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Grand Committee

Tuesday, 26 March 2013.

3.30 pm

The Deputy Chairman of Committees (Lord Bates): My Lords, if there is a Division in the House, the Committee will adjourn for 10 minutes.

National Curriculum

Draft National Curriculum

Motion to Take Note

3.30 pm

Moved by Lord Nash

That the Grand Committee takes note of the Government’s consultation on the draft National Curriculum.

The Parliamentary Under-Secretary of State for Schools (Lord Nash): My Lords, thank you for the opportunity to debate the Government’s proposals for the reform of the national curriculum in England. As noble Lords know, on 7 February, my right honourable friend the Secretary of State for Education announced a number of proposals to improve the content and design of the national curriculum. These proposals are the product of a painstaking and thorough review which the Department for Education has undertaken over the past two years—a review that was launched with the expressed aims of restoring rigour and high standards, ensuring that all children are taught essential knowledge, skills and understanding in the key subject disciplines, and granting teachers greater freedom to design lessons that meet the needs of all pupils.

The proposals on which we are now consulting are the culmination of extensive analysis of curricula used in the world’s most successful education jurisdictions, particularly in the core subjects of English, mathematics and science, and consideration of nearly 6,000 submissions to our call for evidence. We have also engaged with teachers and head teachers from across the country to learn more about the most effective practice in England, and have worked with subject experts and key organisations across all national curriculum subjects to inform our thinking.

The launch of the consultation on our proposals last month was preceded by a number of other publications of interest. In December 2011, the review’s expert panel, chaired by the respected curriculum and assessment expert Tim Oates, published its report. This set out a series of recommendations for the new national curriculum framework. It formed part of a wider suite of documents setting out the results of the call for evidence and research conducted by the review. This included a summary of evidence gathered about curricula for English, maths and science in high-performing jurisdictions and a research report on subject breadth in the curricula used in other education jurisdictions. The findings uncovered consistent themes that have challenged some of the tenets of our current system, showing, for example, that high-performing

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jurisdictions set higher expectations in terms of what they believe children can and should master at different ages.

In June 2012, we published draft programmes of study for primary English, maths and science for wider discussion. Since then, we have discussed the drafts with key subject organisations, teachers and subject experts, and have reviewed the content in the light of the feedback we received. These discussions have informed the draft national curriculum that was published last month.

The new curriculum upon which we are now consulting is both challenging and ambitious. It benchmarks our expectations in the core subjects of English, mathematics and science against those displayed by the highest performing education jurisdictions.

It is right to place this debate in an international context and to learn from those who are performing best. These jurisdictions, such as Hong Kong, Massachusetts and Singapore, which are shown by international surveys of pupils’ performance to consistently outperform England despite the best efforts of our many excellent teachers, deliberately set out to compare themselves against others, learning from other nations and asking constantly what is required to help all children do better.

Let me set out the scale of the challenge and how we are falling behind. Our performance in maths in the TIMSS study of pupil performance at the age of 10 has not improved since 2007, or at the age of 14. TIMSS science results show a drop in performance—at age 10, our mean score dropped markedly from 542 in 2007 to 529 in 2011, and at age 14 from 542 to 533. Our results in the PISA survey show that we are behind high-performing jurisdictions in reading, with an above average spread of attainment between pupils who do well and those who do not.

In the most recent PIRLS 2011 study, England ranked 11th out of 45 countries in the reading performance of pupils in the equivalent of year 5. Five countries performed significantly better than England: Hong Kong, the Russian Federation, Singapore, Finland and Northern Ireland. In the most recent PISA 2009 study, England ranked 25th out of 65 countries in the reading performance of pupils aged 15, falling from seventh in 2000; 28th out of 65 countries in the mathematics performance of pupils aged 15, falling from eighth in 2000; and 16th out of 65 countries in the science performance of pupils aged 15, falling from fourth in 2000.

Every performance measure reinforces the scale of the challenge that we face. In 2011, 18% of pupils in England left primary school without meeting the current expected standard in English, and 20% in mathematics. Employers and universities have also repeatedly highlighted school leavers’ lack of proficiency in these subjects. In mathematics specifically, England is among the countries with the lowest levels of participation for 16 to 18 year-olds, with fewer than 20% of young people studying mathematics to the age of 18. In most high-performing jurisdictions, the study of maths in this age group is almost universal. The Government have already set out their ambition for the vast majority of young people to study mathematics to the age

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of 18. It is therefore vital that we act now to create a new national curriculum that gives every child, regardless of their background, a broad and balanced education so that, by the time their compulsory education is complete, they are well equipped for further study, future employment and adult life.

Beyond ensuring that children are taught the essential knowledge in the key subject disciplines, we want to give teachers greater freedom to use their professionalism and expertise to help all children realise their potential. As part of this, it is important that schools and the wider public understand the difference between the statutory national curriculum and the whole school curriculum. All schools must provide a curriculum that is broadly based and balanced, of which the national curriculum is just one part. The school curriculum could be described as the way that schools bring the national curriculum to life and meet the needs of all their pupils. To do so, teachers must have freedom: freedom from top-down prescription and freedom to innovate. That is why there will be no statutory document to accompany this new curriculum telling teachers how to teach the subject content that it defines.

This is a huge cultural shift, but also a massive opportunity for teachers. In providing greater flexibility for professionals, we have considered changes to both curriculum breadth and depth. International evidence shows that high-performing jurisdictions tend to promote a wide range of subjects in compulsory education. We will therefore retain the current subject composition of the national curriculum, with the addition of foreign languages at key stage 2. Subject to the outcome of this consultation, we will change the name of the subject currently known as ICT to “computing” to better reflect its new content. We do not believe that further prescription of subjects to be taught at key stage 4 is necessary or appropriate; we are using other measures such as the English baccalaureate to encourage more schools to offer a broad academic education to all pupils—particularly the most disadvantaged—to the age of 16, in line with our international competitors.

I am sure that noble Lords will be interested in some of the detail of the new curriculum. As I have already mentioned, programmes of study in all subjects—except primary English, mathematics and science—have been significantly slimmed down, removing unnecessary prescription about how to teach and setting out the essential knowledge and skills which every child should master. In primary English, maths and science, we have taken a conscious decision to provide a higher degree of exemplification in order to ensure that we achieve the step change in standards that is essential.

In English, there is greater emphasis on reading for pleasure, and greater clarity on spelling, punctuation and grammar. In mathematics, the new curriculum will place a stronger emphasis on arithmetic and will include more demanding content on fractions, decimals and percentages. In the sciences, the programmes of study we have published include greater detail on key scientific concepts and processes. The mathematical aspects of science have been strengthened, and for the first time primary schools will be expected to teach their pupils about evolution and inheritance.

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For the first time, and in line with practice in other countries and evidence about children’s cognitive development, there will be an expectation that foreign languages will be taught in primary schools. As well as enhancing the status of languages in the school curriculum, this will provide a better foundation for the teaching of languages in secondary schools, where there will be new content on translation, grammar and vocabulary at key stage 3.

In citizenship, our proposals make financial education statutory for the first time, and similarly propose that practical cooking is compulsory at key stage 3 in design and technology. In music we have balanced performance and appreciation, and in art and design there is a stronger emphasis on drawing skills and on the historical development of art. In history, rather than a disconnected set of themes and topics, we have set out a clear chronological narrative of British and world history. In geography there is a greater emphasis on locational knowledge so that pupils can use maps and locate key geographical features such as oceans, cities and continents.

In PE, there is greater emphasis on competitive sport to build character and self-esteem and to improve teamwork. As well as being valuable in and of itself, this will help ensure that we build on the wonderful legacy of the London Olympics. Finally, as I mentioned, we propose to replace the old ICT curriculum with a new computing curriculum with a focus on the principles of computer science and practical programming skills to ensure that England retains a competitive edge in the growing digital economy that will be key to our nation’s future economic prosperity.

The new curriculum will provide parents everywhere with a clear guide to what their children should know and be able to do in every subject as they make their way through school. It will also provide those schools that are choosing to take advantage of the freedoms and opportunities afforded by academy and free-school status with a reference point for designing their own school curriculum. The consultation exercise on our proposals will run until 16 April and we are keen to hear from everyone with an interest before the new national curriculum is finalised and published later this year. The timing of the debate is therefore pertinent, and I welcome further discussion of these proposals. I beg to move.

3.42 pm

Baroness Whitaker: My Lords, after that very helpful broad sweep I will focus only on design, because its importance has not been sufficiently realised. I congratulate the Secretary of State on his decision to broaden the measures for judging a school beyond English, maths and science to the pupil’s eight best subjects. This enlightened and far-seeing decision leaves room for design to become a subject of choice and for the fostering of centres of excellence, which will be much to our national advantage.

However, the curriculum that is proposed needs some rethinking. Many others think so, not least the 100 professors who wrote to the Daily Telegraph last Wednesday. They pointed out that the skills of problem-solving, critical understanding and creativity are losing

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out in the battle to raise standards. A proper design curriculum would go far to fill that gap. I should say at the outset that no one wants to lower standards, and that the Secretary of State’s attempt to entrench rigour is well understood. However, the whole of the design community, from practitioners to academics, is united behind wanting a more relevant—in fact, a more rigorous—syllabus. The Design Council has spoken of a “lost design generation” if this element of the curriculum is not brought up to a modern standard.

For a start, there are two syllabi that feature design: art and design, and design and technology. This is confusing. The idea of design in both syllabi falls far short of what design means now. In the art and design syllabus it seems to mean only the use of material and techniques for executing works of craft and art. The design and technology syllabus, too, concentrates on materials and includes cookery, mechanics, maintenance and horticulture. There is nothing about digital technology, one of our most promising design developments, and there is a perfunctory nod to our great national tradition of invention and design. It says that pupils should,

“investigate the rich history of design and technical innovation”.

I wonder what the pioneers and icons of that tradition, Sir Humphry Davy, Watt, Stephenson—or Sir Jonathan Ive—would have thought of their great expertise being exemplified by classes in maintenance and a balanced diet.

Why does this matter? Excellence in design is—at the moment—one of our great national strengths. We export more than £45 billion-worth of design-related goods and services to the EU alone and about £18 billion- worth to Asia and beyond, providing more than 900,000 jobs. Design-related goods and services make for about 4.5% of total UK exports. We have a truly world-class capability in design and it is highly export-facing. None of that will last if we impoverish the design curriculum in schools. It would also betray our historic prowess in innovation to forget, and allow our children to forget, that it was our great tradition of industrial and architectural design which created the economic basis for our place among developed nations and, I would argue, quite a lot of the social and cultural basis too.

How should design be taught? Good model syllabi have been presented to the Secretary of State by the Design Council and professional design organisations. To summarise: design is a problem-solving, multidisciplinary and collaborative process, which places the user’s needs at its centre. Of course it uses materials and techniques, but that is subordinate to developing the capacity to make an idea for solving a problem into a reality. It is a sound intellectual basis for many other capabilities and it fits its pupils to become active citizens and agents of change. Its relation to art is not the technical mastery that artists require to realise their vision, but rather it is the bridge between arts, science and technology, which enables the making of innovatory products and services. The hundred professors might have been talking about design when they concluded their letter by saying:

“Schools in high-achieving Finland and Massachusetts emphasise cognitive development, critical understanding and creativity”.

I urge the Minister to ensure that their message is listened to.

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3.47 pm

Lord Storey: My Lords, I thank the Minister for giving us the opportunity to discuss this important matter. I want to speak as a primary teacher on the primary school curriculum. The clue is in the title: “draft”. It is a draft, and this is the opportunity for us to give our own views. All of us, probably, have been bombarded by different organisations claiming all sorts of concerns. We only have to look back to the 1980s when the only subject that was legally required to be taught at primary level was religious education. Then there was the scandal of the William Tyndale school, and of course Mr Baker—now the noble Lord, Lord Baker—with his national curriculum of core and foundation subjects. It is to his credit that a lot of that is still in place and that many of the subject parts are there.

However, the most important thing of course about a curriculum is that it has to give teachers the opportunity to teach. You can have the best national curriculum in the world but unless you have high-quality inspiring teachers, nothing else really matters. Perhaps we will come to history in a moment, but that reminds me of a quote from Alan Bennett, the author of “The History Boys”:

“Teachers need to feel they are trusted. They must be allowed some leeway to use their imagination; otherwise teaching loses all sense of wonder and excitement”.

I welcome a slimmed-down national curriculum and also the opportunity for education to be broad and balanced. We do not want a curriculum, as currently, of 150 pages but do want the opportunity for teachers to flourish. A slimmed-down national curriculum gives teachers more freedom to adapt their lessons to children in their class and local circumstances.

