better for the Government to consider forcing large companies to publish how many days they take to pay people in their annual reports?

Lord Wallace of Saltaire: My Lords, I dare say that that is a question which will come up if and when we next move on to a company law reform Bill.

Lord Mitchell: My Lords, small companies in particular depend on prompt cash flow—indeed, it is their lifeblood. However, it is still true that many organisations in different areas, but particularly those in the public sector, are notorious for paying late. Despite the assurances that the Minister has given, I ask the Government to issue a firm directive to all organisations in the public sector stating that payments to SMEs are to be made within a short time after the receipt of an invoice.

Lord Wallace of Saltaire: My Lords, the Government have done that and are introducing a number of practices to ensure that that is done. The mystery shopper and other efforts are always feeding back to ensure that where it is not yet done, steps are taken to improve matters.


NHS: Accident and Emergency Services

Question

2.55 pm

Asked by Baroness Gardner of Parkes

To ask Her Majesty’s Government whether, in relation to proposals to restructure NHS services in north-west London, the Department of Health has entered into dialogue with Transport for London regarding traffic levels and their impact upon speed of access to accident and emergency services.

Baroness Gardner of Parkes: My Lords, I beg leave to ask the Question standing in my name on the Order Paper and declare my interest as a local resident.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, the reconfiguration of front-line health services is a matter for the local NHS, and any decisions regarding changes to services will be taken locally. I understand that the local NHS has worked closely with Transport for London and also with the London Ambulance Service in developing

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its proposals for the future shape of health services across north-west London under the Shaping a Healthier Future programme.

Baroness Gardner of Parkes: I thank the Minister for that Answer. My Question could really apply to anywhere in the country. The general principle is how long it takes to get patients to hospital, particularly in emergencies, when it is a matter of life and death in some cases. In London, there is only one air ambulance; I understand that in Paris, there are four and in Sydney there are six. We cannot rely on one air ambulance to deal with the problem. Will the Minister consider the general principle of a national view of traffic in relation to access for ambulances?

Earl Howe: My noble friend makes some important points. As a general point, it is important to say that each ambulance service should plan to provide appropriate resources to meet local demand, because demand varies according to where you are in the country. Planning assumptions in meeting that demand should take into account the likelihood of severe traffic congestion. Plans of that kind may well include resources in addition to traditional ambulance provision, for example, using rapid response vehicles and motorbikes as well as utilising staff such as community paramedics or emergency care practitioners.

Lord Harris of Haringey: My Lords, how many accident and emergency departments in London does the Minister expect to close in the next four years? If he does not know the answer, can he say who is responsible for that and how they are accountable for making a strategic judgment across London about the level of accident and emergency services?

Earl Howe: The premise behind the noble Lord’s question is that it is automatically worse to have fewer A and E departments in an area. I beg to disagree with that premise. In serious or complex cases, the noble Lord will know that patients need to access exactly the right care, so it is often better and safer for them to travel further to see specialists in major centres than to go to a local hospital. Although it may be closer, it may not have the right specialists, the right equipment or sufficient expertise in treating patients with their condition. The prime example of that has been stroke care in London, where 32 centres were reduced to, I think, eight and there has been a dramatic reduction in the number of deaths following admission.

Baroness Jolly: My Lords, does the noble Earl agree that wherever there are improvements to patient care that involve restructuring not only of services but premises, the impact assessment in the consultation document should include general transport and ambulance access?

Earl Howe: I agree with my noble friend. The planning assumptions made in north-west London, which is the subject of the Question, are a good example of that, where Transport for London is co-operating actively

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by producing some sophisticated analysis not only of ambulance transport times but of bus and car journey times to make sure that nobody loses out in any reconfiguration.

Baroness Whitaker: My Lords, in the noble Earl’s answer to my noble friend Lord Harris, I did not hear an answer to any of his questions about numbers, who makes the decision and who is accountable. Would it be possible to hear that?

Earl Howe: My Lords, I apologise. The Question on the Order Paper relates to north-west London, so I do not have pan-London figures in front of me. The answer to the question is as I gave it in my initial response: those decisions are subject to local determination. That is right, because it is only local commissioners and providers who can assess the situation on the ground properly. As the noble Baroness will be aware, there is a system for escalating decisions—ultimately to the Secretary of State, if necessary, who takes advice from the Independent Reconfiguration Panel in the most extreme cases—but normally, we hope and expect those decisions to be resolved on the ground in the local area.

Baroness Masham of Ilton: My Lords, does the Minister agree that many patients have difficulties accessing their GPs and out-of-hours services? Does he realise that the only resource might be the A and E department? In a case of meningitis, that could be a death sentence if they cannot get that access.

Earl Howe: My Lords, I agree with the noble Baroness. That is exactly why the Government are planning to roll out the 111 service, which will run alongside the 999 service for emergency calls. But where the situation falls short of an emergency, the 111 service will instantly direct the patient to exactly the right service, without a call back being necessary. I am pleased to say that that programme is on track and should be rolled out next year.

Baroness Wall of New Barnet: My Lords, I declare an interest in Barnet and Chase Farm, which is currently being restructured. Does the Minister agree that, with any restructuring of services in the health service, the public are very concerned? A lot of effort is being made by the trust to assure people, but one of the things that keeps coming back—certainly for Barnet and Enfield—is that the bus services do not always work in the way in which the noble Earl has suggested, and that Transport for London is not always co-operative. Very often it is, but sometimes it is not; we are having a great deal of difficulty reorganising bus services in cases where Transport for London will just not hear of it.

Earl Howe: My Lords, in north London and Barnet in particular, Transport for London has diverted the 307 bus route into the grounds of Barnet Hospital, thus improving the link from Enfield. Transport for London has also installed new CCTV cameras in the underpass at North Middlesex University Hospital, in

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order to enhance its safety. There was a proposal to improve the local underpass at Silver Street station, and that was carried through. I am concerned to hear the noble Baroness’s perception, because all the briefing I have had indicates that Transport for London is very constructive in these situations and will often change bus routes in response to changes in service configuration.

Taxation: International Companies

Question

3.02 pm

Asked By Lord Harries of Pentregarth

To ask Her Majesty’s Government what steps they are taking to ensure that international companies pay a fair proportion of United Kingdom tax.

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, the vast majority of taxpayers pay the right tax at the right time. However, the Government are alert to the risk that some companies may try to structure their tax affairs so that profits from UK-based economic activity are not taxed here. The UK has specific tax rules to combat tax avoidance by international companies and fully supports the Organisation for Economic Co-operation and Development initiative on base erosion and profit shifting, which has been endorsed by the G20.

Lord Harries of Pentregarth: My Lords, I am very glad to hear that the Government are alert to the situation of international companies, but would the Minister agree that, when they are being assessed for tax purposes, they should be required to reveal every country in which they are operating and the tax they pay in each country, with full financial details of their own company and link-companies? In addition to insisting on this for UK purposes, would the Government be prepared to work for an international agreement so that all transnational companies were required to give a fully transparent country-by-country report for any country in which they operated?

Lord Sassoon: My Lords, I certainly agree with the underlying premise behind the noble and right reverend Lord’s question, which is that there is still a lot more work to be done in this area. The international tax architecture was developed in an age of fixed factories and plant and machinery, with much less interconnectedness. Now we live in a connected, corporate world in which internet commerce and so on make it much more complex. That is why the OECD is again looking fundamentally at whether countries have the right weapons, whether it is tax treaties, under which the exchange of information would come; transfer pricing; aggressive tax planning; or harmful tax practices. I certainly agree that tax information is important to that but, as far as the authorities are concerned, that really comes under the tax treaties and the work that the OECD will be looking at.

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Lord Barnett: Does the Minister accept that the Prime Minister’s, and indeed the Chancellor’s, definition of aggressive tax avoidance needs clarifying? In any case, does he accept that all tax avoidance schemes are always one step ahead of the Treasury and the Inland Revenue? Would it not be sensible and simple—all past Governments have always refused to do this—to have simple legislation to say that any tax avoidance scheme has to be approved by HM Treasury? Would that not solve the problem?

Lord Sassoon: The noble Lord, Lord Barnett, always wants me to be clear and simple, so the answer is no to his first two questions. On the third question, he has an underlying, quite proper, concern, which is why the work that Graham Aaronson has done for the Government on a general anti-avoidance rule, the so-called GAAR, is a very important part of ongoing work.

Lord Campbell-Savours: What are the Government going to do about Starbucks and its transfer pricing arrangements?

Lord Sassoon: My Lords, the noble Lord does not expect me for one moment to start commenting on the tax affairs of any individual taxpayer. As a general response, it may interest the House that the 800 or so largest companies that come under the large business service of HMRC to be assessed pay £136 billion in corporation tax, PAYE and VAT each year. Almost 50% of that tax comes from foreign-owned businesses, so I do not think we should have in mind that foreign-owned companies as a group are somehow doing something that we have to be vigilant about. We must keep this in proportion.

Lord Avebury: My Lords, do the OECD rules apply to internet-based companies, such as Amazon, and when will they come into effect?

Lord Sassoon: My Lords, a series of measures has been agreed internationally through the OECD over many years. The fiscal affairs committee of the OECD is having a new look at this, and this work was endorsed by the G20 at the Los Cabos meeting in June, to get those rules into a fit state for the 21st century. They are the rules that govern the relationships between countries and the base on which all companies should operate their tax regimes, but they need to be modernised.

Lord Davies of Oldham: My Lords, in responding to an earlier question, the Minister said that there was much work to be done in this area. Who is to do it? What is the point of the Government cutting Inland Revenue staff when there is so much work to be done? Staff concerned with revenue collection can collect 30 or 100 times the annual salary they receive.

Lord Sassoon: I am very grateful, as I often am, for the question asked by the noble Lord, Lord Davies, because it enables me to tell the House, as I have done before, that £900 million has been reinvested in the compliance activities of HMRC precisely because we need to do more work to attack avoidance, evasion

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and criminal attacks on the tax system. Compliance revenue has more than doubled in six years so that by 2014-15 an additional £7 billion per annum will be coming in. The noble Lord’s concerns are quite right, and this Government are very actively on the case.

Lord Campbell-Savours: My Lords, the Minister did not answer my question on transfer pricing, which is the mechanism used to avoid paying corporation tax. Why will he not answer my question?

Lord Sassoon: Because, forgive me, there are other Peers wanting to get in. I completely agree with the noble Lord that transfer pricing is one of the most serious areas that need to be looked at, which is precisely why each one of those 800 large companies has a dedicated tax professional looking at this area. The focus on transfer pricing has meant that in the past four years £4 billion has been recovered precisely by going after transfer pricing schemes. On average, £1 billion a year is coming in through effective action.

Trusts (Capital and Income) Bill [HL]

Third Reading

3.09 pm

Baroness Anelay of St Johns: My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Trusts (Capital and Income) Bill, has consented to place her interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Lord Ahmad of Wimbledon: My Lords, on behalf of my noble friend Lord McNally, I beg to move that the Bill be now read a third time.

Lord Hodgson of Astley Abbotts: My Lords, before we wave goodbye to the Bill, and in congratulating the Government on its provisions, perhaps I may ask my noble friend to ensure that the Ministry of Justice understands that this was only a very small step and that there are many other aspects of the Bill as they affect charities which could usefully and properly be followed through.

Lord Ahmad of Wimbledon: My noble friend is correct. The Bill makes minor modifications and there is obvious scope to look at this issue further.

Lord Lloyd of Berwick: My Lords, I add my tribute to the work of the Law Commission in relation to the Bill. It is a short but useful Bill. In Clause 1 we say farewell to a number of old friends familiar to generations of law students, if to nobody else. Clause 4 is important since it gives greater flexibility to the trustees of charitable trusts. All in all, the Law Commission is to be congratulated on producing a valuable reform of the law and I look forward to its next instalment.

Bill passed and sent to the Commons.

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Bovine Tuberculosis

Statement

3.11 pm

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley): My Lords, with the leave of the House, I shall now repeat a Statement made in the other place by my right honourable friend the Secretary of State for Environment, Food and Rural Affairs. The Statement is as follows.

“Bovine tuberculosis is the most pressing animal health problem in the United Kingdom. The importance of the epidemic for our cattle farmers, their families and their communities cannot be overemphasised. This was once a disease isolated to small pockets of the country. It has now spread extensively through the west of England and Wales. The number of new cases has doubled every nine years. Last year, TB led to the slaughter of 26,000 cattle in England at a cost of nearly £100 million. In the past 10 years bovine TB has cost the taxpayer £500 million. It is estimated that this will rise to £1 billion over the next decade if the disease is left unchecked.

The task of managing bovine TB and bringing it under control is difficult and complex. The Government are committed to using all the tools at their disposal and to continuing to develop new ones as a package of measures to tackle the disease. In high-risk areas, herds are tested annually and any cattle that test positive are slaughtered. Restrictions on cattle movements have been further strengthened to reduce the chance of disease spreading from cattle to cattle. Only last week we announced plans for a new surveillance testing regime and stricter cattle movement controls. We also continue to look at ways to improve the testing of cattle for TB.

Research in this country over the past 15 years has demonstrated that cattle and badgers can transmit the disease to each other. Culling badgers can lead to a reduction of the disease in cattle if it is carried out over a large enough area and for a sufficient length of time. That is why we believe that, based on the best available evidence, culling badgers to control TB can make a significant contribution. It is crucial that we get this right. The National Farmers’ Union has taken the lead on behalf of the farming industry to plan and organise the pilot culls. It has been working tirelessly over the past few months, signing up farmers and landowners in the pilot areas and ensuring that contractors are properly trained. I have been immensely impressed by the effort, commitment and determination that have been demonstrated by farmers in the two pilot areas. I am also most grateful to the police in the two areas for their support.

The exceptionally bad weather this summer has put a number of pressures on our farmers and caused significant problems. Protracted legal proceedings and the request of the police to delay the start until after the Olympics and Paralympics have also meant that we have moved beyond the optimal time for delivering an effective cull. We should have begun in the summer. In addition to these problems, the most recent fieldwork has revealed that badger numbers in the two areas are

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significantly higher than previously thought. This only highlights the scale of the problem we are dealing with.

Evidence suggests that at least 70% of the badgers in the areas must be removed. This is based on the results of the randomised badger culling trial so that we can be confident that culling will reduce TB in cattle. Despite a greatly increased effort over the past few days and weeks, the farmers delivering this policy have concluded that they cannot be confident that it will be possible to remove enough badgers based on these higher numbers and considering the lateness of the season. It would be wrong to go ahead if those on the ground cannot be confident of removing at least 70% of the populations.

Today I have received a letter from the president of the NFU on behalf of the companies co-ordinating the culls, explaining why they do not feel they can go ahead this year and requesting that they be postponed until next summer. In these circumstances, it is the right thing to do and, as they are the people who have to deliver this policy on the ground and work within the science, I respect their decision. I have placed a copy of the letter in the Libraries of both Houses.

By starting the pilots next summer we can build on the work that has already been done and ensure that the cull will conform to the scientific criteria and evidence base. I know that this will be very disappointing for many, particularly those farmers in the two pilot areas, but I fully support the decision of the NFU to delay the start of culling operations.

I must emphasise that there is no change to the Government’s policy. We remain absolutely committed to it, but we must ensure that we work with the NFU to get the delivery right. We also remain committed to our wider TB eradication programme and to continuing to strengthen it, so that we can move towards our goal of a TB-free England. Vaccination is another tool and one that we would all like to be able to deploy more widely. Unfortunately, we are not yet there in terms of its development or practicality. If we had a viable and legal cattle vaccine, we would be using it. It will, however, be some years before this is the case and neither we nor the industry can afford to wait that long. It is for this reason that we must look at all the options.

The Government are determined to tackle bovine TB by all the means available to us. Now, in the next few months, we will ensure that the pilot culls can be implemented effectively, in the best possible conditions, with the right resources. Having looked at all the evidence over many years, I am utterly convinced that badger control is the right thing to do, and indeed the higher than expected badger numbers only serve to underline the need for urgent action. I remain fully committed to working with the farming industry to ensure that the pilot culls can be delivered effectively, safely and humanely next summer”.

3.18 pm

Lord Knight of Weymouth: My Lords, I am grateful to the Minister for repeating the Statement and for advance sight of it this morning. We welcome this statement and it is right that it should start by setting

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out the scale of the animal health problem, and the cost to farmers and to taxpayers of slaughtering infected cattle. This is an acute problem for farmers and I know from talking to them in the West Country over many years what a toll it is taking on them personally and financially. It is therefore also right that the Statement concludes with the need to work with farmers. But as the president of the NFU says in his letter to the Secretary of State,

“all decisions must be based on the science”.

Why then no mention of working with the scientists?

I am pleased to see the noble Lord, Lord Krebs, in his place. He is one of the leading scientific authorities on this issue. What meetings has the new Secretary of State had with the noble Lord and his colleagues? Did the Minister read the comments of the noble Lord in last week’s debate on scientific advisors? He said,

“it is still the case that the Government, perhaps too often, prefer policy-based evidence rather than evidence-based policy … The fact is that the overwhelming majority of scientific experts have concluded that the policy of killing badgers to control TB in cattle will have only a small beneficial effect, if any. It is essentially a waste of effort and money, and a distraction from the business of getting on top of a serious animal health problem that can have devastating effects on the livelihoods of farmers”.—[

Official Report

, 17/10/12; col. GC514.]

The truth is that this is yet another humiliating moment for the Government and for Defra because they put prejudice and ideology before science and evidence. Can the Minister confirm that this is more of an NHS Bill type of pause, rather than another government U-turn? It is certainly another in a chain of weekly incompetent humiliations: plebgate; the west coast main line fiasco, when they also got the numbers wrong; the energy policy on the hoof last week; the great train snobbery; and now this from Defra.

From Defra we have had the abandoned forestry sell off, chaos over circus animals, a U-turn on shooting buzzards to protect game birds and now a pause on shooting badgers. No wonder the noble Lord, Lord Tebbit, said this weekend in the Observer that the Government,

“seems unable to manage its affairs competently”.

He described it as a,

“dog of a coalition government”.

I do not think the noble Lord likes dogs. I suspect he would like the country to put it out of its misery and have this “dog of a coalition” put down. However, beyond the endemic incompetence in Defra and the Government there are serious specific questions to answer. As my colleague Mary Creagh MP said in the other place today:

“Labour has warned the Government for two years that the badger cull was bad for farmers, bad for taxpayers and bad for wildlife”.

The Secretary of State is right not to proceed because the cull this year could not deliver the 70% mortality rate needed for the possible positive effect on bovine TB—up to 16% over nine years. His decision is based on there not being enough time to cull that many badgers in the limited time available, particularly given the growing number of badgers in the pilot areas. However, the numbers and the limited time were predictable and demonstrate the incompetence in Defra

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and that this announcement was inevitable. His Statement blames the weather, the police and the Olympics for a limited time window.

Was it not the Home Secretary who ruled out policing the cull this summer, not the police? Was not the limited window therefore predictable and decided by Ministers? Is it not the case that in July last year Natural England gave Defra badger population figures that projected from the randomised badger-culling trial that the numbers of badgers in pilot areas was 3,300 per 350 square kilometres? This is broadly the same as the current estimate of 3,000 per 300 square kilometres, so the larger number of badgers was predictable too.

Why did the Secretary of State in the other place today say that it was only in September this year that Natural England determined deficiencies in the numbers of badgers to be culled? Is it just to cover Defra’s incompetence or is it that those projections last year were ignored because it was inconvenient evidence not policy-based evidence? Can the Minister tell us whether the estimates of badger numbers in the planned pilot cull areas were reviewed by the independent expert panel overseeing the pilots? I have heard not. If so, that is shameful.

What is the department going to do during this pause before doing the cull next year? Will it need to secure more money? The Secretary of State said today in the other place that the Government will compensate the police forces in Avon and Somerset and Gloucestershire for their costs in preparing for the abandoned cull. If it is a more intensive cull of the larger numbers of badgers, will he need more than the current projection of £500,000 per cull area per year? Will there be any compensation for the two companies engaged to do the shooting? I gather £850,000 was to be spent on surveying badgers; £248,000 on post mortems; and £713,000 on checking the humaneness of the cull. Will those contractors be compensated?

Beyond the finance questions there are other areas of work between now and when the cull starts next summer. Will Ministers meet representatives of the tourism industry in Somerset and Gloucestershire? The notion of marksmen across the countryside that I know well shooting badgers at night has clear risks. Those risks are heightened because the location of shoots will be kept secret to frustrate protesters, but if the location of shooting is secret how will visitors in the summer months be warned to keep away?

How will Ministers work with farmers to maximise the effectiveness of the welcome announcement last week on changes to the testing regime and cattle movement restrictions? These sorts of biosecurity measures are a key component in controlling this dreadful disease. Can more be done with government support to improve biosecurity?

Finally, there is the core question of vaccination. The possible benefits of a cull are marginal. Sir John Beddington, the Chief Scientific Adviser, has said that it will, at best, result in a 12% to 16% reduction in the disease after nine years. The Statement pays tribute to the tireless work of farmers and contractors in preparing for the cull and funding it. What is the Government’s

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estimate of what can be done on vaccination over nine years with the same unity of purpose? The emerging DIVA test is an encouraging development to allow a diseased animal to be differentiated from a vaccinated animal. Surely this now makes it possible seriously to engage with the EU in lifting the ban on exports from vaccinated animals. The vaccine itself is 50% to 60% effective. We need more efficacy but it appears that good progress is being made in finding a scientific solution. Surely it is right to focus on this rather than on what the 30 eminent animal disease experts writing in the

Observer

10 days ago described as a “costly distraction”.

My party is clear that bovine TB is a blight on dairy farming and causes untold misery to dairy farmers. We take it very seriously and we all want a solution. We know that growing numbers of diseased badgers are passing the disease to cattle and costing the taxpayer a fortune, but, unfortunately, the logic of then culling them does not follow because the science tells us that that is most likely to spread the disease unless such a scale of geography and intensity is used that it is clearly nigh on impossible to then deliver the cull. We must be led by the science and the science leads us to vaccination with interim efforts on biosecurity. That is what we want. That is what the nation wants. I hope that, after reflecting on this shambles today, the Secretary of State will abandon his dogmatic view and get it right by listening to both farmers and scientists.

3.27 pm

Lord De Mauley: My Lords, I thank the noble Lord for his response to the Statement. I start by reiterating that bovine TB is the most pressing animal health problem facing our cattle farmers. No one wants to kill badgers but we absolutely have to bear down on this terrible disease.

What has been announced today is a postponement until next summer of the pilots that were due to start this autumn. There is no change of government policy. We and the farming industry remain committed to taking forward this evidence-based policy. We are totally committed to tackling bovine TB through a range of measures, including a controlled cull of badgers. The cull in the two pilot areas will go ahead next summer when we are completely satisfied that all the arrangements are in place.

The leading experts whom Defra brought together last year agreed that the evidence shows that culling done in the right way and carried out over a sufficient area and length of time in a co-ordinated and efficient way can reduce the spread of the disease to cattle with benefits remaining for many years. The policy is firmly based on evidence from the randomised badger-culling trial. Using the results of this trial, culling over an area of 150 square kilometres could be expected to lead to an average 16% reduction in TB incidence in the local area. This figure was agreed by an independent panel of scientists at a meeting with Professor Bob Watson, Defra’s Chief Scientific Adviser, on 4 April last year. We are clearly not saying that this is the whole answer but it is a very important part of the answer alongside testing and surveillance, movement restrictions and the removal and slaughter of affected

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animals. We wanted to be absolutely sure that we had the most robust data available to ensure that the right logistics were in place for an effective cull. The population estimates show the problem of badgers spreading bovine TB to be even worse than expected. The right decision has been taken, based on the available evidence.