I said at the beginning that no doubt there will be lots of people and organisations giving their own opinion. Perhaps surprisingly, I want to congratulate the people who put together this draft; they have done a first-rate job. There are things in this that I am very satisfied with. With regard to the core subjects, I like the focus on content and stretching, particularly for achieving pupils. I do not subscribe to this nonsense about, “Why are we insisting that children at age 11 should know their multiplication tables up to 12?”. It is part of mathematics to know your tables. I do not subscribe to this nonsense that perhaps there is too much reliance on spelling and punctuation. My goodness, English is about spelling and punctuation. It is about oracy and being able to recite a poem. It is about reading for pleasure.

Then we look at languages. I have sat on a Select Committee looking at how SMEs can be encouraged to export more, and one of the key parts of that report said that we should be teaching languages in our schools. The best way to teach languages is with young children. There was a pilot in my home town of Liverpool where we started teaching languages to four and five year-olds, and the results were spectacular. Once this curriculum has bedded in, perhaps we could visit that at some later stage. My other concern is that perhaps we are being a bit restrictive on the languages that we are teaching. We need to look at other languages, particularly those of the developing world.

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I like the notion of PSHE being there. I am concerned that citizenship should be part of key stage 2 as well. I am delighted that swimming is an integral part of PE, and about music and dance. Using the local environment in science may answer the concerns of the Woodland Trust.

I am concerned about sex education. Why do we have this view that we should not teach sex education to key stage 2 pupils? I do not know. I teach it to key stage 1 pupils. It needs to be natural. Some of the girls at primary school will be starting their periods, and they need to know about sex education. It should not be left until key stage 3.

There has been a lot of fuss about climate change. Actually, I think that climate change is clearly there as part of the mandatory science curriculum, but if there are concerns then let us address them. Then there is history, but I have one minute left to speak so I will come back to that on another occasion.

Teaching cannot be prescriptive. Different teachers use different methods to develop children. If this is a national curriculum, why is it not national? Why are 60% of our schools not going to be using it? I am talking about academies and free schools. If we have a national curriculum, surely it should be national.

My party has argued for years for a shorter, more focused curriculum. We are ambitious for all our children. That is why I believe that our children should have the chance to work on content that is as stretching as those in the best-performing countries. It is our teachers who know the most effective way to teach an individual child in their class. The curriculum respects the professionalism of teachers on the front line by giving them more freedom to do what is best for the pupils in their class.

3.53 pm

Lord Northbourne: My Lords, I am most grateful to the Minister for making it possible for us to have this debate on the curriculum, which it is not going to be possible to debate in the Chamber because it will not involve any new lawmaking.

Personally, I have no argument with the Government’s policy of basic skills such as reading and writing being improved, nor with maths, science, English and foreign languages being emphasised and standards being raised. However, I am concerned about what the Government have left out. There is a real danger, given that schools’ resources are finite, that if they are told to do subjects A, B and C but no mention is made in the curriculum of D, E, F and G, they are going to concentrate their resources on A, B and C. Of course they are; that is how they will get rewards and a good Ofsted report, and it is what the Government will give them more money for.

I am going to raise only one issue, which is of particular importance to me, but first I should like to make this point. The Government’s position paper speaks eloquently about the importance of clear aims in education policy and the curriculum, but it fails to spell out clearly what those aims are. They refer to the wider definition set out in the 2002 Act of spiritual, moral and cultural development, but even that does

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not include social values, which I shall talk about in a moment. I can find nothing in the Government’s proposals to suggest that they recognise the importance of the so-called soft skills. Surely the overriding aim of education must be to prepare young people for the challenges, opportunities and responsibilities of adult life. Soft skills play a key role in adult life. They are important for employment and are crucial in establishing and sustaining a family and raising children. Further, they can make a considerable contribution to increasing social mobility in our society. I will not detail what the soft skills are because I might take too long, but I expect that most noble Lords are fully aware of the skills of empathy, emotional literacy and so on.

Recent neurological research shows that a child’s experiences in the first two years of life are a critical factor in that child’s success in school and later in adult life. It is during the first two years that a child learns the crucial emotional skills. It learns that it is safe and valued, and it begins to learn to love and be loved. That is why secure attachments in the very early years to one or two dedicated carers, which Bowlby told us about 50 years ago when no one believed him but have now been proved by biological science, is fundamentally important to a child’s development. The Government have responded to this research by introducing the early years initiatives, excellently presented by Graham Allen MP. I strongly support the programme, but standing alone, in my view, it is not enough. We must do more to prepare all the nation’s young people for adult life by helping them to acquire while at secondary school the soft skills they will need for employment and to form stable families.

Sadly, PSHE has been relegated to a very low priority in most secondary schools. In those schools where it is covered at all, it is often taught by teachers with no specialist training in the subject. To achieve this kind of education effectively, a new and broader PSHE programme should be developed and then delivered by specialist teachers with experience. They should be trained to lead young people in an exploration of and preparation for adult life.

I want to suggest three modest things that the Minister might do to help this along. The first would be to make mention in the current revised curriculum of the importance of developing soft skills. Reference should be made to the importance of these skills outside the narrow curriculum, but certainly in the wider one, or how will schools know what their priorities should be? They have a limited amount of money and a limited number of teachers. The second would be to bring together an expert advisory group to prepare a report on the best ways to give secondary school pupils the opportunity to prepare for adult life, while the third would be to sponsor a pilot project at a major teacher training institution to undertake an experimental course training specialist teachers to deliver such a course interactively, led by young people’s own needs and interests.

3.59 pm

Lord Black of Brentwood: My Lords, I congratulate my noble friend on the admirable way in his excellent opening speech in which he summed up the issues facing us. This debate offers us all the opportunities

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that a bran tub presents to a small child—so many possibilities. Part of me wanted to talk, like the noble Lord, Lord Storey, about history. Part of me wanted to talk about music, but I hope that the noble Earl, Lord Clancarty, may do so later. I want to talk about animal welfare and its place in the national curriculum, in particular relating to domestic animals and pets. It is proper for me to declare a feline interest as an owner of a venerable Russian Blue cat, Victoria, who is 17 next month. I had her and her welfare very much in mind while I have been putting together these remarks.

Despite the wonderful work of many animal welfare charities—I think in particular of Cats Protection, which is the UK’s leading feline welfare charity and has helped more than 1 million cats in the past five years—there is still an endemic problem within our society relating to animal welfare. In 2011, the last year for which a full set of statistics was available, more than 126,000 dogs were allowed to stray by their owners, which represents an increase of 30% in three years. In the same year, Cats Protection rehomed and reunited 48,000 cats and kittens. Blue Cross experienced an increase of 57% in the number of unwanted rabbits that they were asked to rehome. Most worryingly, PDSA research shows that of the estimated 22 million pets in the UK, more than 10 million may not be having their welfare needs met.

The reasons behind such shocking and alarming figures are no doubt complex. In some ways they reflect the state of the economy, among other things. However, it is inevitable that education, or indeed lack of it, about animal welfare is one of those reasons. Problems of neglect, cruelty and abandonment often happen because people do not understand what a pet needs and how to care for it. One of the best ways, over time, to tackle this issue is therefore to ensure that children are taught properly about how to care for pets. Children, after all, are the pet owners of the future. Yet, currently only 16% of children are taught about caring for a domestic animal, despite the fact that more than 60% of children will be from homes keeping a pet. This is not a marginal issue but one that clearly relates to the majority of children.

Our animal welfare charities, which so often are unsung heroes, do what they can to train young people in animal welfare issues. Battersea Dogs and Cats Home, Blue Cross, Cats Protection, Dogs Trust and PDSA delivered education talks to more than 175,000 children in 2011. There is a big appetite in schools for information and training in this area. A survey for the Pet Food Manufacturers Association in 2012 found that 78% of primary school teachers and 70% of secondary school teachers agreed that it was important to teach younger children responsibility through learning to care for pets. The RSPCA ran courses for nearly 4,000 teachers in 2011.

However, there will always be a limit to what voluntary bodies with tight resources, limited manpower and uneven geographical spread can achieve—and here the national curriculum is therefore vital. It is very good that the draft curriculum makes reference to the basic needs of animals within the year 2 primary science curriculum, but this relates only to survival and the need for water, food and air. However, an

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animal’s needs are not limited to those. There are, in fact, as the Animal Welfare Act 2006 sets out, five basic welfare needs—environment, diet, behaviour, companionship, and prevention of pain, suffering and disease—which contribute to a healthy and happy life for our pets. All need to be learnt.

A new subject does not need to be added to the curriculum to deal with this issue, nor does it cross the vital line that my noble friend mentioned of becoming involved in how a teacher teaches. All that is necessary is for the current reference to basic needs to be amended slightly to allow teachers the flexibility and scope to teach about all five welfare needs, linking them to scientific knowledge and concepts within their lessons. In short, the concept of development needs to be placed alongside survival in the year 2 curriculum. Such a tiny change could bring benefit of real significance, not just to many defenceless animals in the future but to the way in which children grow and develop. Teaching children from an early age about the importance of caring for pets will help them to integrate effectively with others and understand the importance of responsibility, something that has profound benefits for society as a whole.

It is, as they say, a win-win scenario that I urge my noble friend to accept, and one which will not make any greater burden on teachers or require surgery to the draft curriculum. I hope that my noble friend the Minister will undertake to look further at this matter.

4.04 pm

Baroness Coussins: My Lords, I will focus on modern foreign languages and declare an interest as chair of the all-party group on modern languages. The reasons why learning a language is important are clearly not controversial, judging by the Education Secretary’s recent comments. It improves oracy and literacy in English and has all-round cognitive benefits. As Mr Gove put it:

“It is literally the case that learning languages makes you smarter. The neural networks in the brain strengthen as a result of language learning”.

Learning other languages enriches cultural knowledge and understanding; benefits the UK economy and enhances employability.

There will, however, be unintended consequences of the new language curriculum for the system of adequate secondary school accountability unless certain issues are resolved upfront. The Government are quite right to commit to statutory languages at key stage 2. The Language Trends survey, published only last week, shows that 97% of primary schools are doing this already, but this figure masks some critical problems and disparities which could make the policy backfire. Nearly a quarter of primary schools have no staff with foreign language competence beyond GCSE and some are even worse off. Will the Minister tell us what investment the Government will make in the support, training, guidance and recruitment of suitable teachers so that all 18,000 primary schools are properly equipped by September 2014?

The transition to secondary also requires attention. Teachers in year 7 commonly start all over again with languages, because children arrive with such different

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levels of achievement. This demoralises and demotivates them. Will the Government encourage schools to use either the languages ladder or the Common European Framework of Reference for Languages to help?

The Government propose a list of seven languages to choose from, but I fear that this may exacerbate the transition problem. Perhaps key stage 2 should be confined to French, except where an LEA-wide agreement exists between all primary and secondary schools to teach another language. This is the case in Hackney with Spanish and guarantees continuity and progression. In general, however, French is the only language for which there is a realistic hope of finding enough teachers and for which progression to secondary school could be planned and achieved.

This should not stop additional languages being offered at key stage 3—and not just Spanish and German. Other languages identified by the recent British Academy report as important for British international and commercial interests include Cantonese, Arabic and Turkish. Will the Minister look at reinstating the Asset Languages qualifications, withdrawn by the OCR? It is short-sighted to praise the language skills of children who speak what we call community languages, but to deny them the opportunity to turn their casual or domestic level of competence into something more academic and professionally useful.

A rather shocking piece of information was reported to the all-party group the other week by the head teacher of one of the specialist language-teaching schools. She told us that she had met primary heads who were saying openly that they planned to apply for their schools to become academies to avoid the national curriculum requirement to teach foreign languages. I would like to hear the Minister confirm that this is not only undesirable, but wholly unacceptable, and tell us what the Government will do to prevent any school becoming an academy in order to avoid offering modern languages.

Moving on to key stages 3 and 4, the Language Trends survey shows very positive teacher feedback in favour of terminal exams as proposed by the Government. However, the Government should think again about their new secondary school accountability system based on the first eight GCSEs. This would allow schools to get their points whether the pupils take languages or not. The LTS shows that the boost to take-up from the EBacc last year has been sustained, which is good, but it has not increased, despite the Government’s forecast that the EBacc would transform languages’ take-up. Will the Minister accept that, unless languages are compulsory at key stage 4, take-up will never get back to its 2004 level?

Languages are meant to be compulsory at key stage 3, but the survey revealed that one in five state schools disapplies lower-ability pupils. On top of that, a quarter of state schools have shrunk key stage 3 to two years, leaving us with large numbers of children with hardly any language learning at all. What will the Government do to reinforce compulsory languages at key stage 3? They should be spearheading a national languages recovery programme to create a coherent, statutory languages pathway from key stage 2 right

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through to the end of compulsory education, just as there is for maths. There are some welcome aspects of the proposed new languages curriculum, but it is not yet well enough thought through to provide or sustain the step change we need.