Natural England’s figures were estimated on RBCT data and, in validating the estimates provided by the applicants, some gaps were found that raised concerns. Due to the importance of this data for the effectiveness of the policy, it was responsible, in taking a science-based approach, to check these numbers through further fieldwork. This further fieldwork has led to updated estimates of the badger population that are higher than originally expected. The discovery that there are far more badgers than previously thought shows the problem could be much bigger than we feared. All of the preparations for the pilot culls were geared up for a smaller number of badgers, so it is absolutely right that the NFU looks again at what resources it needs to make sure we get it right.

The noble Lord, Lord Knight, asked about policing. It was agreed with the Home Office that the cull should not proceed before the Olympics. The noble Lord asked about the costs of the culling operations and whether they would be met by the participating farmers. The costs that fall to Government are those to do with ensuring that the pilots meet their purpose. It is right to pilot the policy and confirm our assumptions about the effectiveness, safety and humaneness of controlled shooting. As regards costs more generally, the Secretary of State has said that he will have a comprehensive breakdown of the money spent so far prepared and laid before Parliament. The noble Lord specifically asked about policing costs. These will depend on the extent of protester activity and it is right that the Government should recompense the police for additional costs.

The noble Lord asked about vaccination, which is an important issue. Work to develop an oral badger vaccine and a cattle vaccine is continuing and is a high priority. Defra has been investing significantly in developing bovine TB vaccines for both badgers and cattle for a long time. We have a licensed, injectable vaccine that can and is used on badgers. The problem with it is, however, two-fold. First, it is very expensive to catch all the badgers. Secondly, it has to be done every year. So it is a very expensive process and is not really practicable on a wide scale. Since 1994, Defra has invested more than £43 million in badger and cattle vaccination and associated diagnostics and expects to spend another £15.5 million over four years. Even if these vaccinations were available, they are not a magic bullet and additional measures would still be necessary.

The Government fully support the NFU’s decision to postpone the culls as the responsible thing to do to ensure the pilots are carried out effectively. It would be irresponsible to rush ahead and risk making the problem worse if it is not carried out properly. This disease led to the slaughter of 26,000 cattle in England last year and cost nearly £100 million. Without further action it would cost the taxpayer an estimated £1 billion over the next decade.

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Baroness Northover: I remind noble Lords that ministerial Statements are made for the information of the House. Although brief comments and questions from all quarters are allowed, Statements should not be the occasion for an immediate debate. I am acutely aware that many noble Lords wish to get in. It would therefore be courteous if noble Lords could be as brief as possible, to enable their noble colleagues to get in as well.

Lord Krebs: My Lords, as has been said, bovine TB is a serious problem, and it deserves serious science to underpin policy. I do not want to take up too much time, but I hope that your Lordships will forgive me as an individual who has been involved in this over the past 15 years and, as has been said, instigated the randomised badger culling trial and took part in the review of the evidence with Sir Bob Watson last year. It is worth briefly repeating the facts: the long-term, large-scale culling of badgers is estimated to reduce the incidence of TB in cattle by 16% after nine years. In other words, 84% of the problem is still there. To reflect on what that means, this is not a reduction in absolute terms but actually a 16% reduction from the trend increase. So after nine years there is still more TB around than there was at the beginning; it is just that there is 16% less than there would have been without a cull. The number is not the 30% that the NFU quoted; that is misleading—a dishonest filleting of the data. The other thing that the experts conclude is that culling makes the situation worse at the beginning so it will take a long time to emerge into this Nirvana of a 16% reduction, and 84% of the problem is still there.

That is just the background. I turn to questions that I hope the Minister will answer. Last Friday we were told by the Minister of State for Food and Farming that between 500 and 800 badgers would be culled in each of the two areas. The number, thanks to rapid badger reproduction over the weekend, is now 5,530 over the two areas—a fourfold increase. I am impressed. What this underlines is that if the policy is to cull at least 70% of the badgers, we have to know what the starting number is. This variation from just over 1,000 to more than 5,000 in the space of a few days underlines how difficult it is for us to have confidence that the Government will be able to instruct the farmers to cull 70% if they do not know the starting numbers. So my first question to the Minister is: how will he assure us that these numbers are accurate?

If we ask why the NFU has backed out, it is because it was due to pay those who were going to shoot the badgers on a per-badger basis. The NFU calculated it on the basis of shooting 1,300 badgers. Suddenly it is told, “It’s 5,500 badgers”. The farmers thought it was worth doing—but not that much. They have done their own cost-benefit calculation and say that it is not worth the candle. So my second question to the Minister is: in next year’s cull, who is going to pay? Are the farmers going to stump up on a per-badger basis to shoot 5,500 badgers or are we, the taxpayer, going to pay?

Finally and briefly, we have a pause and time to rethink. I urge the Minister to gather together scientific experts and rethink the Government’s strategy altogether, starting from square one.

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Lord De Mauley: I am grateful to the noble Lord, for whom I have a huge amount of respect. I am grateful to him in particular for confirming the 16% figure to which I referred in my answer to the noble Lord, Lord Knight. On the question of whether culling is not a huge part of the answer, it is a very significant part of the answer but I said earlier that it is not the whole answer. I hope that the noble Lord, Lord Krebs, will at least accept that.

He asked about the numbers. I explained to the noble Lord, Lord Knight, that previous estimates of the number of badgers to be removed from the pilot areas were based on the RBCT. We have recently carried out field surveys to look at the badger populations in the areas where the pilots are taking place. However, what is important in answering the question of the noble Lord, Lord Krebs, is that we have commissioned a national badger survey in England and Wales to quantify any changes since the previous survey.

The noble Lord asked about the cost and, in particular, whether the farmers will continue to bear the cost. Yes indeed, they will; that is entirely the plan. The bearing of the cost will be done in exactly the way that has been planned.

I should say to noble Lords, on the issue of the evidence and the science, that, following the March 2012 visit to the UK of the European Commission’s bovine tuberculosis sub-group of the task force for monitoring animal disease eradication, it stated:

“It is however of utmost importance that there is a political consensus and commitment to long-term strategies to combat TB in badgers as well as in cattle ... There is no scientific evidence to demonstrate that badger vaccination will reduce the incidence of TB in cattle. However there is considerable evidence to support the removal of badgers in order to improve the TB status of both badgers and cattle”.

So the European Commission is pushing us and we have to deal with TB in badgers.

Baroness Parminter: My Lords, I will be brief. Our priority on these Benches was always that the pilots were safe and rigorous in testing how effective and indeed humane the culling of badgers could be. However, given that the NFU does not have the resources to deliver this, we welcome the fact that the cull is being postponed. Will the Minister confirm that the Government will use this pause, before any evidence-based pilots proceed, to seek approval to use in the field the cattle vaccine and the diagnostic test, which has recently been approved, and in particular seek to use the EU animal health directive, which is upcoming?

Secondly, the Secretary of State confirmed today in another place that all options will be looked at in order to curtail this disease. Will the Minister confirm that those alternatives will not include looking again at the issue of gassing, which was condemned in a review by Lord Zuckerman, a Member of this House, in the 1980s?

Lord De Mauley: My Lords, I thank my noble friend for her supportive words. We have had discussions with the EU that essentially involve persuading the EU to accept the DIVA test. They have told us to get international validation and we are determined to do so.

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Lord Soulsby of Swaffham Prior: My Lords, in view of the great success in controlling rabies in foxes in western Europe with an oral vaccine, has much thought been given to the production of an oral vaccine for TB in badgers? I realise, of course, that the organisms are entirely different; one is a virus and one is a bacterium. However, surely the same process of trying to select an organism that is protected before it gets into the gut and immunises the badger is worthy of investigation. Can the Minister give some indication of some of the work that is going on, if any, on the production of an oral vaccine similar to the one developed for fox rabies?

Lord De Mauley: I am grateful to my noble friend because this is an important subject into which considerable work is going on. The evidence that he has referred to will of course be taken into account. Progress on the development of an effective oral badger vaccine relies, of course, on scientific breakthroughs in this field, and it is uncertain in outcome and timing. Compared to an injectable vaccine, an oral vaccine is technically more difficult to formulate, as my noble friend alluded to, and it requires bait, which encourages the uptake of the vaccine by badgers and minimises the potential of other species to eat it. Developing an oral vaccine against TB in badgers is proving more difficult than originally hoped, which means that I cannot say with certainty when one might be available for use in the field.

Lord Winston: My Lords, will the Minister inform us whether the Government intend to cull the seven or eight other common species which also affect tuberculosis and spread it among cattle?

Lord De Mauley: That is an interesting question. Although bovine TB is present in other wildlife, such as deer, badgers are the main species responsible for transmitting the disease to cattle because of their specific ecology. Evidence from the RBCT demonstrates conclusively that badgers contribute significantly to bovine TB in cattle. While deer in Britain are generally considered to be a sentinel or spillover host of infection in cattle, rather than a source of the disease in cattle, current evidence suggests that TB infection from deer is not a significant disease risk to cattle.

Lord Plumb: My Lords, as a farmer, my question is based on some history. I will be very brief. In 1944 we eradicated TB on my farm. In 1964, as a junior officer in the NFU, I had the privilege of announcing that we had totally eradicated bovine TB from this country. Since then, of course, history has shown us a different picture. The noble Lord, Lord Knight, posed a large number of questions, and I noted all of them. Those questions were posed more than 10 years ago, and we have gone through that period of time with few decisions being taken. To say, as the noble Lord, Lord Krebs, said, that farmers are dishonest is an insult to the farming community and I cannot accept it. That is not the reason. All the farmers concerned, particularly those who have been held up for 12 years, have been unable to sell one beast off their farms over that time.

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They do not see this problem as scientists see it; they see it as men who are concerned with the welfare of animals and they do not want to see their herds suffering, as they are doing and have done throughout this period.

My question is exactly the same as that raised by the noble Lord, Lord Soulsby. Surely we have to move towards vaccination. However, if the current vaccine is effective for only one year, that is a very expensive mechanism for doing the job. Surely to goodness we are in an age when an oral vaccine can be found to cope with this situation. It can be put in either the water or the food so that the affected animals are removed. Perhaps that would be a better way of dealing with the matter than the ways that have hitherto been thought of.

Lord De Mauley: I can only say to my noble friend that we are pursuing vaccine options as hard as we can and as a high priority. We have been investing significantly in developing TB vaccines for both badgers and cattle for a long time. I have mentioned a licensed injectable vaccine that can be and is being used on badgers but, as I have explained, it is extremely expensive and needs to be repeated annually. As my noble friend says, we need an oral vaccine, which we are still searching for. We will continue that search and expect to spend another £15.5 million over four years.

Lord Patel: My Lords, the Minister referred to other species that are affected with a similar strain of tuberculosis and specifically mentioned wild deer. Are not mice, particularly field mice, and rats also affected by the same strain and do they not come into closer contact with cattle?

Lord De Mauley: My Lords, the point about mice, rats and indeed deer is that there is no restriction on culling them.

Lord Clark of Windermere: My Lords, I agree entirely with the Minister, as indeed would most people in the country, when he says that this is the most pressing animal health issue facing the country. In the light of that, I welcome the announcement today because I think that it exposes how shambolic the Government’s proposals have been in trying to tackle this real problem. As scientists said last week, the policy was little more than a costly diversion and we will end up with more cases of TB in four or nine years’ time than we have at the moment. The four-year pilots have now, with the stroke of a pen today, become five-year pilots. I believe that we ought to follow the recommendations of the European Union representatives and, although it will not be easy, continue to seek political consensus so that we can move on to vaccination and increase the amount of money that we are spending on research in this field, especially in the form of cattle vaccination.

Lord De Mauley: My Lords, the area in which I disagree with the noble Lord is clearly that of pursuing the cull, which I have said we are planning to do. The area in which I agree with him is that of vaccination,

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which is another tool in the box that we must find, and I assure noble Lords that we are continuing to work on that.

Lord King of Bridgwater: My Lords, the Minister may be aware that my former constituency was one of the areas that were being considered for this cull. For very many years, including 13 years of a Labour Government, I prayed that positive progress would be made by the Government in tackling this problem. I join the noble Lord, Lord Plumb, in saying that I bitterly regret the very party-political way in which the noble Lord, Lord Knight, intervened in this matter. His Government did nothing effective and left it as a problem to be tackled now. Some have had to live with the personal challenges of the issue—as my noble friend knows, there are suicides, despair and family breakups, so it is not just the financial consequences but the destruction of people’s whole lives that have followed from this. It is also not just dairy herds, which I think the noble Lord referred to, but anybody with cattle. Certainly in the West Country they have faced appalling problems. This should be pursued on an all-party, bipartisan basis, as my noble friend said, not by trying to score points and accusing people of dishonesty in filleting the statistics or anything else. We are trying to get a cohesive approach to this challenge because if we do not, in many parts of the country, it will destroy the whole cattle industry as we see it.

Lord De Mauley: I absolutely agree with my noble friend about the effect on farmers and their families. Perhaps I may do something unusual and come to the defence of the noble Lord, Lord Knight, who began by acknowledging how very horrible this disease is. If I may, I would like to pour a little soothing balm on the political argument.

Baroness Royall of Blaisdon: My Lords, perhaps I may defend the previous Government, who undertook a long series of randomised trials and worked with scientists to try to find a scientific base for future action. Does the Minister accept that there is much relief in the Forest of Dean this afternoon as a consequence of this Statement? The majority of people in the forest, including many farmers, did not want a badger cull that was not based on scientific evidence, was not economic and would not provide the necessary solution to the devastating effect of bovine TB on herds and farmers but that would decimate the badger population. I should add that the police of Gloucestershire are also much relieved to have their leave restored. Can the Minister reassure me that the Government will now use the pause to pursue a firmly scientifically-based solution which will also have a sound economic basis? Will he also agree to update this House regularly so that we can try to find a solution on which there can be some political consensus? We all want to be involved in pursuing that.

Lord De Mauley: My Lords, I have said that we are pursuing all options and I do not think that I can say much more than that. However, I am grateful to the noble Baroness for her offer of help.

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Lord Willis of Knaresborough: My Lords, the Minister has rightly referred to scientific evidence, as has the noble Lord, Lord Krebs. It is clear that the scientific evidence that the Minister and his colleagues are getting is different from that which a significant proportion of the scientific community is getting. What reassurance can he give us that an independent group of scientists will be brought together to examine this process transparently and that a regular report will be made to this House, as the noble Baroness said, rather than waiting for another crisis until such a report is made?

Lord De Mauley: My Lords, my noble friend will know that a great number of professionals, scientists and experts are already involved in this process. There is also, indeed, an independent panel which will monitor the results of the cull, and we are extremely grateful for all the advice that we get.

Lord Christopher: My Lords, there have been probably inescapable pressures on farmers to manage cattle as they do. Will the Government also look, among the options, at any evidence suggesting that the resistance of our present herds has been lowered not least as a result of inbreeding? For example, how many bulls are responsible today for our white cattle herds of Holsteins and Friesians?

Lord De Mauley: My Lords, I have heard no evidence that inbreeding contributes to the incidence of TB.

Infrastructure (Financial Assistance) Bill

Second Reading and Remaining Stages

3.54 pm

Moved By Lord Newby

That the Bill be read a second time.

Lord Newby: My Lords, I am delighted to be able to open the proceedings on the Infrastructure (Financial Assistance) Bill. The purpose of the Bill is to help accelerate significant investment in major infrastructure projects and it will increase the number of homes being built and occupied.

Before I set out the main features of this legislation in more detail, I briefly remind your Lordships’ House of the Government’s commitment to delivering a sustainable, private sector-led recovery. This will be possible only by maintaining our credible fiscal stance and so keeping interest rates low. We want to see a recovery that is balanced across industrial sectors and across geographic regions. To achieve this ambition—

Lord Barnett: Is this putting into law the loan guarantee scheme?

Earl Attlee: My Lords, long experience in this House tells me that the best way of handling these events is to allow my noble friend the Minister to lay out his stall and then noble Lords can ask questions at the appropriate point.

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Lord Newby: I hope that my speech will answer the noble Lord’s question adequately.

Firms will have access to the communications and transport networks that they need, wherever in the UK they happen to be, enabling Britain to compete on the world stage.

Our national infrastructure plan published last November sets out an ambitious but credible roadmap to deliver on that vision—a pipeline of upcoming investment worth £257 billion in crucial large-scale projects, of which more than two-thirds will typically be financed and delivered by the private sector.

A number of key infrastructure projects close to starting construction are being delayed because of the difficulties they face in securing the finance and investment required, and the housing market continues to suffer from an undersupply of homes to meet the UK’s demographic needs. Even under favourable credit conditions, raising the amount of private finance required to deliver these projects and to meet our overall infrastructure investment goals would be a challenge. However, the disruption caused by the instability of international financial markets and the adverse effect that this is having on long-term debt provision have not abated. Proactive, decisive action by the Government is therefore needed now. The Bill will allow us to take that action and will bring forward the investment needed.

The principal aim of the Bill is to make investment in major infrastructure and housing schemes possible. The Government have agreed in principle, subject to strict approvals criteria, to make financial support available to infrastructure projects using the strength and credibility of our balance sheet to support the investment that we need.

Through this Bill, guarantees provided by the Government will help to ensure that where projects are struggling to access private finance due to adverse credit conditions, these projects can now go ahead. It authorises the Treasury and, where appropriate, other Secretaries of State to incur expenditure necessary for providing financial assistance.

The Bill will allow the Government to support crucial investment in key areas of economic and public service infrastructure: utilities, such as energy and telecommunications; transport, such as railways and roads; infrastructure to provide public services, such as hospitals and schools; and housing development to deliver much-needed homes.

The Treasury estimates that up to £40 billion of investment in infrastructure and an additional £10 billion in housing investment could be accelerated under the guarantee schemes using the powers in the Bill. Importantly, we will put in place strict guidelines and eligibility criteria for the schemes to protect the taxpayer and ensure that the Exchequer does not take on unacceptable fiscal risks.

Any proposal that receives a guarantee from Infrastructure UK will as a minimum have satisfied the following requirements. It must be nationally and/or economically significant; financially credible; good value for money for the taxpayer; not solely dependent on a guarantee to proceed; and ready to start construction

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within 12 months. Any proposal that receives a housing guarantee from the Department for Communities and Local Government will, as a minimum, need to deliver an agreed number of new homes; undergo an investment appraisal and full due diligence and be subject to ongoing monitoring requirements; meet a risk capital contribution at the outset; and provide recourse to the secured housing assets.

Since the projects that we expect to back will be structured to minimise the potential losses to the Exchequer, there will be minimal impact on public sector net borrowing as a result. The exception is under the extreme circumstances that a guarantee is called upon or other forms of financial assistance are provided, but we expect such circumstances to be rare. Furthermore, the Government will levy a commercial charge. This will cover the services received by infrastructure providers and beneficiaries of the private rented sector housing guarantee. It will ensure that companies pay a fair price for the benefits that they receive, and that taxpayers receive a fair price for any risk being taken. It will also ensure that schemes do not fall foul of EU state aid rules.

The Bill raises a number of questions. The first and most fundamental is: will it work? Is there any evidence that the guarantee being offered will really facilitate the speeding up of infrastructure projects? There is already substantial evidence that it will. Infrastructure UK has received some 60 enquiries from projects that might qualify, and more are expected. There is also strong interest across the housing sector. Negotiations on these projects are ongoing so it would be inappropriate at this point to run down a list but, as an example of the kind of thing that is likely to benefit, we have indicated that the Crossrail rolling stock and depot services procurement meets the eligibility criteria.

A number of people have asked why the Bill is necessary at all. Can the Government not already do this kind of thing without explicit legislative cover? The Treasury and Secretaries of State already have common-law powers to make guarantees, make loans and give other financial assistance. In addition, some Secretaries of State have express statutory powers to support infrastructure. However, the Treasury does not have the authority to incur expenditure in relation to guarantees on the scale that I have outlined. Moreover, there is a longstanding convention—

Lord Peston: The noble Lord was kind enough when I asked him why we needed a Bill to point me to an answer given in the other place, which I have to tell him I found completely incomprehensible. I am still stuck. Will he say in terms that we need a Bill because of the scale of the operations? Is he willing to place on record that that is the point and it is the size of the operations which requires legislation? I find that very odd but at least I would like to hear him say it.

Lord Newby: It is partly the scale of the operations and the length of the guarantees, and also because the current rules have gaps in them, as I understand them, or there are certain parts of the whole infrastructure world, as it were, that are not covered by the existing rules. To finish my sentence, there is a longstanding

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convention known as “Baldwin cover”, dating back to 1932, that Governments should not rest significant and regular expenditure under common-law powers on the sole authority of general supply legislation. That is the noble Lord’s point. It is significant and regular guarantees, not expenditure, that could have a very long period of operation.

Questions have also been raised about what kinds of project can potentially be covered by this legislation. In particular, the Institution of Civil Engineers has asked about what constitutes a nationally significant project—a phrase that does not appear in the Bill but did appear in last year’s national infrastructure plan. I should make it clear that projects that could potentially benefit from this Bill are not limited to the nationally significant projects identified in the national infrastructure plan. In addition to the areas covered by the plan, we will be prepared, for example, to look at waste management and university projects that are economically viable and simply want for finance. As to the scale of project that can potentially benefit, again there is considerable flexibility. A project does not necessarily have to be valued at several hundred millions of pounds to be considered.

The Bill is one part of the Government’s overall approach to ensuring that the United Kingdom invests in the infrastructure that it needs for the future. I look forward to our debate today and I commend the Bill to the House. I beg to move.

4.04 pm

Lord Adonis: I am very grateful to the Deputy Chief Whip for explaining the Bill and I am delighted to be debating with the noble Lord for whom I have the highest regard. I am also very glad that Paul Deighton is to become Minister for Infrastructure. It was specifically to shadow him and his vitally important work that I have returned to the Front Bench and I much look forward to engaging with him. I understand that Paul Deighton will not be joining the Government until January so this is an unusual, if not unprecedented, case of the shadow materialising three months before the substance, which sort of sums up the Government’s infrastructure problem: all shadow, no substance.

If I can continue the metaphor, this Bill is one of the most shadowy I have ever seen. Its four clauses simply give the Government power to spend up to £50 billion on infrastructure in very broad areas—water, electricity, gas, telecoms, sewerage, railways, roads, health, education, courts, prisons and housing—with little indication in the Bill or in the debates in the House of Commons beyond a single announcement about Crossrail trains of what real infrastructure projects it is intended to assist and when.

The Minister did not enlighten us much further, saying that,

“it would be inappropriate … to run down a list”,

which is a phrase redolent of Sir Humphrey at his very best. Our consideration of this Bill is a mere shadow since it is a money Bill which we cannot amend or even debate amendments to. However, before this phantom passes into law, I should like to set out some issues for debate and would be grateful for the Minister’s response.

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In 2009, expenditure on infrastructure was at the highest real-terms level for about two decades. Three years later, the Construction Products Association is warning that infrastructure is in free fall. It is expected to decline by 13% this year compared to last. The CPA is projecting even bigger falls in key sectors—for example, a 40% drop in road construction this year—not least because of the coalition’s wholesale cancellation of road schemes in 2010. Will the Minister confirm these figures and tell us whether, in retrospect, it was wise to cancel essential schemes of national importance such as the dualling of the A14 east-west route from Felixstowe port to the Midlands and the dualling of the A21, a key route from London to the Kent and Sussex coast?

In the case of the A14, this project has now resurfaced as a proposed toll road. My officials told me that tolling of the A14 was unworkable when I was Secretary of State, but the coalition clearly has a higher source of wisdom. So, could the Minister tell me, first, whether the Government are considering a state financial guarantee for the privately financed A14 project, as it will surely need one; secondly, what tolling scheme is proposed, because I can find no reference anywhere to a scheme that appears even vaguely workable; and thirdly, when the tolled and dualled A14 will be open? If the work had gone ahead as a conventional road scheme in 2010, the opening would be taking place in stages from now. The only reference that I can find on the web is to a tolled scheme that will open from 2018.