4.09 pm

Baroness Walmsley: My Lords, I, too, welcome several aspects of the proposals of the new national curriculum. I welcome the idea of languages from age seven. There is evidence that if a child learns a second language early, he will find it easier to learn other languages later and it is generally advantageous to his cognitive development. Is seven too young? No. Many children in my neck of the woods learn Welsh and English at the same time from day one, and my grandchildren learnt English and Chinese from day one. However, how about including language experience courses in primary schools, rather than just forcing schools to choose from a restricted list of languages? That would avoid many of the problems outlined by the noble Baroness, Lady Coussins.

I welcome personal finance in citizenship lessons. At least citizenship is currently statutory, and I hope it will remain so. Also, welcome back to cooking. Cooking is cross-curricular, of course; you can get a great geography lesson out of a good curry.

I welcome computer science to replace IT and its place in the EBacc. Ian Livingstone, the co-founder of the Games Workshop, said recently:

“You know something is wrong when you have a million young people unemployed, and 100,000 jobs vacant in IT”.

Employment in the IT industry is expected to grow at nearly five times the UK average over the next decade, but there is a major and growing skills gap that, unless addressed, will damage the UK economy. So it is great that we are switching to proper computer science.

However, unless at the same time we also address the lack of careers advice about opportunities in the industry, young people will still not choose the subject. Where will the teachers come from? The main problem is a lack of enough teachers with the right knowledge and experience. Here there is good news. Last week I went to a presentation, hosted by the noble Lord, Lord Empey, at which a presentation was made by major players in the industry, and it became clear to me that there is enormous enthusiasm and desire to help schools and universities produce appropriately qualified young IT specialists. The Government must harness this enthusiasm. Indeed, there is no other way of staffing schools and universities to do the job, so there must be a true partnership between the Department for Education, BIS and the industry.

The rest of the science curriculum must also be relevant to the major global issues of our time. Why cut out debate about climate change from geography and put a mere mention of it into chemistry? This aspect of the proposals was criticised by Sir David King, the former Government Chief Scientific Adviser. That is not all, though; food security is mentioned only in passing. Why not include issues about the catastrophic effects of the loss of biodiversity? This serious global problem, usually caused by habitat destruction, is responsible for poverty; the loss of food

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security, water security and many valuable medicinal plants; the loss of sustainable livelihoods for some of the world’s poorest people; the reduction in the ability of the natural world to adapt to the inevitable climate change; and much else. In other words, it is an absolute disaster, the scale of which we have yet to see but will come to regret, and there is no mention of it in the science curriculum. Neither is there any mention of engineering, which we are told will solve the energy crisis. I hope that creative science teachers will use their newfound freedoms to introduce these enormously important subjects into their teaching. The science curriculum is one that I would have recognised when I was at school more than five decades ago.

I also regret the absence of PSHE. How can a school offer a broad and balanced curriculum and prepare a child for the challenges and opportunities of life without the elements of PSHE? However, at least science is statutory, so it is important that science includes the most important elements of PSHE, including relationship and sex education—and note that it should be that way around. The science curriculum should teach pupils about growing up and cover sex with honesty and confidence. It should adopt clear, open language and a positive tone relating to human reproduction and health, and should include young people from the gay and lesbian community without embarrassment.

Of course parents should be engaged with this part of the curriculum and it should be age-appropriate, but it should certainly be timely. Children should know about puberty before it happens to them—that is, at key stage 2. At key stage 3, the current content on sexual health and disease, contraception and adolescence should be retained and information about hormones and abortion should be added. However, it is difficult to include in science those parts of a good PSHE curriculum that foster self-respect, confidence and the respect for others that cuts down bullying in schools and makes children their own best protectors. Now is not the time to squander the opportunity of ensuring that all children are given the sort of education that will enable them to protect themselves.

4.15 pm

Baroness Kidron: I am grateful to the noble Lord, Lord Black, for mentioning his cat, since I am going to mention my children. I declare an interest as a co-founder of Film Club, a charity that has a presence in more than 7,000 state schools.

Tim Oates’s review lays out the four pillars of an education as practised across all the high-performance jurisdictions. I found it helpful because one of my children goes to an independent day school and this, broadly speaking, is the education that he is given. In his school the spectre of the EBacc qualification neither reared its head nor receded, as it was declared stillborn, nor did it suffer the decline in music and art teachers as the status of the arts was diminished. The announcement of the history curriculum, decried by academics and at least one of the Government’s own advisers, is not a conversation that will touch these young men. When the dust settles, they will still get multiple A*s on a broad curriculum that sees England

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as more than an island and develops their intellectual curiosity in a wider world. These children do not have to make choices between arts and science or drama and languages. They have sex education and a broad range of extracurricular activities. Perhaps most importantly, their school’s reputation is judged not on part but on the whole.

By contrast, a year ago I found a young child emerging from a GCSE consultation in tears, not understanding why she was being “forced”—her word, not mine—to take history. There were more tears from a teen in Southampton, unable to get on a vocational course at the age of 16 because it was being reconfigured to start at 17. She was unable to return to school because she did not have the correct GCSEs but was unable to get a job or claim benefits because she should be in education.

What of the eloquent teenager in a council chamber in the north-west, making a case for her student council that was being disbanded, only to hear the councillor say with great regret that he had no jurisdiction over the school because it was now an academy? As the importance of oral learning is finally established across the curriculum and the CBI makes a case for the importance of transferable skills, student councils, a perfect rehearsal for public life, can be dropped in our “flagship” schools with no accountability.

Perhaps worst of all, for me, were the woeful faces of those who missed a grade boundary last summer, their plans in tatters as the goalposts were moved in the middle of the game. These children, unprotected by privilege, are the victims of an ideological tussle played out in our schools by Ministers insisting on targets that distort the allocation of resources and exacerbate the gap between those with access to cultural and financial capital and those without.

The Government have indeed solicited advice from the best educational jurisdictions, which unanimously recommended a broad curriculum, yet we are faced with a proposed system in which some subjects are more equal than others. If we are to help young people to contribute to the life of the nation, why has citizenship been demoted and why are ethics, religion and philosophy not in the academic core, as in the French bacc? If personal development is a cornerstone of good learning, why has there been obfuscation of the language that describes issues of puberty and genitalia in science, while PSHE has been left out of the discussion altogether to fight an uphill battle on an entirely separate battlefield?

The national curriculum review asserts that curricular aims are,

“essentially ethical, moral and political statements, making transparent the values and ambitions to which a nation aspires”.

This process has not been coherent. There is implicit unfairness in setting the rules according to the status of the institution rather than the needs of the child. As the noble Lord, Lord Storey, said, if it is a national curriculum, why not have it in all our schools? In my view, what has been described—I do not have time to go into it in detail—is detailed but simply not ambitious enough, broad enough or deep enough for children who lack privilege in other parts of their lives.

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4.20 pm

Lord Lucas: My Lords, I am a great fan of the national curriculum review. It is set out with the right principles underlying it of increasing emphasis on knowledge and on ambition and is well executed. The current consultation is a real consultation. I have had several conversations with departmental officials and found them more than willing to listen. I am hoping that today we shall have an example of a Minister who is more than willing to listen. We shall see. Therefore, I encourage my noble friend Lord Storey to write in and say what he wants to say about sex education. I suspect that some members of the ministerial team live quite sheltered lives down in Sussex and Norfolk. I can tell them—as I am sure the noble Lord, Lord Nash, can—that life in central London is a bit different and that the worst bits of the internet are well into primary schools in year 5, and we want our children to be helped to resist them and overcome them. Leaving things until secondary school is not good enough. However, as I say, I encourage my noble friend and others to write in and say that.

I very much hope that my right honourable friend will resist those of the 100 who want him to change the history curriculum. I am delighted that we have got history away from the academics who think that history is about studying history, and to understand that it is about people—us—our roots and why we are and who we are. I encourage him to get through the whole of British history in the primary curriculum. Simon Jenkins compresses it into 250 very readable pages, which I hope my daughter will get through in six months, or perhaps rather less, at a rate of a chapter a day. History is not a burden to be considered but an essential part of being British. I am delighted to see it back.

The noble Baroness, Lady Whitaker, focused on the design and technology curriculum. It has, indeed, been filleted. All that is left is horticulture, cooking and DIY. Therefore, I very much hope that my noble friend the Minister will say to his colleague Michael Gove, “Look at what has been done here. This is the most marvellous opportunity. Here we have a subject which has imploded on itself, where, in most schools in the country, the teaching is disconnected from anything else. There is far too much low-quality teaching in craft and design and where we have swept it out of the curriculum let us put something in its place. Why don’t you, Michael, do what you have done so triumphantly in computing and challenge the engineering, design and materials industry to come up with something worth while in this space because technology has now made this possible? You can get, at no great price, decent computers. You can get very good programmes to put on them. You can get lovely machines to stick on the end of both of that—things like 3D printers and computer-controlled routers and laser cutters. You can create quite sophisticated things. Put an end to these useless wooden bookshelves that fall apart on the second day of use and start to create in this space something which should be the foundation for pupils to enjoy engineering and take a real delight in what they can do and create, and a foundation for people

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who will go on enthusiastically to careers in engineering, design and other such areas”. If we do this, we will find that what emerges in the design and technology space supports what we want to see being done in the main subjects. Mathematics can be brought back at an advanced level. You can take the sort of approach that Conrad Wolfram wants and bring really sophisticated mathematical analysis into how to make something of a particular shape. There is an awful lot of physics in studying how to build something and then control it properly.

Opportunities will arise to deal with the presently separate art and design curriculums because they will be using computers. Schools are being given the opportunity to create real interfaces with business because when they are equipped with this kit, which as I say is not a great price, they will have something that every small and medium-sized enterprise involved in manufacturing will envy and want to come and use out of hours. They will want to co-operate with the school, which means that the school will have access to people in industry. The kit is up to date and what people in industry as well as schools want, and there will be real opportunities for creating the kind of collaboration that we would like to see. Beyond everything else, it would make sense of the opportunities being provided by the new computing curriculum. I hope very much that this is a cause which my noble friend will espouse.

4.26 pm

Lord Sutherland of Houndwood: My Lords, in view of the points I am about to make, I have to declare two interests. I shall be speaking briefly about Ofsted, so I should declare that I was formerly a Chief Inspector of Schools. I also declare an interest in computing and computer science, so I warmly support the points that have been made, not least about the presence of IT in design. I am the non-executive chairman of a company called Frog Trade which operates in Halifax and employs 90 software engineers, many of whom are recruited locally. The absence of appropriate training in schools will be a difficulty. Frog Trade supplies more than 20% of English secondary state schools with their IT and software, and will be supplying every mainland Malaysian school with IT and software products. That is a sign of the importance of having this discipline embedded in young people’s development. It is there anyway, so we might as well support it in the curriculum.

Let me offer some statistics. I repeat without apology two that were given to us by the noble Lord in introducing the debate. In 2011, some 18% of pupils in England left primary school without meeting the current expected standards in English, while 20% did not meet the expected standard in maths. I shall add two further statistics to those. Some 30% of 16 year-olds do not achieve the expected standards of literacy, and the real shocker is that over half of those who are serving sentences in Her Majesty’s prisons are functionally illiterate and innumerate. We are failing many young people in our society, and that alone is justification enough for looking once again at the priorities that must deliver an education to deal with these problems.

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Perhaps I can give some bold and rational advice. Following on from Micawber, if there are 36 teaching hours in a week and we provide material for 37 actual hours of teaching, the result will be frustration and bad education. If there are 36 teaching hours and we provide 35 hours of content, perhaps professionalism and balance in education will be part of our legacy. It means that we have to be careful not to say that everything should go into the curriculum. One of the great heresies is this: if something must be learnt, it must be in the school curriculum. That is a mistake. My grandchildren pick up huge amounts of learning from what are sometimes rather dubious forms of education. Indeed, if I were pushing my special area, I would be arguing that Socratic dialogue should be compulsory for all students at key stages 2, 3 and 4, but I think I might lose.

The national curriculum is one of the three great pillars of our education system. One pillar deals with content, which is the curriculum, one deals with standards in the form of national testing, and the last deals with accountability, which is national inspection. All three play an important part. The danger in this consultation—this is where I differ from the force of the papers that we received—is that we select this one topic, the national curriculum, without looking at the impact on the other two areas, which are significant.

I remind noble Lords of some of the other heresies to demonstrate what I mean. Heresy one is that it is too readily assumed that only the examined in education are likely to be taken seriously or to be of any value at all. We assume that examination is the criterion of importance. This is the head teachers’ heresy. Head teachers who bow to this principle in what they do should be condemned. Heresy two closely follows this—the twin educational sins of teaching to the test and focusing on those students who might be coaxed from grade D to grade C. This is the bad teachers’ heresy. The third heresy, which has been mentioned, is that the national curriculum is to be equated with the school curriculum. This is the lobby groups’ heresy. It is not true that one overlaps completely with the others. The principle behind what we are talking about is that there should be a core—for the statistical reasons that I have given, if no others—but there should be a balanced education.