Equally concerning is the delay and prevarication over energy policy, which is holding up investment in new infrastructure, including the £210 million Siemens investment in a wind turbine factory in Hull and huge investment in new wind farms and renewable energy. There are big delays, too, in rolling out superfast broadband and 4G. When I was on the Norfolk coast earlier this month, visiting Statoil’s new Sheringham Shoal offshore wind farm, a particular concern was the lack of fast broadband and the poor quality of mobile phone reception. Britain’s lack of 4G mobile phone provision is pushing us behind the United States, Germany, Sweden and parts of Asia. As for broadband, the Country Land and Business Association recently described the superfast broadband situation as lamentable saying:

“It is becoming clear that the Government’s strategy will not meet the target date of 2015”.

The shadowy case for this Bill is that it will help unlock the capacity of the private sector to invest in infrastructure, but it is important to understand that a critical obstacle to infrastructure investment is the Government’s own failure to lead and deliver.

I mentioned road schemes a moment ago. It is the same story with airport capacity in the south-east, where the Prime Minister has just appointed a review which is going to take three years. It is now three-and-a-half years since the previous Government announced their decision on airport capacity in the south-east. In the House of Commons, the Economic Secretary to the Treasury said that any decision on airport capacity would be taken by the next Government. In other

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words, this Government have given up. If I may say so, that is one of the most brazen abdications of responsibility that I have ever heard from a Government.

It is the same story on HS2—another project that I know intimately—where dither and delay since 2010 have put the project back by at least two years and may again delay the key decisions until the next Government. It is a similar story too in London, where one of Mayor Johnson’s first cuts in 2008 cancelled the desperately needed Thames Gateway Bridge which would have provided another Thames crossing in east London, for which both planning and funding were already secured. Instead, all we have is a new cable car offering a tiny fraction of that capacity and—you could not make this up—the beginning of a planning process which might ultimately lead to a new bridge not far from the one which was cancelled for short-term political reasons. It is the same story now with the extension of the Northern Line to Battersea, a key development area. In June, a Treasury source told the Evening Standard:

“The entire weight of the Government is being thrown behind the extension of the Northern Line”.

Now, Transport for London can only say:

“Subject to funding being in place and permission from the Secretary of State for Transport, the new stations could be open by 2019”.

So much for transport, energy and broadband. Let us look at education. One of the Government’s first acts in 2010 was to slash to ribbons the school building programme. If that had not happened, hundreds of schools would be being built or refurbished as we speak, pumping billions into the construction industry and providing modern school premises which will now have to be built at far greater expense hereafter. It is the same story too with housing. The number of housebuilding starts fell by almost a quarter between March last year and March this year, with starts by housing associations, in the quasi-public sector, down by a similar proportion.

I have always taken it as a golden rule that the state should not preach to the private sector until it has got its own act together. Well, let us be clear: we are now confronting a situation where the state itself has slashed or delayed infrastructure spending across the board, and failed to agree planning decisions for key privately funded infrastructure projects, while deploring delays in the private sector. That is not leadership, but complacency masquerading as concern.

It is not just on investment that the state is failing to lead. The Government talk constantly about reducing planning delays, something which is within the power of the state to determine. Yet I note that last year only 60% of major planning applications were processed within the target date of 13 weeks, a big reduction on the 68% determined within 13 weeks in 2010.

Turning to the national infrastructure plan, which the noble Lord said was “ambitious but credible”, I note that in the latest reissue, 63 projects have disappeared without explanation from the 2011 plan—I assume that they were ambitious but not credible. Of the 357 projects in both the original plan and the updated version published this April, almost two-thirds were in pre-procurement stages. Only 38 had proceeded to

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procurement or construction. More than 300 projects in the national infrastructure plan therefore are still mere shadows, and 63 have vanished into thin air. Honing down to the most important projects, the British Chamber of Commerce identified 13 critical infrastructure projects before the last election. There has been little or no progress on eight of those 13.

Will the Bill help with any of this? It entirely depends what the proposed assistance is going to be used for. The Bill simply says that the Government may provide any kind of financial assistance up to the absolute limit of £50 billion. The only further limitation suggested by Ministers is that projects should be of “national significance”, a definition which looks to be in the eye of the beholder. Will the Minister give us just a few examples, beyond Crossrail trains, of projects which will now go ahead through the proposed guarantees to the private sector, as the CBI has said that we need urgent action from Ministers to identify further projects?

Will the Minister also give us an indication of when the first project financed under this guarantee scheme will actually go ahead? When the Crossrail trains announcement was made, the Financial Times said:

“The government appears to have relaxed one of its key criteria for guarantees—neither the super sewer”—

another possible project for this scheme, funding for which is apparently stuck in the Treasury—

“nor the Crossrail rolling stock schemes will be ‘shovel ready’ within 12 months”.

Will the Minister tell us about the relationship between the Bill and the Growth and Infrastructure Bill, which was published last week? The Bill was supposedly going to unlock a string of major infrastructure projects. Now, before it is even enacted, another appears whose Explanatory Notes state that its purpose is,

“promoting growth and facilitating provision of infrastructure”.

There are to be yet more changes to the planning system intended—and have we not heard this before?—

“to enable applicants to avoid delays in local decision-making”,

while respecting localism. The next Bill also includes changes to the infrastructure financing regime, which overlaps directly with this Bill: for example, removing so-called unviable Section 106 agreements for affordable housing.

The CLG blurb accompanying the Growth and Infrastructure Bill states that those further changes could:

“Unlock investment decisions across a range of technologies, bringing thousands of new jobs and billions of pounds of investment”.

Those are almost precisely the same words used to justify the present Bill and a host of other initiatives over the past two years, each of which has been succeeded by another intended to achieve precisely the same objectives before it has even been enacted, let alone implemented. They are also the justification for the regional growth fund, only a tiny fraction of whose allocated funds have yet been released to businesses, as catalogued in the highly critical report from the Public Accounts Committee.

I have asked a lot of questions, and I entirely understand if the Minister writes to me about those to which he cannot get answers by the time he replies.

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I fully recognise that it may take longer than two hours —perhaps two years or even two centuries—to come up with a viable scheme for tolling the existing A14.

Let me end on a broader note. When the Bill was debated in the Commons, the Economic Secretary to the Treasury said that it would,

“facilitate headline schemes for infrastructure and housing investment, accelerate and bring forward investment in major UK infrastructure projects and increase the number of homes being built and occupied”.—[

Official Report

, Commons, 15/10/12; col 121.]

Those are fine words, but what we need now is action. At the moment, we are simply chasing shadows.

4.16 pm

Baroness Gardner of Parkes: My Lords, I am glad that infrastructure is defined in Clause 1(2), as it is a word that has such a wide meaning and without it I would not feel entitled to speak on the Bill, because I do not have expertise on the financial aspects of it. Guarantees are of such importance and relevance at present, when we need jobs to be created. I believe that the guarantees under the Bill will enable works presently delayed to be carried out so that they will be of benefit both to the nation and to individuals. My comments will be directed towards subsection (2)(e), housing, which will also automatically involve subsections (2)(a), because of the linkage of services, and (2)(b), roads and transport.

For a good many years, until I reached their retiring age, I was a vice president of the National House Building Council. I hold it in high regard and it provides an excellent service for small builders and individuals. When I had to rebuild my own home in the 1980s—sadly, it had split asunder due to subsidence—I valued the security provided by its guarantee, which I believe covered the first 10 years after construction.

Later, I learnt of the wide support that it gives to the home building industry and I know that it plays a very necessary part in the provision of homes which are again so badly needed. Awards were given annually to various categories, such as small builder of the year, rather like a mini-Oscar ceremony. I hope that the NHBC will, among others, encourage builders to produce commonhold developments. It is time that we got rid of the antiquated leasehold system for residential property, which exists only in England and Hawaii, I believe.

In the Housing Reform Act 2002, we introduced commonhold, but it has hardly been used at all. I believe that the main reason is that developers prefer to make more money by selling the freehold to one body and the leasehold to another. That means that owner-occupiers, particularly in blocks of flats, have little or no control over the work carried out on their properties or the costs of them. I am sure that your Lordships are aware that I have spoken about leasehold reform many times. I still have my flat in Australia, where our commonhold is called strata title. Under that system, all flat owners are members of the body corporate and all decisions about the block are made collectively. I am convinced that once a reputable company such as Persimmon—and lots of others—builds and sells one commonhold block, it will see how popular and effective the system is; once it takes off,

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there will be no turning back. Getting the advantages known to the public will prove the value to home owners.

In our 2002 housing Act on this matter, there is provision for leaseholders in existing blocks to apply to convert to commonhold, but the provisions of the Act make it almost impossible, as 100% of leaseholders must agree. Apart from the fact that more often than not one owner is not contactable, it is open to abuse by any superior landlord not wanting to change. They need to buy out only one person’s vote to secure retention of the property for the superior landlord. Would it not provide a wonderful example if the Government were to support commonhold as the choice of tenure for the buildings to be converted to residences on the former Olympic site? This would provide a real legacy for the Games.

Returning to the wider issues of housing, we are all aware of the desperate need for more housing. Finance has been in short supply and mortgages have been almost unobtainable. Small builders cannot employ staff or begin construction unless they are sure of financial backing. From the comments of the noble Lord, Lord Adonis, I thought that the flexibility in this scheme should clearly mean that small builders can be supported in the same way as anyone else; it does not have to apply only to huge construction firms. Many of these small builders have huge skills and capabilities.

A lot of noble Lords will remember the late Lord Taylor. He told me that his career began when he built one house—I think in Liverpool. Selling that house provided him with the funds to build two houses and he went on to head Taylor Woodrow, which was a great achievement for him and a wonderful example for anyone looking for a future in the industry. We should not overlook that; we should support small builders who are ready and able. I like the expression “shovel ready” used by the noble Lord, Lord Adonis, and builders are shovel ready and often desperate for work at the moment. If they cannot employ staff, they cannot get going.

There is another aspect of housing on which I must comment. At present, there is a great argument about green belt and non-green belt land. I made this point during the passage of the Localism Bill, but consider it worth repeating in the context of this debate and all recent debates on the subject. There are small pockets of land in so-called green belt land that are sited in the midst of fairly built-up areas. These infill sites already have all the infrastructure in place and homes could be built on them without the delay of waiting for services, such as power, roads, and so on. This would mean that builders could get working much more quickly. Naturally, whoever owns the adjoining house will not want new neighbours, but nimbyism is not to be encouraged. Providing the new build is in harmony with the neighbours, it would rapidly become acceptable.

Reading page 3 of the Library note on this Bill today, I was disappointed to see the negative comments from the Opposition in the other place. To speak as pessimistically as Rachel Reeves did for the Opposition—in col. 689—is most disturbing. Surely we should all

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welcome this hope of producing not only more jobs, but also more homes. All parties must surely support the principle of this Bill. To oppose it, which in fairness she said she would not, would be to kill off hope for people who would definitely benefit if this finance made the difference between action and no action on infrastructure.

I can better understand Nick Raynsford’s remarks about “deep scepticism” and his wondering whether the Bill will deliver all that is expected of it. We have heard similar comments from the noble Lord, Lord Adonis. We all hope that it will deliver, but no one can know these things for certain. Without this Bill, I believe there is no hope for this necessary progress. It is a money Bill and I understand the significance of that, but I do not mind speaking on it. It is not something that we have any right to do anything about. We must go ahead with this financial assistance scheme; we must look to the Government to ensure that the money is put to good use to provide homes, systems, schemes and developments to the benefit of those needing work and homes.

I found many of the comments made by the noble Lord, Lord Adonis, very interesting, such as his comments on toll structures. I have just come back from Australia, and I was very interested to see how well the toll roads work out there. Whether they are appropriate for here, I do not know. That is not my field of expertise. The noble Lord said that things have not progressed but perhaps this Bill will help them to progress. We have to look at this positively and go ahead with this action by the Government. The important thing is that the money has to be spent wisely on guarantees. No one seems to be able to get a guarantee now from a bank for pretty well anything, particularly for major projects but also for small projects. My appeal today is that we try to help small builders to get going so that homes can be built immediately for those who desperately need them and so that builders can provide employment. I support the Bill.

4.25 pm

Lord Desai: My Lords, as I came into the Chamber this afternoon, I was told that I had missed the U-turn on the badger cull, but I am glad that I am here to see the U-turn on the Treasury’s economic policy. Unlike the badger cull, it is as if only some badgers are not going to be culled, but others will be. It is a very minor regression from their policy by the Government. I guess it will do no harm to spend £50 billion doing something, although I still do not quite understand why it is necessary.

There are two problems. The Government’s economic case—I thought I was one of the few people who understood it—was that they would withdraw from spending money because we do not have any money, which is fair enough, and the private sector would take over investment. The private sector is flush with money. There is absolutely no shortage of funds in the private sector. The balance sheets of private corporations are very generously funded. Therefore, if these infrastructure projects cannot get money from the private sector, one needs to know what the market failure is. If the market failure is that the Government should have been spending this money anyway, why are we doing it? If the problem

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is that the Government have to spend money because projects will not be funded by the private sector, I understand that. I grew up with that argument and have no problem with it, but in that case, £50 billion is not enough. As my noble friend Lord Adonis pointed out, there are many more things that could be done.

The Government are not doing that, but are doing this. I still have not seen an intellectual case or any evidence that significant numbers of people are unable to get money, although it may be the case. One reason could be that people need some kind of pump-priming investment so the Government have to start something for other people join in. The Government have to show some confidence in the long-term prospects of the economy by, for example, starting a third runway, upgrading the A14 or whatever, and then there would be supplementary investment. But this says that the Government will not do anything except stand there because in 1932 Baldwin prevented the Government doing it. I find it very surprising that the Government cannot do this in any case, but that is a bureaucratic thing, a regular Treasury thing, and so I will never understand it.

I find it intellectually impossible to understand why it is being done now, why, if it is being done now, it could not have been done two years ago and why a much more ambitious scheme could not have been done many years ago. Why have the Government waited two years and had a massacre of infrastructure projects before we got to this? Lastly, have the Government any idea whether this is going to work? I still do not know which projects are stuck because they cannot get a bank loan. If they cannot get a bank loan, is it because the project will not make money? If that is the case, is the taxpayer about to lose more money than before?

4.29 pm

Baroness Maddock: My Lords, I always enjoy the contributions of the noble Lord, Lord Desai. I declare an interest as a vice-president of the Local Government Association. This is an important Bill, particularly for housebuilding, which is what I shall concentrate on. It was interesting that Radio 4 yesterday morning highlighted rapidly rising rents in the private sector and highlighted one of the reasons for this—the shortage of homes that we face in the United Kingdom. Housing is a vital part of our United Kingdom infrastructure. Not only does housebuilding help to boost the economy, particularly the construction industry—a point made by my noble friend Lady Gardner—it also solves a number of other significant social problems, including social housing waiting lists, high rents, the affordability of homes for first-time buyers and overcrowding, which is becoming acute in housing in this country. However, despite this, the coalition Government inherited a housing crisis in May 2010.

Under successive Governments, the number of homes being built has been declining. In particular, social housing stocks have been extremely badly hit. The coalition Government are committed to building more homes. We have already said that we expect to build 170,000 new social homes by the end of this Parliament. However, while the Government are investing state money in many of these projects, there is also a real

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need for support for private developers to get housebuilding projects under way, a point made by my noble friend Lady Gardner of Parkes. The Bill will allow the Government to provide loans, guarantees and other financial support for infrastructure of up to £50 billion. As I understand it, £10 billion of this could be used to support housebuilding.

One of the problems of our housing infrastructure is its age. Very many of our houses were built in the last century, the century before and even before that. This means that our housing stock is incredibly energy inefficient and this does not help other matters that we are trying to deal with in reducing our carbon emissions. We just do not have enough houses. As I understand it, in 2011 390,000 families were created, but we managed to provide just in excess of 100,000 new homes.

The previous Government, despite the wide-ranging but scathing opening remarks of the noble Lord, Lord Adonis, did not do a lot for housebuilding. Housing construction—perhaps it was not all due to the previous Government—actually fell off a cliff during the financial crisis. In 2008-09, fewer than 100,000 new properties were started. Although the number has increased since then, we are still a long way off building enough new homes. I understand that the revised figure for 2011-12, as I mentioned earlier, is something in excess of 100,000 properties. Despite this positive news, a far higher percentage of these new starts were public sector-led, either by housing associations or local government, than were privately funded. In 2010-11, 24% of constructions were publicly financed compared to between 9% and 13% in the decade before.

The noble Lord, Lord Adonis, did not talk too much in his opening comments about his own Government’s record on housebuilding. During 13 years of the Labour Government, the social housing stock fell by well over 400,000. Although they had ambitious targets, they did not meet them in the 13 years. In fact, they consistently failed to meet their social housing target and, in their last year of office, they missed it by 78,000.

The lack of social housing and delivery of new private sector housing has led to a number of very serious consequences. Average house prices in January 2012 were estimated to be under £200,000, and for those of us who spend our time in London, we know that here—and particularly in Westminster—the position is even worse. This is an increase in the past decade of almost 70%. An average of 21,658 properties has been deemed to be overcrowded at any one point in the past three years. The lack of supply has also meant that homes cost more to rent. The mean rent of the private rented sector in 2010-11 was £160 a week, and that has risen considerably, leading to very large bills for housing benefit. That bill has increased from £11 billion in 2000-01 to £21 billion in 2010-11. If we look at other figures to do with the private rented sector, which is where a lot of people have to find their homes now, because we have not built so many social properties, there has been an 86% increase in working families claiming housing benefit. We now have more than 400,000 people receiving housing benefit. What is more worrying is that we have another 10,000 applying for housing benefit in the private rented sector every

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month. The total number has risen by 37% in three years. We can see why it is important that we find some way in which to support the construction of more homes in our country.

I shall spend a very short time on the area I come from, the north-east of England, where housebuilding numbers have suffered greatly since the financial crisis. They have slightly improved on the latest figures, but again in the north-east it is housing associations and local authorities that have taken up the greater number of starts. That shows a real need for more support for private sector housebuilding.

I have spoken on housing matters in this House for more than 20 years and in that time housing has never been really high up the political agenda. For many years we have not had a Housing Minister sitting around the Cabinet table, which is one reason why housing has been a little bit down the agenda. Instead of having its own department, it has been part of another, now called the Department for Communities and Local Government. In my time in Parliament, that is the fourth name for that department. It is not one of the highest performing departments, yet housing and housing infrastructure is such an important part of what happens in our country and in our economy.

I am very glad that the Government have brought forward this Bill. If there are technical details about why we could not do it before, that is a good reason to have it. We need to do all we can—and personally I want to see greater progress in the number of homes keeping up with the number of people and in building homes that produce less carbon. I give my support to the Bill.

4.39 pm

Lord Giddens: My Lords, I hesitate to disagree with two distinguished professors of economics from the same institution as me, the London School of Economics, and with my noble friend Lord Adonis. Actually, I do not mind; it is good to have a bit of controversy in these debates, even from the same side of the House. Anyway, I feel more positive about this Bill than they do.

To me, the Bill is quite interesting, set against a background of previous government policy and the Government’s previous approach to cuts. It seems to mark something of a move away from the Government’s formerly—if I may say so—somewhat primitive approach to cuts, which everyone accepts have to be made. In many areas the Government have looked for cuts in a simplistic and even counterproductive way by not analysing their knock-on consequences. As a result, we do not even know in some important areas whether the cuts that are made truly are cuts.

I will give an example from the sector that I know best, the university sector. In this country we have a number of world-class universities. However, the consequences for the economy of the Government’s migration policy are very debatable. I have looked at the figures provided by the country’s main university groups, and it seems to me that these measures have cost the country money, not saved it. If you do not look at knock-on consequences, you simply do not know what a cut amounts to.

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It is also very important to say that the obverse applies—renewed investment does not necessarily imply more borrowing, even in the short term. Again, it depends wholly on the economic consequences for jobs, revenue and demand. Whatever the limitations of the National Infrastructure Plan 2011, it seems to make clear that infrastructure spending can have a multiplier effect on productivity, employment and demand. The Government should always seek to balance these things when looking to produce a more effective system of savings and growth for the economy.

Infrastructure investment is a key area for other reasons. The professor at Oxford, Dieter Helm, a writer I much admire for his work on energy and infrastructure, has recently edited what seems to me to be the definitive book on British infrastructure, which rejoices in the sexy title of Delivering a 21st Century Infrastructure for Britain. I do not know how many copies it will sell but it is a pretty good book. He makes the point forcefully that not many businesses would want to locate in the UK because of its infrastructure which,

“is not fit for the digital age and much of it is very carbon-intensive”.

It depends which ranking system you chose but in the most well used one, the Competitiveness Index, the UK ranks only 24th in the world for competitiveness in the area of infrastructure. The outgoing Labour Government must shoulder quite a bit of the blame for this situation. Even though I am a Labour supporter, the Labour Government’s record—my noble friend Lord Adonis will forgive me—in transport, energy and housing was not impressive.

I have four questions to ask the Minister. I know that he is going to want to reply to the bombardment from the noble Lord, Lord Adonis, but he might perhaps spare a bit of time for my pathetic little inquiries. First, infrastructure is a very wide category and the Bill makes it open to a diversity of investors. How will balance be achieved if too much funding concentrates on certain areas? How will priorities be determined? There is a lot on priorities in the national infrastructure plan but I cannot see the relationship between that and the Bill at the moment, especially if it is driven too much by who is actually prepared to stump up money rather than by an overall plan.

Secondly, the Government claim initial successes for their pension infrastructure platform but the problems of linking pension funds to infrastructure investment are well known. Only 1% of pension funds globally are invested in infrastructure projects—for good reason, as there are often high risks in the early stages of such investment and pension funds are not normally geared to such risk-taking. How will the Government confront this issue?

Thirdly, and importantly, where will the burden of risk end up? As these are long-term projects, will the burden of risk in the Bill end up with the public sector in most cases, and therefore will they, as I said earlier, involve far greater cost to the public purse than might appear in the system that is set out?

Fourthly, energy is mentioned often, but what will be the relationship between this Bill and the new Energy Bill, which I believe will be published next month? At the moment energy policy seems to me,

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and I think to most people in the industry, pretty chaotic, with the Prime Minister saying one thing and other Ministers saying something else, with the Treasury apparently holding different views from the Department of Energy and Climate Change. Do the Government recognise the need for at least a 20-year planning cycle for core energy supplies? Does this not imply getting well away from a strategy based largely on short-term market fluctuations? In other words, I do not see from this Bill and the plan how long-term planning is to be achieved. We know that it cannot be achieved by the methods of the 1960s and that it is difficult to plan on a long-term cycle when technological innovation and other innovations are inherently unpredictable. Planning there must be, though, and the Government should devote a lot more attention to what form this will take if their interventions in infrastructure are to be at least a little bit more successful than the noble Lord, Lord Adonis, thinks is possible.


4.47 pm

Lord Skidelsky: My Lords, as someone who has never been averse to having a go at the Chancellor of the Exchequer, I start by saying how idiotic and puerile it is for newspapers to make a lead story of which ticket he used for his journey from Chester to London. It is George Osborne’s stewardship of the economy, not his travel arrangements, which deserves censure. However, we have an infantile press.

Three big mistakes stick out over the past two and a half years. The first was the belief that cutting down government spending would automatically produce recovery. I know the Government now claim that they never believed anything so simple or idiotic, but they did, and there is plenty of evidence to prove it. Austerity is not a recovery policy.