Accountability takes place significantly through examinations, but it is limited accountability. Ofsted is the other source of accountability and I suggest to the Minister that he takes back to his colleagues the idea that Ofsted be tasked with looking at those areas of the curriculum that are perhaps not in the core but encourage soft skills that deal with PSHE, and with making explicit judgments on schools and their success in providing whole-pupil education in a balanced form. Perhaps that is the stick that is needed, and Ofsted could provide it. I hope that that idea can be taken forward, and I am pleased that there is consultation on accountability as well as on the curriculum.

4.32 pm

Lord Empey: My Lords, I warmly welcome the objective at paragraph 1.1 of the consultation to,

“ensure that all children are taught the essential knowledge in the key subject disciplines”,

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and the proposal to replace the current ICT curriculum with a new computing curriculum with more emphasis on practical programming skills. I also welcome the recognition that we have a moral obligation to the youth of today to ensure that they have the essential skills and tools to function in an increasingly digital world.

There is a massive IT skills shortage across all industries, due to the decline in numbers of computer science graduates. The UK Council of Professors and Heads of Computing estimates that there is a 15% rise in demand for IT professionals, while the number of students aiming for jobs in the industry has fallen by 50% since 2001. The number of people studying any form of computer science in the UK has fallen by between 24% and 28% since 2002.

In London, IT provides 48,000 digital economy jobs, more than double the number of such jobs 15 years ago at the time of the dotcom boom. This progress is under severe threat by a skills shortage, namely an undersupply of skilled developers and technicians within the UK, and technology firms blame ill designed university syllabuses and a lack of understanding at all levels of the education system. The number of young people studying IT has fallen correspondingly with the standard of ICT teaching from school to university over the past 15 years. Graduates have therefore become ill equipped to enter a competitive jobs market meaningfully, and overseas students are often better qualified. We must therefore recognise that curriculum reform is required in higher education, not just in schools.

Computer science is the fourth science on our educational curriculum, although there does not appear to be any provision to educate primary school teachers in the discipline. As the introduction of this document says:

“No education system can be better than the quality of its teachers”.

There is also a shortage of teachers in computer science in secondary schools, with no incentive for top graduates to enter the profession.

Something else that must be mentioned is the gender imbalance among students of computer science at a higher level. In 2012 the ratio of female to male students was 1:100. Fewer than 300 female students in the whole of the UK take computing A-level each year. Only 18% of graduates from IT-related courses are female. This represents a huge loss of opportunity and potential skilled personnel, which will ultimately leave us less competitive in the long term.

Last week, as the noble Baroness, Lady Walmsley, said, I had the pleasure of hosting an event in this House on computer science education in the 21st century. I met several extremely bright and enthusiastic young female teachers who, it was obvious to me, cared deeply about their subject and their pupils. This makes the loss of opportunity even greater.

Perhaps it would be best if the department facilitated greater engagement and communication between the ICT industry and higher education, to design courses that prepared graduates for industry and made them a great asset to the industry as a whole. Graduates do not and will not always have the perfect skill sets to fit

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the job. However, employers must be more amenable to offering periods of training to bring new graduates up to speed in areas where they need to recruit, and realise that it does no good complaining about a lack of a competent workforce if they are not prepared to help to fix the problem themselves.

Industry could also become more involved in lower-level ICT teaching, for example in primary and secondary schools. It is important that the Government engage these businesses and use their guidance in shaping the ICT education of our children. It is not just the state’s job to rise to this challenge; it is also incumbent on big corporations and employers. Having reaped the benefits of our educational system and careers in ICT, they have a moral obligation to continue this legacy.

The noble Lord, Lord Storey, referred to the report of the SME committee, on which I had the privilege to sit. It is perfectly obvious that exports, businesses and SMEs are damaged by the lack of language skills. That was made very clear in the evidence that we took. It is also clear that there must be a more practical relationship between education generally and industry. What is the point of educating young people for jobs that are not there, when we need to educate them for the jobs that are there? The people who know what the jobs are are the people who need employees, so they should be integrated in the formation of any curriculum.

4.37 pm

Baroness Brinton: My Lords, with the permission of the Grand Committee I will speak seated today. To cover the national curriculum in under five minutes is an impossibility so I will focus ruthlessly on maths and English, particularly at key stage 4. I remember the launch of the national curriculum. I was a parent, chair of governors of a primary school and a councillor. It seemed like a good idea: a national framework that would help deliver consistent standards and syllabuses. At least initially, it was not too constraining on teachers at the point of delivery, but all that changed very rapidly. Suddenly, reams of papers with strictures, limitations and specified methods of teaching started to arrive.

As I held the education portfolio on Cambridgeshire County Council at the time, I had the pleasure of hosting a French primary education team who came to look at our pre-national curriculum model in some of our excellent primary schools. They were impressed and said: “At least your schools have the freedom to teach what they want. In France, if it is the second Tuesday in March, you know that a 10 year-old will be on chapter 2 of the green textbook”. I fear that in the succeeding decade England has moved too much in the French direction.

The French also liked our philosophy of developing children as thinkers and independent learners. Now, a decade on, too many children are taught to the test, whether or not they have learnt the foundations beneath it. A university lecturer friend told me last week that she despairs of students who come to her and ask what they need to learn to pass. “I just want you to learn to think,” she replies.

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The national curriculum should be a guide on the side, not a sage on the stage dictating every detail of what our children must learn. We should focus on pupil and student attainment and give the thousands of excellent teachers the flexibility to deliver it in the professional way that they know best. A minimum curriculum must ensure that our pupils can read and write, are numerate and have the appropriate ICT skills. Without these, they will find it almost impossible to gain meaningful employment in our knowledge-based economy. It has to be true, underlying knowledge as well, not just learnt for an exam.

I talked on Saturday to an employer recruiting graduates in the financial services sector. They had whittled down more than 160 applications to 14 that they could even contemplate shortlisting, on the basis of literacy and presentation in CVs. One candidate, a graduate with a very good degree, had written the paragraph on why they were suitable entirely in capital letters and with no punctuation. Others did not even get that far, leaving this vital personalising paragraph empty. It is no wonder that employers say that our education system is not equipping enough students with the right skills for a working life in the 21st century. Both the Minister and the noble Lord, Lord Sutherland, quoted the statistics for those who have failed to achieve the standard. My concern is that the examples I have just given would have been deemed to have met the standard.

We need a minimum curriculum to ensure that young people get those skills, and we need to broaden the offer at 16 to 19 to make it the norm for all students to achieve a level 3 in both English and maths. This might be applied English or applied maths, as are relevant for their future studies. My son, for example, did statistics in the lower sixth form to go alongside psychology, which he then read at university; that was extremely helpful to him. There could be written English for engineers and scientists, focusing on the sort of reports that they will have to learn to write later on.

The many strengths of the A-level system in depth unfortunately mean that too many students give up maths of English at 16—far too early. We are one of the few OECD countries to allow this. Even Scotland, with its excellent Highers, keeps that breadth of English and maths at 16. For some schools, the international baccalaureate does the same but I am not convinced that the EBacc at 16 to 18 will do it, because of the lack of compulsion.

The proposed key stage 4 curriculums in English and maths are challenging; taught well, they will give students an excellent foundation for later learning, whether in vocational or academic environments. They look surprisingly similar to the American systems, but the difference between our countries is that American students are expected to continue with both. Our system does not, and this explains the low take-up of maths to which the Minister referred in his opening speech. Will the Minister tell us whether the Government intend to broaden the curriculum to ensure that 16 year-olds continue with both maths and English until they leave formal education and training at 18 and/or attain a level 3 qualification in maths and

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English? Furthermore, will the Minister tell us whether applied maths and English courses will also be approved for those following vocational routes? It is as important for them and questions have certainly been raised about the functional skills courses that have been available in recent times.

Other speakers have rightly focused on the educational elements. The new national curriculum, which should be taught in all maintained schools, has the potential to free teachers from previous constraints, but—and it is a big but—attainment in maths and English is essential to make our young people not just employable but constructive and productive workers who are able to achieve their full potential in the UK.

4.43 pm

The Earl of Clancarty: My Lords, I find it bizarre that a national curriculum can be so much the product of those—some might say of a single individual—who, in their day-to-day work, have such an overtly political agenda. Surely our country’s national curriculum should be in the hands of an expert independent commission, at arm’s length from Ministers. If the national curriculum still has significance when the voting age is reduced to 16—as I think will happen—there will be an even greater need for the content of national school education to be as free as possible from political interference. Will the Minister tell us whether the coalition would consider taking the planning of the national curriculum out of ministerial hands, and make it wholly independent of politics?

A school education should give students basic information and frameworks in which to work. Beyond that, it should provide them with the wherewithal to think for themselves. At least by their teens, young people should be encouraged to bring their own interpretations and thinking to bear on contemporary issues that should be part of the curriculum, including debates around climate change and gender politics, among others.

Following the theme of individual thought, with reference to the statement on page 5 of the document concerning provision for collective worship, do the Government understand the terms “collective worship” and “assembly” to be the same thing or do they consider the two things to be combined? If that is the case, the atheists and agnostics among us would still have to opt out, which is discrimination.

I agree with those who like to see English read, written and spelt well, and grammar understood. That is also useful for learning other languages. However, basic skills, especially in English and maths, should be sorted out in primary schools. What should not be the case is that the failures which the Government claim are occurring at primary school leaving age are carried by secondary schools. By that point, they should be developing students beyond the basic level.

Despite the arts community being so outspoken about last year’s English Baccalaureate Certificate plans, it worries me that in this draft national curriculum, the arts are still not regarded as being on an equal footing with other subjects such as the sciences. The arts are not asking to be treated as better than sciences, but to

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have parity. Art, design and music are given some space, but there is a fine balance between inordinate prescription and neglect. Apart from fleeting references on page 7, there is no mention of dance, film and animation, digital media or photography, while drama is mentioned in the English guidance notes. These are holes in the national curriculum. Along with many others, Alistair Spalding, the artistic director of Sadler’s Wells, is concerned that dance is now being left out of the PE curriculum. Perhaps this oversight can be rectified.

In terms of music, many are pleased that the Government are taking some notice. However, on 6 March at the Westminster Education Forum, the chief executive of the Incorporated Society of Musicians, Deborah Annetts, highlighted Ofsted’s own guidance that pupils should be able to,

“appreciate music through active involvement as creators, performers and listeners”.

This principle ought to be emphasised in every area of the arts, including drama. The Government should listen carefully to the recommendation of Josie Rourke, artistic director of the Donmar Warehouse, who would like to see within the curriculum every child being entitled to trips to visit cultural public spaces. One single experience at a concert, a gallery or the theatre can be worth many lessons.

The art and design curriculum has an old-fashioned and absolutist feel. It ignores the idea of critical looking and debate. In their teens, pupils can be engaged with contemporary art, which represents a significant area of modern-day visual literacy. Also, as others have pointed out, the term “great artist” should be replaced by “significant artist”. Who is and is not “great” is a part of the debate, while greatness is itself a debatable term. Will the Government say something about the Arts Council’s projected involvement in the GCSE syllabus for arts subjects? A good and practical arts education should demonstrate as full a panoply of techniques and media as possible, new as well as old. A similar criticism can be made of music, which now lacks a reference to music technology, including electronics, computers and recording.

If, as many increasingly believe, the arts and creative industries are crucial to Britain’s economic recovery, there needs to be a greater sense of urgency from the Government about the provision of an excellent and comprehensive arts education that is available to all. The national curriculum should reflect that.

4.48 pm

Lord Quirk: My Lords, there is a great deal that I like in the new curriculum. Of course, not all that I like is new, and not all that is new is to my liking. Let me begin on the cheery side. I like the goals and the direction of travel. I like the way that vocabulary and language development are explicitly spread out across the whole range of core and foundation subjects. I also like the way that two of the core subjects, maths and English, are accorded special status; rightly so, because of their uniquely dual role in education, a point that was noted by the noble Lord, Lord Sutherland, and the noble Baroness, Lady Brinton. It is my understanding that English and maths will be taught

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up to the age of 18 in the event that pupils have not achieved a satisfactory level at GCSE. It is vital that we get these two subjects right.

Well, those who designed the maths curriculum seem to have risen to the challenge. We find a well thought out pedagogical progression, step by step, year by year, together with the gradual introduction of the requisite vocabulary. It is just dismaying to compare this with English, where the people responsible seem to have lost their way or never found it. They do not seem, for example, to have taken on board the clear injunction laid down when the review process began in January 2011: namely, that they should study and emulate the corresponding curricula in the world’s most “high-performing jurisdictions”, a phrase that the Minister himself used earlier this afternoon.