The second has been the Chancellor’s failure to distinguish between current and capital spending. This has made the deficit seem more dangerous than it was. The prime example of this blind spot was the £50 billion cut in capital spending. The noble Lord, Lord Adonis, has drawn attention to the devastating consequences of this for the construction industry and for house, transport, education and hospital building.

The third was the Chancellor’s belief that without a severe fiscal contraction Britain would go the way of Greece: that is, interest rates would go through the roof. This was doubly wrong. First, with an independent central bank able to buy government debt in whatever quantities were needed there was never any chance of gilt yields rising to the levels experienced by Greece, Portugal, Ireland and Spain. Secondly, and perhaps even more importantly, a reduction in the cost of government borrowing is no guarantee of a reduction in the cost of commercial loans sufficient to offset the collapse of the private demand for loans. That is the explanation of a point mentioned by the noble Lord, Lord Desai, regarding cash mountains sitting in corporations.

All three mistakes were interrelated parts of the wrong theory of the economy. Anyone who is interested in economics must start the analysis there. I am not going to go into it, but it is well known to those who are economically literate. The results have been zero

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growth since George Osborne took office. That was entirely predictable and was predicted by some of us. I have been saying for two and a half years—and I am not alone—that austerity would not produce growth and it has not produced growth. Now the international agencies are saying the same thing. Slowly but surely, the Government are being driven to plan B, though the Prime Minister prefers to call it plan A-plus.

It is against that background that I give a cautious welcome to the proposals in this Bill. Better late than never, better too little than nothing at all. As I understand it, the Bill aims to do three things. First, it provides for the Government to guarantee up to £40 billion or £50 billion of “nationally significant” private infrastructure investments which have to be ready to start within 12 months of the guarantee. As the Treasury explains it, the aim is,

“to kick start critical infrastructure projects that may have stalled because of adverse credit conditions”.

That is Treasury language. The guarantees might cover key project risks such as construction, performance or revenue.

Secondly, the Government will lend money directly to private investors to enable 30 public/private partnership projects worth £6 billion to go ahead in the next 12 months; I do not think that has been mentioned yet in the debate. Finally, a £5 billion export financing facility will be available later this year to overseas buyers of British capital goods; in other words, an export credit guarantee scheme of the type we are all familiar with. I would like to reinforce what the noble Lord, Lord Adonis, said. Having cancelled about £50 billion of certain public capital spending, the Government are hoping to replace it with an equivalent amount of private capital spending, much of which will never happen. That is completely illogical.

The main difference between this Bill and the British investment bank, which I have been urging, is that my bank—I call it “my bank” because I feel a certain sense of paternity in the idea, having been floating it for the last three years—would actively raise money in the private markets for its own investment projects whereas UK Guarantees, the government scheme, merely provides some finance for projects initiated by the private sector. In other words, the government scheme is still governed by the ideology that the private sector is more likely to pick winners than a state investment bank and that that is sufficient justification for waiting for the private sector to produce its projects.

Lord Peston: My Lords, the logic of what is being said is not that it is more likely to pick winners but that it already has all those winners. The only things holding them back are the risks of the projects which the taxpayer is taking over. It is a new theory to replace classical economics which—as the noble Lord well knows—says savings cause investment. Now we have loan guarantees causing investment and it is just as nonsensical as a serious piece of economics.

Lord Skidelsky: The noble Lord is quite right. The argument can be developed, but my point about picking winners and losers is that there is no empirical evidence for it being true, as a general proposition, that the state

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is more likely to pick losers than the private sector. We have had many examples of that not being true. The economic collapse of 2008 is a very good one.

Lord Giddens: Would the noble Lord accept that there is actually evidence that the state is quite often better? If you look at the history of energy industries and most technological innovations, they have normally been kick-started by government investment. This applies to all the major technology that has transformed our lives over the past 20 or 30 years.

Lord Skidelsky: I am happy to accept that. I was making a more modest claim.

A mere guarantee for privately initiated schemes is bound to be less successful, apart from in the efficiency of the schemes, at securing the required volume of investment than a commitment by the Government to a definite infrastructure programme. So while I wish UK Guarantees well, a certain amount of scepticism is in order.

In the final part of my speech, I want to consider what is happening to the economy. When an economy is crawling along the bottom, any small wave is likely to lift our spirits. Over the past three quarters—that is, the past nine months—the economy has shrunk by 1%. Even if, as now expected, it achieves a positive growth of about 0.8% this quarter, that still leaves it in roughly the same place as it was a year ago. Moreover if, as commentators suggest, this boost is due to the Olympics, it will be in the nature of a windfall. However much we may rejoice in the achievements of our athletes, 28 gold medals is not enough to turn the British economy around.

However, there is still a puzzle, which is that unemployment has been static in the past few months, and even falling slightly, despite the fact that output is flat and the economically active population has increased by 550,000 over the past two years. You would therefore expect unemployment to have increased. Why has it not done so? That is the puzzle. There are several possible explanations, none of them conclusive, because the facts necessary for a convincing answer are buried in a labyrinth of tricky statistics and slippery definitions. It may be that employers have been hoarding labour, but that becomes less plausible the longer the recession goes on. Part of the answer at least must be that productivity—that is, output per hour worked—has been falling. As the Guardian put it,

“it now requires many more of us to labour away to churn out the reduced volume of stuff”.

Falling productivity is just as serious a problem for the economy as rising unemployment, and a greater problem in the longer term.

The Prime Minister claims that 900,000 extra jobs have been created in the private sector over the past two years. I never know how many it is—sometimes it is 900,000 and sometimes it is 1 million; it goes up every day, but I am sticking to the 900,000 figure for the time being. That is not of course the net increase in jobs, given that 400,000 jobs have been lost in the public sector. The net increase in jobs has been 500,000. Can the Minister, the noble Lord, Lord Newby, tell us

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how many of the net gains in employment are full-time? Labour market statistics suggest that more than half of them are part-time or self-employed. Can the Minister also say whether those registered on government work programmes count in the Prime Minister’s extra 900,000 private sector jobs? The point is this: if a lot of the private sector job creation consists of part-time low-skilled jobs at the bottom end of the service sector, it would explain the decline in productivity that limits the rise in unemployment, but it is a poor omen for that vibrant, high-value economy that is supposed to secure our future prosperity.

I wish the Government well in these plans because I wish the country well, but we will need much more solid evidence than we have seen so far to believe that we have turned the corner and started to repair the damage of the past two and a half years.

4.58 pm

Baroness Wheatcroft: My Lords, I will return to the narrow interpretation of the Bill, which is about infrastructure rather than employment figures. We all know that this country needs investment in our infrastructure which is second class. Our housing stock is too small. The Government are trying to address these problems. The Bill is a welcome contribution, although it is just one of many measures now being implemented, as the noble Lord, Lord Adonis, pointed out. However, as I listened to him and to the noble Lord, Lord Skidelsky, and their criticism of projects postponed, I had to disagree. The noble Lord, Lord Skidelsky, may well term me an economic illiterate, but it was right to postpone these projects because it was a simple matter of the accounts.

When the Government came to power, they were faced with a dreadful deficit, and their priority, quite rightly, was deficit reduction. However, not only were they seen to be reducing the deficit, but they had to persuade the financial markets that they were serious. Clearly, they have succeeded in persuading them of that and that is why we have the ratings we now have. Under the previous Government there was much talk about prudence, and prudence with a purpose, but profligacy was the reality. We now have a more prudent approach, and it is only because of that approach that the Government are now in a position to bring forward the scheme in this Bill.

We heard much talk from the noble Baroness, Lady Maddock, about the rise in rents and the problems that this is bringing to housing benefit. Providing housing benefit for those who cannot meet their rent now costs taxpayers almost twice as much as it did three years ago. We cannot afford that bill, let alone more. We need more affordable homes to rent and we need to enable those who want to own their own home to get a foot on the housing ladder. This Bill will help by giving backing to those who will provide the new homes. However, our needs go far beyond housing. If we are to compete as an economy, we must make long-overdue improvements to our road and rail networks, to our energy supplies, and to our airports. We cannot wait too long for that.

This Bill pledges some useful support for projects that need a helping hand, but the private sector can, and should, finance most of the infrastructure projects,

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with the Government in the role of enabler. I am glad to say that, as we heard from the noble Lord, Lord Newby, the Treasury is looking at £257 billion worth of projects to come forward over the next five years. I gather that 180 projects are now earmarked for development. These include the new, and crucial, nuclear power stations. Negotiations with the suppliers have now reached a very critical stage, when they have to be persuaded that there will be some guarantee of long-term price stability. I do not know how that can be done, but it is clearly extremely important that we should have nuclear power. The question is: how are these to be funded? The Government are now striving to find some innovative ways of securing that funding, because banks will not provide long-term funding. Five years is the longest that many of them will now contemplate.

We are due to hear more about these funding plans in the Chancellor’s Autumn Statement. It is interesting that, thanks to the Indian summer we have just had, autumn now comes in December. Apparently, the Statement will include details of the new-look PFI. I do not want another PFI. They are profligate, foolish, and inept, and we will be paying through the nose for many years to come for too many of those schemes that came forward through the old-style PFI.

The public were duped into believing that we could have new schools, hospitals and bridges without paying a penny. If it looks too good to be true then it is; and it was. Too many of the investors, many of them offshore, have made fortunes out of PFI, while the public have been saddled with long-term future commitments. These were heads-I-win, tails-you-lose commitments. We do not want PFI again, or anything like it. We need something new and innovative, and I hope that the Government will come forward with some means of providing funding that will not leave the public sector on the hook, as it has been. For example, as regards roads, the need for improvement is clear; there are potholes everywhere. However, if we are to have new roads, someone has to pay, and the Government simply cannot afford to. Surely it is right that those who use the roads pay; whether through tolls or through other electronic means of road pricing. That is surely the way forward. We have to avoid things such as the M6 toll road, where Macquarie, in its various guises, is now said to be making a return of about 150% a year.

There are sources of long-term financing that we need to tap into for such projects. The insurance and pension funds have long-term liabilities which could fit neatly with these schemes. The noble Lord, Lord Giddens, made mention of the pension funds. Clearly, they are right to have some qualms, but the Government are working with various trade bodies, including the Association of British Insurers, to try to devise ways in which the funds with long-term liabilities might come together to provide funding for major infrastructure projects. I hope that we will be able to hear more about that in the Autumn Statement. The talking has gone on for a while; it would be good if we were soon to see some action.

Finally, I am grateful to the noble Lord, Lord Skidelsky, for reminding us that this country can do infrastructure rather well. We should not lose sight of

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the fact that the Olympics were a great success, and the gold medal tally was pretty good too. However, we can do infrastructure and we need to get moving on it.

5.05 pm

Lord Berkeley: My Lords, I thank Ministers for briefing some of us about the Bill last night. It was a very interesting introduction to it.

First, I should like to spend a few minutes examining the wider problems, beyond the financing, associated with getting projects off the ground, such as the approval process, planning and, of course, the appraisal criteria. I think it was two years ago that Infrastructure UK published a report comparing the civil engineering costs of big projects in the UK and Germany. The costs of construction were remarkably similar, but what was different was the enormously greater cost of getting projects off the ground in this country. It was very interesting that in his introduction the Minister said that one of the criteria for financing was that you had to get the project off the ground within 12 months of obtaining the finance. That is quite a challenge. First, presumably one has to get through compliance with the Treasury Green Book, which is an incredibly complicated document. You need lots of consultants’ reports to support your case, which costs time and money, and sometimes the results are such that you wonder whether the exercise is worth while. A similar document is required for transport projects and, again, it is incredibly complex. It goes down to fractions of a second, timing millions of cars, and that decides whether you build a motorway, a road or something else. Again, that costs an enormous amount of money. What will the criteria be for allowing these projects to be financed in this way? At the same time, does the Minister agree that it is about time that the Green Book and the equivalent transport document were reviewed to make them cheaper and simpler?