People at the DfE could have learnt a great deal from programmes for teaching the mother tongue in countries not as far as Hong Kong or even Massachusetts but neighbouring countries such as France, the Netherlands, and Germany. There is little sign that they even tried. There are many other and more overt defects. The most obvious is the gross unevenness: for example, dozens of pages are devoted to KS 1 and 2 while key stage 3 is dismissed with barely a wave, yet this, as the noble Baroness, Lady Walmsley, reminded us, is when puberty-fired youngsters are at their most restlessly keen to explore, and when teachers—God help them—need all the supportive guidance they can get.

Then there is the unnerving difference in expertise as we pass from one content area of the English curriculum to the next. By far the most professional is the treatment of spelling, with its formidable and convincing step-by-step progression, laid out in extraordinary detail and at extraordinary length. The treatment of grammar is far less professional, both linguistically and pedagogically. There are, I grant, glimpses of attempts at something more sophisticated than the old preoccupation with a few shibboleths, but such efforts are lost in muddle and inconsistency and dumbed down in a curious diffidence. I am told on the grapevine that the note of nervous apology is because many teachers, and teacher trainers, still hanker after the grammarless “anything goes” days of yore, when standard English was the butt of smear and sneer. Others at the DfE whisper, “No, no, it’s not that—it’s because teachers are frightened of grammar and the arcane terminology”. Well, I just do not buy that. Teachers—in many cases, the same teachers—take in their stride the no less arcane terminology of maths and science with their square roots and quadratic equations, their molecules and precipitates. They happily and confidently explain the difference between sulphate and sulphite and sulphide, so why not the difference between semantic inverses such as imply and infer? If grammar is prescribed diffidently and inconsistently, lexicology, semantics, and the vital matter of vocabulary networks seem beyond the DfE entirely.

There is no sign of linguistic professionalism to help teachers build on children’s hungry interest in naming things and finding better ways of describing them, and no sign of any step-by-step progression in

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enriching pupils’ word-stock. Yet this is the very soul and centre of language. Like others, I have provided the DfE with detailed criticism and, serious as the defects are, they can be speedily put right if the advice is understood, accepted and, of course, implemented.

But I am left with worries that cannot be so readily dispelled. Getting a good curriculum agreed is one thing; getting it taught across the country is quite another, as the noble Lord, Lord Storey, said. Are the many thousands of teachers in post willing to teach it and are they equipped to do so? There is much in the curriculum that will be unfamiliar to them. Then there are tomorrow’s teachers. Are our teacher-training institutions willing and—again—equipped to make the big, radical changes in what they must instil into their pupils?

4.55 pm

Baroness Jones of Whitchurch: My Lords, I thank the Minister for initiating this debate and for giving us all an opportunity to contribute to the consultation, which is clearly important. We have had a constructive and thoughtful debate and I want to continue in that spirit because, despite the very short timescale for the consultation, we have to hope that this is a genuine exercise and that our views will genuinely be taken into account before the final curriculum is put together.

This is undoubtedly a very important debate, not just among teachers and academics but among parents, employers and young people themselves. It lays the foundations of knowledge and skills for the next generation, and it is amazing how much we are defined by the years in which we were taught at school and by how much we and the next generation take them into our working lives. You can always tell how old you are by what poems you know and what books you read at school. They instantly give you away. The national curriculum creates a national presence and culture in society. There is never a perfect solution, and whatever we come up with, we will always be criticised. There will always be competing views on either side, but it does not alter the fact that we should always have an open and inquiring mind as to how we can get the best out of the curriculum and how it can be improved.

Before I comment on the detail, I should also like to give the Minister the chance to set the record straight on who drafted the proposals. He will no doubt have read the concerns from some of the department’s advisers on the history curriculum that the final draft bore no resemblance to the versions on which they were working as late as January. Can he reassure us that Michael Gove, in a fit of overexuberance, did not personally write the final version of the history curriculum?

I should also be grateful if the noble Lord can address the essential contradiction mentioned by several noble Lords, including the noble Baroness, Lady Kidron, and the noble Lord, Lord Storey, of the national curriculum applying only to maintained schools, of which there will be a shrinking number as more and more schools become academies. If it matters educationally that the curriculum is updated, how much real flexibility are we prepared to give to academies that choose to flout the direction of the Secretary of State? At what

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point would Ofsted or the department intervene, and what sanctions are available if academies veer off course in a major way from what is prescribed in the national curriculum?

We share the ambitions of the Government that every child should be stretched to fulfil their maximum potential. However, we differ because we also see the immense variety of attributes and learning styles that make each child unique. We therefore reject the hothouse philosophy that underpins these proposals based on every child being crammed full of facts and examined to see how much they have been able to retain. Some children undoubtedly flourish in such an environment but, for others, learning becomes a miserable and frustrating treadmill that can put them off the whole educational experience. This is why we have major concerns about the move to revert back to exams as the sole measure of success. I was surprised to hear what the noble Lord, Lord Sutherland, had to say on this because, contrary to him, I believe that that takes a lot of teacher creativity out of the system and inevitably leads to teachers being put under pressure to teach to the test. The noble Lord seemed to imply that that was a heresy, but there is probably a lot of anecdotal evidence to support my position.

Lord Sutherland of Houndwood: I thank the noble Baroness for giving way. I absolutely agree that the heresy is actually to follow those principles rather than to accept them.

Baroness Jones of Whitchurch: Perhaps this is something for a longer debate but some teachers would say that they are desperate to escape the straitjacket of being forced to teach to the test but are literally prevented from doing so. We can all see the absolute merit of teachers being freed up to inspire and be creative in the way that they teach.

A couple of references have already been made to the academics and professionals who wrote to the Telegraph and the Independent last week. I share a number of the concerns those people expressed. They said that the new curriculum will severely damage educational standards. Without boring noble Lords too much, because I am sure a number have read the letters, I will just illustrate the point with a couple of short quotes. They said:

“The proposed curriculum consists of endless lists of spellings, facts and rules. This mountain of data will not develop children’s ability to think, including problem-solving, critical understanding and creativity”.

They also went on to say:

“Inappropriate demands will lead to failure and demoralisation”.

These themes were illustrated very well by the excellent contribution of my noble friend Lady Whitaker on the significance of design as a creative, multidisciplinary, problem-solving subject, which is really what we are looking for in terms of a progressive education but which is not really captured in the current proposals. Can the Minister comment on the widely held concerns that there is an overemphasis on learning by rote at the expense of deeper understanding and creativity in the way that the curriculum is being designed?

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The consultation document also emphasises the need to learn from international comparisons. We absolutely agree that we can learn from high-performing countries and aim to do better in the international league tables. However, there is an increasing controversy about the comparisons and the conclusions that are being drawn from the data. That is why our party has resolved to remove the interpretation of the evidence from politicians and instead set up an independent body, an office for educational improvement, which will verify the research and provide genuinely well informed learning points for practitioners in the field. Can the noble Lord comment on whether he agrees that a greater degree of independent analysis would be beneficial in this regard?

Turning to the specific subject areas, I do not intend to comment on every subject, but will just pick out some key concerns which are symptomatic of our wider concerns. A number of noble Lords have mentioned history but they have not really gone into the detail, so it falls to me to do so. We accept that there is a need for pupils to have a greater grasp of the chronology of events along the timeline. However, we also agree with the critique of Professor Chris Husbands that you cannot address this by starting at the beginning of time with the youngest children and working forward, as seems to be proposed, otherwise, as he says,

“you end up with a seven-year-old understanding of the Saxons, a ten-year-old understanding of the Middle Ages and a fourteen-year-old understanding of the industrial revolution”.

More fundamentally, unlike the noble Lord, Lord Lucas, we feel that there is a concern that the curriculum is focused too much on our island history and does not have sufficient material about our global history and our interconnections.

On geography, we share the concerns mentioned by the noble Baroness, Lady Walmsley, that the debate about climate change has been cut out of the curriculum for children under 14, when many children will stop studying the subject. Young people need to understand the impact of melting glaciers, floods and drought on the physical landscape. Can the Minister advise whether this is a deliberate decision to remove the item from the curriculum?

On mathematics, we welcome the fact that personal finance, budgeting and money management are to be included and we agree that pupils need to understand the basic tools of maths. However, going back to my earlier point, there has to be a way of allowing teachers to be creative and inspiring, so that maths does not just become a memory test of facts and formulas but is something more than that.

On English, we agree that spelling, grammar and sentence construction are important. This was included in the 2007 curriculum. However, we are concerned that the shift to final exams and the removal of controlled assessment risks undermining the teaching of speaking and listening skills, which are critical to the world of work. Perhaps the Minister will comment on how these skills will be assessed in future.

Finally, we share the concerns mentioned by several noble Lords about the long-awaited PSHE review giving so little direction to schools on issues that are crucial to the health and well-being of young people.

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We will continue to engage on the future curriculum, but we believe that flawed thinking undermines the proposals. At its heart is the assumption that every child must pursue an academic career. We take a different view. We see the rise of the leaving age to 18 as a great opportunity, so we are developing plans for a gold-standard set of qualifications that test academic, practical, creative and technical learning up to 18. We are taking the time to get these proposals right. This includes engaging with employers.

I realise that my time is up. I reiterate my thanks to the noble Lord for this debate and look forward to his response.

5.06 pm

Lord Nash: My Lords, I thank the noble Baroness, Lady Whitaker, for her detailed comments on design. I very much hope that she will feed them into the consultation. We recognise the concerns raised about design and technology study programmes. We are listening, and working with the subject community and the Design and Technology Association to improve the draft.

I thank my noble friend Lord Storey for his comments, in particular about the primary curriculum, an area in which he is extremely expert. It is a delight to hear someone who has spent so much time teaching children rather than thinking about theories of education talking about what it is appropriate to teach children. I am particularly grateful to him for laying off history today, and for supporting our move to give teachers more freedom.

The noble Lord asked about teaching sex education at key stage 3. Aspects of the biology of reproduction and the human life cycle are included in science in key stage 2. It is up to primary schools to decide whether to provide additional sex and relationship education, taking into account the views of parents. Many schools choose to provide sex and relationship education in year 6.

I am grateful for the comments on soft skills made by the noble Lord, Lord Northbourne. As he knows, I share his views about their vital importance. As noble Lords are aware, the outcome of the PSHE review was announced last week. PSHE remains an important and necessary part of all pupils’ education, but teachers need flexibility to deliver high-quality PSHE and are best placed to understand the needs of their pupils. This will not come from additional central prescription. Therefore, PSHE will remain a non-statutory subject, without new standardised frameworks or programmes of study. My honourable friend Elizabeth Truss wrote to Sir Michael Wilshaw last week, asking Ofsted to draw up a guide to effective PSHE practice.

Aspects of PSHE will continue to be taught throughout the statutory curriculum. In science, pupils will learn about the structure and function of the male and female reproductive systems, and the menstrual cycle. In both science and PE, children will learn about the benefits of a healthy lifestyle, including the impact on the body of diet, exercise and drugs. In maths and citizenship, children will receive financial education, including learning about wages, taxes, credit and debt.

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In designing appropriate PSHE content for school curricula, teachers will be expected to build on content in the national curriculum on drugs, finance and health education, and on the statutory guidance on sex and relationship education.

All schools today have to focus more on PSHE. With the collapse in many areas of family life as a result of the high incidence of absent fathers, the absence of religion in many children’s lives and the prevalence of gang culture, the only constant in many children’s lives—the only brick—is their school. All children in the modern world face a variety of issues and schools have to do much more on what was called the pastoral front than they used to. This is meat and drink to good schools and we expect all schools to emulate what the good ones do. We trust teachers and head teachers to adapt what they do to their own particular circumstances. We are not arguing about the necessity for PSHE, and no one feels more strongly about the need for it than I do, having seen the effect at first hand of what really good pastoral, inclusion, behaviour and raising aspirations programmes, which of course include PSHE as a part, can have on disaffected children. However, we do not feel that it is appropriate to legislate for it. We should leave teachers free to teach what is appropriate to their circumstances. However, we have asked a specific question in the consultation about our proposed aims for the national curriculum and we will take all views into account before finalising them.

My noble friend Lord Black of Brentwood commented on animal welfare. It is not the role of the national curriculum to prescribe everything that might valuably be taught to children. We are slimming down the national curriculum to focus on essential knowledge in core subjects. The draft primary science curriculum requires pupils to be taught about the needs of animals, including food, water and so on, and the care of animals is something that we would expect all good schools to cover in their wider curriculum as part of the soft skills. However, we will look further into this matter.

The noble Baroness, Lady Coussins, talked about languages. The evidence shows that we have a strong basis on which to build the new expectation that foreign languages will be taught in primary schools. A recent survey conducted by the CfBT Education Trust, the Association for Language Learning and the Independent Schools’ Modern Languages Association found that 97% of primary schools are already teaching a language, and that more than 80% are reasonably confident about meeting the statutory requirement for 2014. Evidence, including some from other countries, shows that children benefit from being taught languages at an early stage. They can inspire children with a love of language that will stay with them throughout their secondary education and beyond. For this reason, we are opening up the choice of languages beyond European modern languages by including Mandarin, Latin and Ancient Greek. It is right that we give our pupils this opportunity and provide a better foundation for the teaching of languages in secondary schools.

We will not be making languages compulsory at key stage 4 because we are conscious of the need to slim down the curriculum and allow schools the freedom to

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meet their pupils’ needs. However, to support the introduction of the new key stage 3 second language education, the Teaching Agency is facilitating an expert group chaired by a leading primary head teacher for languages and bilingual education. The group is meeting at the moment to develop the signposting of resources and the identification of high-quality teaching materials that are freely available and is looking at ways in which initial teacher training in schools can best prepare for the introduction in 2014. On schools becoming academies to avoid language teaching, we welcome schools becoming academies, but we are not encouraging them to do so for this reason. The national curriculum should be a benchmark for all schools. Academies would have to justify to their communities if they chose not to teach what all other maintained primary schools do at key stage 3.

My noble friend Lady Walmsley made a point about language experience courses in schools, which of course they are free to run. I am also grateful for her comments about cooking and IT. On IT careers advice, we expect all schools to engage with their local business communities for careers advice in IT and other industries.

I turn now to the subject of climate change. It is not true to say that climate change has been cut out of the curriculum. It is specifically mentioned in the science curriculum and both climate and weather feature throughout the geography curriculum. Nowhere is this clearer than in the science curriculum for 11 to 14 year- olds, which states that pupils should learn about,

“the production of carbon dioxide by human activity and the impact on climate”.

This is explicit coverage of the science of climate change. It is at least as extensive and certainly more precise than the current science national curriculum for this age group, which states only that:

“Human activity and natural processes can lead to changes in the environment”.

In addition, the Royal Geographical Society has said that the draft geography programme of study will provide,

“a sound underpinning of factual knowledge to prepare, at GCSE and A level, for pupils to study the topics that confront us all, globally, as citizens and which are inherently geographical, such as climate change, pollution, ‘food, water and energy’ security and globalisation”.

On academies not teaching the national curriculum, it is true that they have the freedom to vary any part of the national curriculum that they consider appropriate. However, even in a school system where more and more schools are moving towards greater autonomy, there is still a need for a national benchmark to provide parents with an understanding of what progress they should expect and to inform the content of core qualifications. Of course, academies and free schools must prepare their pupils for national exams and will be judged in part by destinations.

I am grateful to my noble friend Lord Lucas for his comments, particularly on the importance of the broad sweep of history and the opportunity now facing us with design and technology in schools.

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I thank the noble Lord, Lord Sutherland, for his Mr Micawber-like comments on the need not to crowd the national curriculum. On his point about Ofsted, I have already talked about the PSHE review. Ofsted inspects for a broad and balanced curriculum and for progression. Without good PSHE, progression can be difficult for some pupils. However, Ofsted is the sharpest tool in our box and I undertake to discuss this further with Sir Michael Wilshaw.

The noble Lord, Lord Empey, commented on the lack of incentives for computer science graduates to enter the teaching profession. We are providing a £9,000 bursary for computer science graduates. The British Computer Society-Chartered Institute for IT is offering scholarships of £20,000 to exceptional candidates. The UTCs and studio schools programme is about encouraging more young people into the technical industries.

I thank my noble friend Lady Brinton for her comments about the inadequacies of the current system. On maths and English post-16, students who have not achieved at least a GCSE grade C in English or maths at the age of 16 will be required to continue to study mathematics post-16 from September 2013. We also want to encourage schools and colleges to provide opportunities for students who have already achieved a GCSE grade A to C to continue with the study of mathematics at level 3 as part of their post-16 programme. We are developing new courses for this cohort, and work is under way with Ofqual, mathematics sector bodies and awarding organisations to determine the most appropriate format for these new core mathematics qualifications.

I thank the noble Earl, Lord Clancarty, for his comments about primary schools. He is quite right that education often goes wrong in primary schools. That is why we are focusing on the most underperforming primary schools. On trips to cultural places, that is something we expect all schools to do.

I thank the noble Lord, Lord Quirk, for his comments about teachers. He raises a very good point. All schools will have to focus on training their teachers for the delivery of the new curriculum. I thank the noble Baroness, Lady Jones, for her opening comments about how one can never get a draft of a curriculum that pleases everyone. On the authorship of parts of the history curriculum, as the noble Baroness knows, the history curriculum was drafted with the input of a great many experts in the field. We were very pleased to see 15 eminent historians, including David Starkey, Niall Ferguson and Antony Beevor, endorse our approach in a letter to the Times on 27 February.

On academy freedoms and the national curriculum, academies were allowed under the previous Government not to teach the national curriculum. If the Labour Party wants to change that, I would be interested to hear about it. On plans for an office for educational improvement, of course we agree with the principle of evidence-based policy. That is what we have been doing, and plenty of evidence is available. However, we are not convinced that the noble Baroness’s approach of setting up a new quango—no doubt at great cost—is necessary.

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Turning to the content of the history programme, I reiterate the importance of giving our pupils a clear chronological narrative of British and world history rather than a disconnected set of themes and topics, often repeated, as is the case currently with for instance Nazism, over the course of their school careers. It is right, too, that the teaching of history should cover significant individuals who have helped shape the history of Britain and the world. Those names listed in the programme of study are just some of the individuals we expect schools might cover. It is not a definitive list, and teachers are free to teach about any other individuals or aspects of the history of other countries and cultures as they see fit to meet the needs of their pupils. It is clear that the history curriculum generates a wide range of views about what pupils should be taught, and it is right to have that debate. I also acknowledge that others might have made different choices, but that is why we are consulting on the programme at present and welcome responses from all parties.

The noble Baroness, Lady Jones, made a comment about vocational education. One of the Secretary of State’s first acts was to commission the Wolf review, which we have implemented in full. We also commissioned Doug Richard to look at apprenticeships and are taking his proposals forward.

I must comment on the rather sensational latter which was recently written by 100 academics. They are of course right that we want our students to learn higher-order thinking skills, but those academics, I am sure, would acknowledge that to progress to that level, students need a basic grounding in lower-level skills and in knowledge. Sir Michael Wilshaw has—

Lord Sutherland of Houndwood: I just wonder whether the Minister has noted that my noble friend Lord Quirk and I have both chaired meetings with more than 100 professors in them. They were called senates and they did not always fill us with confidence that the judgment coming out was the right one.

Lord Nash: I am obliged to the noble Lord, Lord Sutherland, for that comment and have to say that I rather sympathise with Sir Michael Wilshaw, who has encouraged people like that to get out there and see what is happening in many of our classrooms. Once you have done that, only then can you appreciate how vacuous the content is that is being taught in many of our schools and how we need to improve the national curriculum in order for pupils to progress to a higher cognitive level.

As I outlined in my opening speech, the draft national curriculum on which we are consulting is based on careful analysis of the world’s most successful school systems. That showed that our curricula, in particular for the core subjects, focuses insufficiently on key knowledge and is less demanding than in other jurisdictions. The new national curriculum will change this and will also give schools more freedom over the curriculum and teaching, not less. The new national curriculum acknowledges the vital role of knowledge in education and is based on up-to-date, cutting-edge research about how the brain learns. It lists the important

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knowledge pupils need to know within clear subject taxonomies. To quote the leading US cognitive scientist, Dan Willingham:

“Data from the last 30 years lead to a conclusion that is not scientifically challengeable: thinking well requires knowing facts, and that’s true not simply because you need something to think about. The very processes that teachers care about most—critical thinking processes like reasoning and problem solving—are intimately intertwined with factual knowledge that is in long-term memory (not just in the environment)”.

Indeed, how interesting would debates in your Lordships’ House be if noble Lords did not have huge reservoirs of factual knowledge stored in their long-term memories which they use to display high-order skills such as argument, reasoning, analysis, comparison et cetera? The curriculum does contain lists of facts but these facts are not opposed to higher-order thinking and the skills of analysis and creativity; rather, these facts enable such skills and provide a framework of understanding.

In every field of human endeavour it is accepted that you must know the rules of that field before you can produce anything of worth within it. Great artists and writers know their rules before they break them. Great scientists and mathematicians know the work that has gone before them. This curriculum provides the foundational knowledge that will stand our future artists, writers, scientists and mathematicians in good stead, while also allowing all pupils to appreciate the great achievements of the past.

I thank noble Lords for their valuable contributions to this important debate. As I mentioned earlier, the consultation on the draft curriculum will close on 16 April and we welcome responses from anyone with an interest. Subject to the outcome of the consultation, we then plan to publish the final curriculum in Autumn 2013, to allow time for schools to prepare for the first teaching in September 2014.

Motion agreed.

5.25 pm

Sitting suspended for a Division in the House.

EUC Report: MiFID II

Getting it Right for the City and EU Financial Services Industry

Motion to Take Note

5.37 pm

Moved by Lord Harrison

That the Grand Committee takes note of the Report of the European Union Committee on MiFID II: Getting it Right for the City and EU FinancialServices Industry (2nd Report, HL Paper 28).

Lord Harrison: My Lords, I am delighted to have the opportunity to introduce this debate on the report of the European Union Committee entitled MiFID II:Getting it Right for the City and EU Financial Services Industry. This report was based on work undertaken by the Sub-Committee on Economic and Financial Affairs, which I have the honour to chair. The report was published in July 2012, and was based on evidence

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received from a number of practitioners and experts in the operation of financial markets. The committee was also assisted in its work by Professor lain MacNeil, Alexander Stone Chair of Commercial Law at the University of Glasgow, who acted as specialist adviser for the inquiry. I thank him and all the witnesses who contributed so richly to this report.

This proposal for a directive and regulation on markets in financial instruments is a complex legislative package, as our seven-page glossary indicates, but it is also extremely important. The original MiFID package, which came into effect in November 2007, is the foundation of the EU regulatory framework for investment firms. These firms encompass a wide range of activity such as global investment banks trading complex securities, fund managers investing pension funds, stock-broking firms and small high street financial advisers providing financial advice to the general public. The Commission’s objectives were to open up trading in securities to competition, to apply equivalent regulatory rules to different market models which perform similar functions and to enhance, standardise and harmonise investor protection across the European Union.

The new proposal, known as MiFID II, seeks to respond to deficiencies in the MiFID I regime exposed by the recent financial crisis. It focuses in particular on addressing problems that have arisen from the expansion in over-the-counter (OTC) trading, including the transparency of such trading. It seeks to shift trading from the more opaque OTC market to more transparent organised markets, in line with the September 2009 G20 commitment to tackle the less regulated and more opaque parts of the financial system by the end of 2012.

The committee’s starting point was to ask whether a review of MiFID I was even necessary. We found that it was, particularly given the technological advances that had taken place since it came into force. Some witnesses told us that the Commission’s proposals were a “good starting point” for negotiations. However, we warned of the damage that would be created by hastily or poorly drafted legislation. These concerns were heightened by the evidence we heard that, while some of the proposals were based on sound principles, there were significant flaws in the Commission’s draft. We identified six such central flaws.

First, we warned that the proposal for a new category of organised trading facility risked creating an overly complex regulatory framework which did not distinguish clearly between organised venues and OTC. We feared that the implications of the proposal had not been fully assessed. We were particularly concerned about the proposal for a ban on “own capital”—that is, the ability of the trader to use his or her own resources to trade on other people’s behalf—and the amount of detail left to delegated acts.

Secondly, while the post-trade transparency provisions held much merit, the pre-trade transparency proposals did not take into account the markedly different characteristics of each sector of the market, particularly in terms of liquidity. The requirement for disclosure could compromise the ability for competition to flourish. We warned against a one-size-fits-all approach to transparency that could have a negative impact on

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bond markets. We called for a more flexible approach that, while recognising the benefits of transparency, would allow the market to operate effectively.

Thirdly, the Commission also proposed to regulate algorithmic and high-frequency trading. HFT remains a deeply controversial activity and there is a wide spectrum of views about its utility. We recognised the case for circuit breakers, but were concerned that the scope of the proposals was too broad and did not adequately differentiate between algorithmic trading and high-frequency trading. In particular, we warned that the proposal to require algorithmic trading strategies to be in place throughout the trading day was likely to have a detrimental effect on financial markets.

Fourthly, the Commission’s proposals on third country access were deeply flawed. They created a risk that third country firms could find themselves locked out of EU markets, creating the spectre of regulatory retaliation. Such effects could have a particularly damaging effect on the City of London. At the very least, lengthy transitional regimes for existing third country firms were required.