The next issue is planning, alluded to by my noble friend Lord Adonis. Planning delays are getting longer and longer. I declare an interest as chairman of the Rail Freight Group. Some rail freight terminals in the south-east have gone through two planning inquiries. The Minister lost the last judicial review on one of them, so he is now thinking of a reason for having another planning inquiry. One might suggest that, in considering these things, Ministers should obey the law and look at these things objectively, as I am sure their legal advisers will have asked them to do. However, it all adds up to an enormous cost for developers and enormous time delays. Getting planning permission for some of these projects can cost £10 million or even £20 million because of all the consultants involved. Therefore, while I welcome the finance in the Bill, I am not sure how much it is going to help things to go ahead.

Secondly, I want to cover briefly what the Minister said about this Bill having minimum impact on the public sector finances. I would say that I have not been speaking for 10 minutes yet; that may be wishful thinking on someone’s part. There are so many here who are experts on finance that I deign to tread there, but if we have a £50 billion fund for investments or guarantees, does that not affect the PSBR somehow, if

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it still exists? A couple of years ago I asked the Secretary of State for Transport—it was Philip Hammond, who was two Secretaries of State ago—whether he had any views on whether Network Rail’s debts should be on the government books. He said that he was agnostic about it; I do not know whether that still applies. There is also said to be a debt liability of £1 billion on the Channel Tunnel going back 25 years, so I do not know how all this works. However, I cannot believe that a £50 billion fund or guarantee from the Government has no effect on government finances. I am sure that the Minister will be able to put me right on that.

While everyone is encouraging projects to go ahead with a kick-start, I find one in particular a bit odd. This is the second Bill this year that would authorise government funding for the Thames tunnel. The previous one was the Water Industry (Financial Assistance) Act 2012. Why is there this enthusiasm for pouring public money into a Chinese-owned so-called public-private sector utility? Are the Government not aware that on 18 October the European Court of Justice, in its judgment C-301/10, found that the UK had not complied with directive 91/271 in respect of the Thames and another river somewhere up north, but that in seeking to comply the Government should look at the best known technology that does not impose excessive costs? I think that £4.2 billion—the equivalent of £80 every year for 30 years on every water payer within the Thames Water catchment area, which goes as far as Oxford and beyond—is probably excessive if there is an alternative. Paragraph 64 of the relevant judgment says:

“The concept of BTKNEEC”—

that is what it is called—

“thus enables compliance with the obligations of Directive 91/271 to be secured without imposing upon the Member States unachievable obligations which they might not be able to fulfil, or only at disproportionate cost”.

Even without this government money, then, the Thames tunnel will put all that money on. It may or may not comply but the judgment requires the Government to look at this again and at alternatives, which I believe exist. The noble Baroness, Lady Gardner, said that money should be put to good use and spent wisely. This is an example where, if it goes ahead, it certainly will not be. I hope that the Minister will impress upon his colleagues in Defra the need now for an independent review of the different options for complying with the ECJ ruling and for mitigating the fine which, at its worst, I am told could reach £1.5 billion. There is big money at stake here and a lot of it could be saved by looking at different options a little creatively. I will be meeting the Minister in a couple of weeks’ time to discuss this, when I shall expand on it further.

5.13 pm

Lord Newby: My Lords, as predicted this has been an extremely interesting debate. I think I have been grilled by three LSE professors, which is probably par for the course in your Lordships’ House. I will do my best to respond to many of the questions raised. As an introduction, I have two points for the noble Lord, Lord Adonis. First, as far as I am aware, under the

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previous Labour Government’s plans there was an intention to have significant reductions to the deficit, about which not one word escaped the noble Lord’s lips. Presumably, had he had some ongoing responsibility he would have been trying to make sure that all that reduction had no impact on infrastructure spending. But that was wishful thinking. There would have been significant changes in infrastructure spending, even if the noble Lord was still in his former position.

Another point was made earlier by my noble friend Lady Maddock. Labour's record on housing and other areas of infrastructure expenditure, particularly social housing, hardly stands forensic scrutiny. It has certainly left us with a legacy on housing which we are struggling to put right.

The noble Lord asked a plethora of questions and I can respond to only some of them. His concern for the A14 is touching. I can confirm that it is a priority project. The Government announced in July that there will be support for an upgrade of the A14. As he surmised, the proposed scheme involves tolling. We are continuing to work on the funding package and are focusing on finding ways to bring forward construction earlier than 2018 by, among other things, streamlining the planning and procurement processes and identifying local contributions to the costs of the scheme. As my noble friend Lady Gardner of Parkes said, although circumstances are different in Australia, if other countries can do tolling it should not be beyond our ability.

The noble Lord asked about airport capacity and was scathing about the fact that we have now embarked on a review. Sadly, he did not tell us what Labour’s policy was in terms of hub airport capacity. The fact that I do not know what it is is no doubt a failure on my part. He also asked about HS2 and I can assure him that we are expecting a Bill on HS2 in the next Session. The Government are pressing ahead with the scheme.

The noble Lord referred to the fact that some 63 of the projects in the national infrastructure plan had vanished. That is true. It is the nature of large projects: some are brought forward and disappear and others come forward that were not there then. He will be relieved to know that next month there will be an update on the national infrastructure plan and he will be able to see not just which projects have dropped out but which new ones have dropped in.

The noble Lord asked why a second Bill concerning infrastructure was coming forward with infrastructure in the title—the Growth and Infrastructure Bill. That Bill has a completely different purpose from this one, although they have a single objective, which is to bring forward economic activity. That Bill deals with the planning and other non-financial constraints around getting housing in particular going. This Bill is purely a financial Bill.

My noble friend Lady Gardner of Parkes raised the desirability of getting more small builders operating. We agree. There has been a big reduction in the small building sector. We intend to support the establishment of a debt aggregator, which is an inelegant phrase. Such a body will be able to raise relatively large volumes of finance to lend to organisations such as

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builders needing smaller amounts of funding than a typical bond. It acts as a collective that will allow the money to filter down.

My noble friend also asked about the green belt and infilling. We are committed to safeguarding the green belt, but we recognise that there is some previous developed or brownfield land in many green belt areas that could be put to more productive use. We are encouraging councils to make best use of this land while protecting the openness of the green belt in line with the requirements of the National Planning Policy Framework.

The noble Lord, Lord Desai, accused us of doing a U-turn, or perhaps he congratulated us—I am not absolutely sure. He said that one of the problems is that the system is flush with money and he asked what the market failure is. There are two components, possibly. First, many companies are short of confidence to invest, largely because of the international economic situation. And secondly, the banking sector has not fully recovered from the great heart attack of 2008 and long-term lending in particular has not returned to the conditions that we saw before the crash. This is trying to help make it easier for banks which are very unwilling at the moment to lend in the long term, even for projects which in normal times they would lend on. As I mentioned in my opening speech, the volume of interest we have had suggests to us that this will be effective. The noble Lord said that many people are stuck because they cannot get a bank loan, which is undoubtedly the case. That is because of the problem that I referred to that the financial markets are not in a normal mode for long-term lending.

My noble friend Lady Maddock helpfully referred to the fact that the Government are committed to building 170,000 new social homes during the course of this Parliament. But she made the point that there are 390,000 new households being formed every year. We have a big problem and it is partly a cultural problem across the political parties. In the 1950s parties had in their manifestos figures indicating the number of houses that they were going to build. This was one of the key things that made Macmillan’s career. Housing has slipped down the political agenda and different sectors—health and education, for example—are vying for funds. We are all having to reassess the urgency of the need to get more funding into housing. It is a long-term issue and it is becoming more and more clear that it is a difficult issue; all parties, if you look at their performance in recent years, have tended to give it a broadly equal degree of priority, but it has probably not been a high enough degree of priority.

The noble Lord, Lord Giddens, asked me four exam questions and I will do my best to answer at least some of them. He asked about priorities and how Infrastructure UK decides between all the proposals coming forward. We have set out a menu of things, all of which are important, but there is not any artificial predetermination of priorities before we see what the applications say. Every application will be looked at on its merits.

Lord Giddens: Would the noble Lord agree that a menu is not a plan?

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Lord Newby: That is a philosophical question, almost. When is a menu a plan and when is it not a plan? If I am making a dish, it very often lists a number of things that are absolutely required to make a successful dish but it does not necessarily say in what order I need to chop them up. The menu taken together would undoubtedly represent the implementation of a very significant plan.

Lord Adonis: Is the Minister not confusing a menu with a recipe? A recipe is the plan; a menu is options which then lead to recipes thereafter, if I can be philosophical.

Lord Newby: I am always in awe of the culinary skills of the noble Lord, Lord Adonis, and am extremely grateful for that way of looking at it. However, whether it is a plan, recipe, menu, or none of the above, the key thing is that, as far as risk is concerned, which was the second question that I wanted to address, the Treasury will be responsible for managing the risk and assumes the contingent liabilities. Value for money, as I said earlier, is key.

The noble Lord, Lord Giddens, asked about the pension infrastructure platform, about which I should perhaps have said more. As he may know, last week, seven pension funds announced that they would be initial subscribers to the platform. They will each invest at least £100 million. We hope that the system will be up and running early next year and that it will be the first element of a much larger fund. As to why we think that pension funds might now get involved in this kind of investment whereas they have not in the past, the answer is that, in the past, they have been able to get better returns through conventional means of investing the money. At the moment, with interest rates so low, they are getting very low returns. The other problem that they have had is that, where they have gone via private equity houses which have managed infrastructure programmes, they have often found that the programmes have not worked very well and that they have been charged an arm and a leg for it. So this is a way for the funds, with support from the Treasury, to get into what could be very important new form of investment without what they have seen as being the unreasonable cost of going down a purely private sector route.

The noble Lord also asked about the relationship between this Bill and the energy Bill. The purpose of the energy Bill is to set a framework for investment in the energy sector over the medium term. Once the energy Bill, which will come forward relatively soon, is enacted, and against the framework that that Bill sets out, people looking to invest in the energy sector can form a view about what they want to do and individual projects will be eligible for support under the Bill.

The noble Lord, Lord Skidelsky, started with three nonsenses and will not be surprised that the Government do not agree absolutely with everything that he said. I find it almost incredible to think that if the Government had not been seen to get the fiscal position under control, interest rates would not have gone up. Even if they had not gone up to the levels that they are at in Greece or Spain, a single percentage point increase in

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interest rates, among other things, costs mortgage holders in the UK an extra £12 billion a year and would over the course of a Parliament, with all other things being equal, cost the Government about £25 billion. These are very important considerations. Interest rates would almost certainly have been higher if we had turned on the tap.

On his proposal for a British investment bank which would raise money in the private market, the noble Lord will not be surprised to know that the Treasury view is that, if that bit of the state is raising money in the private market and conventional government borrowing is happening in the same private market at the same time, the markets will judge the pair of them together as a common pool of demand from the UK Government. Therefore, we could not segregate borrowing for a British investment bank without it having consequences for the way in which all government borrowing was viewed.

The noble Lord asked how many of the net gains in employment were self-employed or part time. There is a false assumption that working for oneself or working part time are somehow second-class things to do or things that people do not necessarily choose to do. Some people are forced to do one or the other. However, when I was made redundant in the last property crash in 1992, I in effect became self-employed by setting up my own company and it was one of the better things that I have ever done. It did not mean that I was economically out of the market or that I was not able to grow anything. Many people who become self-employed find that they are successfully self-employed. Equally, many people who work part time—and even the Guardian accepts that the figure is at least 80%—do so through choice rather than because they are forced to.

Lord Skidelsky: Would the Minister be kind enough to answer my question? What proportion of the Prime Minister’s 900,000 new jobs are part time and what proportion are full time? Further, are those employed under government work schemes included in the figure of 900,000?

Lord Newby: I am afraid that I do not have those figures to hand but I will write to the noble Lord.

The noble Baroness, Lady Wheatcroft, raised concerns about continuing the old system of PFI. Many people share her concerns about the way that PFI has worked, and in any future schemes I know that the Government will seek to avoid the problems of the past in that respect.