Fifthly, the Commission proposed a number of steps to strengthen investor protection and corporate governance, yet the proposal to restrict the ban on inducements to independent advisers was in our view unworkable, since advisers would simply take steps to avoid being classified as independent. Likewise, the Commission’s proposals on corporate governance were overly prescriptive and did not take account of the diverse size, capacity and business models of the range of market participants.

Finally, we found that, while the European Securities and Markets Authority had a vital role to play in co-ordinating regulation of financial markets across the European Union, there was less consensus about the degree to which it should engage in direct regulation of the financial markets, as suggested in the Commission’s proposals for ESMA to take on product intervention powers. In the light of these flaws, we urged the UK Government, the Commission, the Council and indeed the European Parliament to take all the steps necessary to ensure that the legislation was fit for purpose before it came into force.

What has happened in the nine months since our report was published? The Government’s response, received in October, expressed sympathy with many of the points raised in our report, and we are grateful to the Financial Secretary to the Treasury, the right honourable Greg Clark MP, for keeping us updated on negotiations in the months since. We are aware that negotiations have moved forward, and that significant amendments have been advanced. For instance, progress has been made in Council on improving the provisions on third country access, although we understand that the European Parliament continues to take a contrary view. Perhaps the Minister might tell us a bit more about that. We are grateful to City UK for sending us extra material that will be valuable to us in our thoughts on third country access.

What update can the Minister give us on the progress of negotiations in relation to the six areas of concern that I have identified? What is his understanding of the European Parliament’s position on these issues?

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To what degree does he believe that the concerns that we raised, and which the Government have said that they share, will be addressed in the redrafted legislation? In relation to HFT, what is his assessment of the findings of the Foresight project, published in October 2012? On a personal note, I am still considerably worried about HFT, although the Foresight group took a much more relaxed view. What is the Minister’s view?

It has also become clear from the Minister’s correspondence that the timetable for agreement had been pushed back, with the scheduled agreement in Council repeatedly postponed. We understand that the Irish presidency decided not to take MiFID to general approach at ECOFIN on 5 March because a number of issues remained open. Which issues remain contentious, and what update can the Minister give us on when agreement on the package will be sought?

MiFID II’s impact on European financial markets, not least the City of London, will be considerable. The Government and their European partners must do all that they can to ensure that the financial markets, and the economies that rely on them, are strengthened rather than undermined by these provisions. However, MiFID II must not be viewed in isolation. There are other pressing issues whose impact on the City, the UK and the EU as a whole are just as great, if not greater.

Last year my sub-committee also conducted an inquiry into the Commission proposals for a financial transaction tax. Contrary to the opinion of many so-called experts, the idea has not died but remains very much alive, in the form of a proposal by 11 European Union member states to introduce a tax under the enhanced co-operation procedure. Only last week, witnesses to my sub-committee told us that the political will in the EU behind this proposal had been underestimated. Indeed, I recall that the CBI spokesman Richard Woolhouse told us that there were now stirrings of recognition in the City that the FTT in its enhanced form could indeed come about.

Do the Government share the complacency we identified? What steps are they taking to ensure that a full and effective analysis of the effects of such a tax on the UK will be conducted? The Minister might like to know that, this afternoon, I talked about this with Mr Lidington, our Minister for Europe, and I tried to sound the alarm bells. As an expert on the City, he will know of some of the new elements introduced in the issuance principle which mean that those trading in, for example, Volkswagen shares in two non-participating countries could be subject to the tax. London could have a much greater responsibility in terms of collecting the tax, perhaps for participating countries.

The euro area crisis has not, of course, gone away. In February, my sub-committee wrote to the Financial Secretary to the Treasury, reporting on the assertions of some experts that the worst of the crisis was over. We were sceptical. We warned that,

“the biggest enemy in the current climate is complacency, whether it be that of European leaders that the euro area has definitively turned a corner, or whether it be that of observers in the UK that

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the implications of these developments for the United Kingdom can be safely ignored. Positive signs of progress there may have been, but there remains a long way to go before the euro area crisis can be judged to have come to an end”.

I regret to say that recent developments in Italy and, more particularly, in Cyprus have borne out our judgment. The inconclusive Italian election results were a clear demonstration of the political and social pressures to which the euro area crisis is giving rise. More alarming still is the crisis over the Cypriot bailout. The way in which this issue has threatened to spin the entire currency zone back into crisis mode is a clear demonstration of the perils of complacency.

These issues demonstrate the vital importance of the UK Government remaining at the heart of EU discussions, whether it be on the euro area crisis, proposals for a financial transaction tax, or the MiFID II package. The Government may not agree with all the proposals, nor wish to participate in them, but the UK is not immune to the effects that overspill on to us. On MiFID II, as on all these issues, the Government must remain at the negotiating table, ensuring the best possible outcome not only for the City and the UK, but for the EU as a whole. We need to find friends in Europe to be able to do that important and sometimes desperate task. I beg to move.

5.53 pm

Lord Hamilton of Epsom: My Lords, the noble Lord, Lord Harrison, made reference to the technical advances mentioned in our report, and the problem is that, as we all know, technology moves on. I am absolutely sure there is going to be another financial crisis, possibly as big as the one we have just seen; I am absolutely convinced that we cannot anticipate today what it is going to be. One of the weaknesses of regulation and moves such as those that have been made by the EU is that they definitely involve closing the stable door. You can always guarantee that the next financial crisis will be different from the ones we have seen in the past. I suspect that, if we are looking for a solution to this, we have to look to very agile national supervisors, because I do not think that the EU is in a position to stop this sort of thing happening in future.

I would like to move on to the slightly wider issues which the noble Lord, Lord Harrison, touched on, namely the financial transfer tax. Students of the Bible will remember that the Pharisee used to get up in the morning and say, “Thank God I’m not like other men”. I get up every morning saying, “Thank God I’m not a Europhile”. If I were, I would feel that the European Union was letting me down extremely badly. Its attempt to deal with a financial crisis has been so ham-fisted that it really makes one doubt its capacity to run anything at all.

The reality is that the financial transfer tax will be incredibly damaging to the eurozone and the financial institutions within it. It will reduce liquidity in eurozone companies; clearly, if you are going to tax transactions in shares, people will just not buy and sell those shares as much as they otherwise would. It will make it attractive for a number of them to relocate to markets elsewhere in the world where they do not have to pay

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the tax, and it will make it much more difficult for the EU to raise money. It defies all credibility that it should want to do this.

Mr Bergmann, the deputy to the Commissioner who deals with all this in Brussels, came to see our committee and said that when 11 countries entered into this agreement, they would set an example to others that would then follow. If you believe that, you will believe anything. The fact is that the United States would never follow down the road of having a financial transfer tax, and I very much doubt that Hong Kong or Tokyo would either. There is therefore never going to be a global financial tax; all that you might ever have is one or two more countries within the EU joining in with it.

One of the issues that came up during our discussions on this today was the big question of whether companies in the City of London would be forced to collect the tax on behalf of the European countries that were involved in the shares that were being traded. We were left completely confused because Mr Bergmann told us categorically that there would be no question of City firms collecting this tax, but on the other hand it seems that there is serious evidence that the plan is that it should be collected on behalf of other Governments. I know that the Minister cannot reply on that now, but it would be nice if he could search that out for us and try to get a definitive reply on where we stand on it; it is a fundamental question for the City of London.

Another reason why I am glad I am not a Europhile is the whole management of the economic crisis, which has been absolutely abysmal. It is now more than 12 months ago that my right honourable friend the Prime Minister said that what Europe should do was get a big bazooka to solve the problems facing the eurozone. Chancellor Merkel was adamant: she was not going to expose the German taxpayer to picking up all the liabilities of the Club Med countries and the others that the Germans consider have not got their act together at all. A year to 18 months later, that is precisely what happened: the ECB got authorisation from the Germans to buy bonds in the secondary market across the whole of the eurozone. The result was that the crisis that there had been in funding government debt across the eurozone was completely stabilised overnight. It is quite interesting that to date the ECB has not had to buy any bonds in the secondary market of the eurozone, yet that stability has been brought about.

So what has happened in the mean time in the intervening 12 to 18 months? Chronic insecurity has spread across the whole of the eurozone, and people who might have made investment decisions have sat on their hands and done nothing. The result is that we have seen a much severer recession in the eurozone than we would have seen if that decision had been taken earlier. No doubt there were a whole mass of political reasons in Germany as to why Chancellor Merkel could not move quicker, but the fact remains that if that nettle had been grasped earlier, the eurozone would not have had as severe a recession as it has seen just recently. That recession has even spread as far as Germany as well. It is quite possible that Germany

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may pull out of it quite quickly but the fact is that the inactivity by Germany actually put that country into recession, which it has not seen for quite some time.

Now of course we see the Cyprus crisis being dealt with on the basis that the Cypriots themselves should pay a very serious price for the trouble that their country has got itself into. An amazing scheme was originally produced that said that all deposit-holders in banks in Cyprus should pay a tax. It had to be described as a tax because, as everybody knows, the EU has been working for some time on a deposit insurance scheme that means that people holding up to £100,000 in a bank will have that money secured. Somehow, when the whole country goes bust, your deposits are at risk, but if your bank goes bust your savings are secure. Come on—people are not going to sit there and say, “This raid on my savings is quite legitimate because it is a tax”. That decision has now been reversed and we are going to see deposit-holders above €100,000 maybe being taxed at 40% on their holdings.

What effect is this going to have on many of the other very unstable Club Med countries in the eurozone? Jeroen Dijsselbloem, who is the president of the Eurogroup, although I gather he has not been there for very long, came out with an incredible statement only yesterday, I think, saying that what had been done in Cyprus was a template for all the other countries in the eurozone. Can you imagine a more crass and stupid remark than to say that this was a template to be applied elsewhere? What it immediately does is put the frighteners on absolutely anybody—any company or any individual—who holds a bank account with money in it in any country such as Spain, Portugal, even Italy and certainly Greece. Greece is completely unstable. It is completely recognised that it is unsustainable as it is and that it cannot go on. The reason why nothing has been done about Greece is because German elections are coming up on 22 September. After that, they will want to restructure the whole debt of Greece. They will have to do it yet again and the Greeks will have to take another massive haircut. Any Greek who is standing around at that point with money in a Greek bank needs to have his head looked at. You are actually better off taking the money out and stuffing it under the mattress than you are leaving it in a bank account, where they can impose a tax on it.

This is absolute lunacy. Once again, I hate to say it, but this is why I am so glad that I am not a Europhile, because it strikes me that these people cannot run anything competently whatever. The choice for the future of the eurozone is quite simple. It can go mutual so that the rich countries have to guarantee all the poor ones, but the Germans are flatly refusing to do that and, if they do not, it is going to break up. As night follows day, the weak countries are going to go, and then eventually it will get to the centre and some of the stronger ones will go as well.

If the Germans did decide to underwrite all this, with some eurobond or something of that sort, then of course you have a future made up of fiscal transfers from the rich countries to the poor. We have seen a bit of that already with the so-called bailouts and so forth. They are bitterly resented by the Germans, who

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have to pay them; and because of the conditions with which they arrive in Greece, say, they are bitterly resented by the Greeks, who get the bailout.

With fiscal transfers, you will only have that continuing but writ large. This then of course encourages extremism in places such as Greece and very nasty parties start to crop up. If we go on like this, the whole of this system will just not work. The best thing that could possibly happen would be if the Germans pulled out of the eurozone and created, with other sensibly run countries within the eurozone, a strong currency which can actually survive. If we go on the way we are now, chaos beckons.

6.04 pm

Viscount Brookeborough: My Lords, as a member of Sub-Committee A, chaired by the noble Lord, Lord Harrison, I pay him due credit for producing this report on such a complex issue. I also commend the clerk and our policy adviser who have managed to produce a document that, although complicated, is just readable by those who are fairly fanatical about it.

During the past 25 years, I have served on several EU sub-committees, including those on agriculture, environment, industry and transport. Controversial and tricky subjects they may be, but they are nothing like as complicated as those that we are dealing with in Sub-Committee A on economic and financial affairs. As our chairman pointed out, although it may not have been in his draft, you have only to look at the glossary at the back to see what we all need—seven pages of unheard of and unspeakable letters and descriptions. I joined the committee only last year and, after attending my first meeting, I left feeling numb and as if my brain had been scrambled. The subject was incomprehensible and it took me a while to get my head around it. I am afraid that I still lag somewhat behind.

Simply put, MiFID II is about two things, regulation and transparency. The latter includes greater understanding of the markets by everyone; but, most importantly, it relates to those who invest, insure and trust others with their funds. There are perhaps two groups. First, there are the very large pension funds, corporate businesses and plcs, among others. Then there are individuals—Joe public. During the past 40 years, millions of people have become small shareholders, encouraged by government privatisations, including those of the rail industry and BT. In addition, availability of private health insurance and private pension plans have become the norm. Some of these people can afford brokers and have access and the ability to understand the working of the financial markets. However, the majority numerically are small investors—private individuals ranging from those in lower income groups to the wealthy.

I should like to consider them for a moment, especially those who use independent advisers rather than City brokers. It is most important that this is a reliable and easy-to-understand service for those who cannot afford anything else. For one moment, I will assume that Christian Krohn of the Association for Financial Markets in Europe was correct when he said that MiFID I provides adequate small-investor protection.

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However, I should like to discuss the proposed ban on inducements and commissions to independent advisers alone. Guy Sears of the Investment Management Association questions the effect of the proposal, and I am inclined to agree and, indeed, report that we do not think that it is workable. In addition, I am not quite sure that the inducement/commission is important, providing that the product is genuine and the client knows that he or she may go elsewhere to compare prices and, most importantly, compare potential outcomes. Surely the commission is no more important to a client whether he or she is buying a financial product or a car. It is the results of the deal as a whole as they appear to him or her that count. When you buy a car, you decide on a product, shop around and get the best deal, which may include free servicing or whatever. You do not ask the salesman what his bonus is or what margin the garage is making. It may be that it remains a cheaper or better option to buy from him, even though his bonus and margin are higher than that of the garage next door. Banning inducements or declaring them in every case may upset the market—the only market available to the group of people of whom I am talking. It is a people’s market. If this market fails or becomes more difficult to access, where will ordinary citizens in the EU, including the majority of the 70 million individuals in the UK, be able to go for this service? We must be conscious of this. We know that the national pension schemes and provision of healthcare will be insufficient with our increasingly aged population. Our Government must focus on this and the future problems arising from it.

The problem with much financial services business is that it is so complicated and, unlike other businesses, takes place in the ether, rather than in the practical trading of normal products such as grain, mining products or manufactured products. Those involved work on, oblivious to the fact that the industry is incomprehensible to most people outside their world. Europe adds bureaucracy to this and thinks that “one size must fit all” means that Germany’s size is the one that must fit.

The magic word seems to be “harmonisation”—do it my way rather than compromise and use delegated regulations. Look at the financial transactions tax. We had Herr Bergmann, the director of the EU tax department, in front of our committee the other day. When asked what the main objectives of the FTT were, he said, first, harmonisation and, secondly, raising money. They are hiding behind the soundbite of harmonisation; it would be good for us all, they say. Surely the first objective of any tax before you can even think of harmonisation is to raise money. That is the next stage, papering over the cracks later on, but they have put it first because of the way that it sounds. The initial deal for the Cyprus bailout just demonstrates how confident and secure one of our nations feels to put such a proposal on the table. Next they will call for the harmonisation of this tax—and where next? Incidentally, as a colleague of mine said, the only people who have taken money out of the bank in that way were the IRA in Belfast. Charles Moore wrote in the Telegraph yesterday:

“Cyprus is only the first victim of a one-size-must-fit-all-policy that is made in Berlin”.

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In conclusion, my impression after being on the committee for a year is that this area is highly complex and few people outside the City could begin to understand it. In other committees that I have sat on, witnesses invariably feel that they have the right answers. In our deliberations, however, our witnesses have said that they hope so, they do not know the full answer for sure or, “This will not necessarily stop a future crisis”. It is pretty unnerving to listen to experts in that frame of mind.

The City of London, one of the big three, is crucial to our nation. Our invisible earnings are such a high percentage of our GDP, yet my impression is that the City is too busy keeping up with the speed of its trading and recession management to look forward to the unintended consequences of developments in Brussels. Yet the Government seem far too relaxed and are doing little to fight London’s corner. In contrast, I am delighted to see that the Government are putting £2 million towards aerospace research and development at Bombardier in Belfast, but surely they must wake up and get cracking on the financial world and support it as they should. I have not asked specific questions but our chairman has done so, and I look forward to the answers.

6.12 pm

Lord Kerr of Kinlochard: Since this is the last report from the committee chaired by the noble Lord, Lord Harrison, to be debated this Session, I should start by paying tribute to him. I have learnt a great deal from serving on his committee. We have benefited from his huge experience, linguistic skills, total impartiality and unfailing good humour. One of the reasons why it has been rather a productive committee is that it has been extremely well chaired, and I thank him. I also thank our clerks, Rose Crabtree and Stuart Stonor, the latter a man of astonishingly fertile mind, deserving of congratulations on his output.

On the matter that we are discussing today, I thank the Government for maintaining a civilised dialogue with us. The government response to our report was a serious point-by-point reply, and at all stages the discussion with the Government has been informative. I hope that what we have said has proved helpful. I contrast the Government’s response with that of the Commission, which always replies to our reports but in this case sent a particularly deadpan response. The Government sent a very interesting and helpful one. Why am I saying this? To make a point, of course. On this matter, the Government have maintained a dialogue with us, but on the matter which has been raised by all previous speakers in this debate because it worries us the most, the financial transactions tax, there is a complete dialogue of the deaf with the Government. We are unable to persuade Mr Greg Clark to engage with us. Our correspondence with him is wholly unsatisfactory, and he has still to address the key point we raised in our report—a much larger and more substantive report than the MiFID report—exactly a year ago.

I would like to take advantage of this debate by putting six questions to the Government about the financial transactions tax. First, do the Government

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agree that the enhanced co-operation of 11, if implemented, will damage the European Union? Secondly, do they agree that the enhanced co-operation of 11, if implemented, will damage the London market? Thirdly, if so, why did the Government abstain at the January ECOFIN? Why did they not oppose the proposed enhanced co-operation? Fourthly, did they seek before then, and are they seeking now, to construct an alliance against the enhanced co-operation of 11 among our natural allies not participating in it—the Dutch, the Danes, the Swedes, the Poles, the Finns, the Irish and the Luxembourgers? It is not Britain against the rest; we have a majority on our side. Are we making use of that? Is there any active diplomacy?

Fifthly, did we seek and are we seeking legal advice on whether the conditions laid down in the treaty for permitting enhanced co-operation are met, given that these conditions include the need not to prejudice the interests of non-participating member states? Sixthly, why did the Prime Minister at the European Council this month merely take note of this pernicious proposal? According to its conclusions, the European Council noted it. I do not know how well briefed the Prime Minister was. Can the Minister confirm that the Prime Minister is fully briefed on the damage that the FTT proposal could do to the European Union and to the United Kingdom?

Now, to follow the example of the noble Lord, Lord Harrison, I am going to revert to my usual bonhomie and to the subject of this debate. MiFID II is the grandson of the original 1993 investment services directive, on which I was one of the negotiators. Our aim was and still is to create a single market in financial services, which is of course massively in the UK’s interests since the UK is the principal EU provider of such services; they are our largest export; and our share of the EU market has grown as the internal barriers have come down. That is what we hoped, and it is what has happened.

The particular purposes of MiFID II are to create greater competition in trading in securities in order to reduce costs for investors, to apply equivalent regulatory rules to different market models and to enhance and harmonise investor protection—all plainly worthy aims that are beneficial to the EU and the UK. However, the devil lies in the detail. As our report shows, and the Government have agreed with us, we need to be in there fighting. I believe that on this subject, unlike the financial transactions tax, the Government have been in there fighting and that UK negotiators have done very well. It is very important that UK negotiators have been present. Let us suppose for a moment that we were in the nightmare situation of Norway. Let us suppose that we were country members of the single market and we had to take the rules, written in Brussels in the sort of process that we are talking about today, from the fax machine when they had been completed with no say in what they said.

As I say, the Government have done well and the chances are that MiFID II is going to come out okay. However, I have a two-part question for the Government and a comment. My particular concern about MiFID was with the provisions for third-country access, as discussed by the noble Lord, Lord Harrison. The

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committee thought that they were deeply flawed, and the Government agreed. The proposal was that third-country firms would have to register with the European Securities and Markets Authority and could trade in the EU only if authorised to do so by ESMA, which would be required to certify that these third-country firms came from countries whose home-country jurisdiction imposed requirements equivalent to those in MiFID II and provided equivalent reciprocal recognition of EU firms. Try selling that on Wall Street. It would not fly there, and the effect would be to restrict third-country access into our markets, which would be damaging to them and to us. Clearly, this amounted to a significant risk of shrinking the EU market and hence the London market, since it is the premier location for third-country firms and their branches.

The Commission, which, as I have said, replied to our report, was a little bland on this point. It said:

“The Commission’s objective is to ensure that EU financial markets remain open but are safe for investors … The Commission’s proposal is, therefore, mindful of the need to achieve the correct balance between open access with minimal duplication of administrative and other requirements on the one hand and investor protection on the other hand”.

Yes, Sir Humphrey, I would have been proud of that 20 years ago. The fact is, though, that the balance was not correct. The Government have since told us in their helpful reply to our report that the requirements for equivalence and reciprocal access have been eliminated in Council discussion, one of the reasons why I feel like congratulating them. However, I need to ask a question: is that still the case? Is there a stake through the heart of these third-country provisions? Has the Commission dropped its emphasis on equivalence? If not, and if the Commission is still going on about it, will the right-minded, such as the UK Government, hold firm in Council?

Secondly, as the noble Lord, Lord Harrison, said, what about the Parliament? Compared with my days in Brussels in the early 1990s, the Parliament has—rightly, in my view—much more power than it had then. Sadly, though, our Government have rather less influence than they had, which may be the inevitable consequence of the Conservative Party choosing to distance itself from the EPP in Brussels and Strasbourg, thus sharply reducing its chances of obtaining senior and influential positions in the Parliament, and of course removing a principal opportunity for influencing and alliance-building with like-minded Members of the Parliament. How confident are the Government that a good deal in Council—if it is a good deal, which I think it probably is—will not unravel in co-decision procedures with the Parliament? Are the Government acting on the first point that we made in our report when we said,

“we particularly urge the Government to ensure that they liaise with and pay due attention to the European Parliament in its consideration of the MiFID II proposals”?

Are we, in alliance with our friends in Council, lobbying hard in Strasbourg? Are Ministers going to Strasbourg specifically to talk about MiFID? Are all British MEPs, of whatever party, fully briefed on the importance of this directive for the City of London and the risks to us in the United Kingdom if it all goes wrong?

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That is nearly all I want to say, but since the debate has ranged a little beyond MiFID, I will make one final point. As eurozone Ministers, along with those aspiring to join the eurozone, get together more and more closely—in the past fortnight they have been meeting a great deal—to discuss banking union, FTT, bail-outs and bail-ins for Cyprus, it becomes more important, as the noble Lord, Lord Harrison, pointed out, that we in the UK try even harder to stay alongside the debate or, ideally, at the heart of it, among the same people on the EU financial services legislation that is so important to this country. There will be caucusing among eurozone and eurozone-plus members. There is nothing we can do about it because it will happen informally. The Commission will try to prevent it. If in the end we wanted to go to the Court, we would obtain valueless rulings on our side. Caucusing is wrong but it will happen. And “les absents ont toujours tort”.

The best way of limiting the risk and mitigating the damage is to be as active as we can in making the European case for open markets. We should bring other countries’ Ministers, officials, European Parliament Members, journalists and opinion-formers to look at the City and understand the benefit that it represents for the EU as a whole—that of having a great global market on EU territory. This grows more important with every passing month and I hope that the Government, who I know do not agree with me on a number of things, agree with me on this and will try very hard.

I will say one last thing. Given the identity of the two speakers who are to follow me, I will quote from one of my heroes, Lord Thomson of Monifieth. George Thomson was one of our two initial commissioners. In 1999, talking about 1973 and the experience of going to Brussels with Christopher Soames, he wrote:

“I recall the remark of a wise Dutch Commissioner … ‘My dear George,’ he said, ‘there are now two countries in the Community who are stubborn about defending their national interests, France and Britain. But a word of advice … France always describes opposition to her position as a betrayal of Europe. Britain makes it appear as if Europe is betraying Britain. Not the best way to get results!’”.

It was not the best way then, and it is not the best way now.

6.27 pm

Lord Liddle: My Lords, before I begin I should say that the think tank that I chair, Policy Network, has received funding from the City of London Corporation.

I will make three points in introducing what I have to say. First, I agree with the final point of the noble Lord, Lord Kerr, and with his tribute to my noble friend Lord Harrison and his fellow committee members—that should go on the record—for the excellent work that they do in bringing informed debate to the House.

Secondly, I will avoid the considerable temptation offered by the speech of the noble Lord, Lord Hamilton, to engage in the debate about the euro that he has so richly offered. I will just say—this is not meant to be a cruel point—that he has been making the same speech ever since I was privileged to join the House in 2010,

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and the euro has not collapsed yet. Even in what I agree was the mismanaged Cyprus crisis, the Cypriot Government decided that they would prefer to take the pain and stay in the euro rather than leave it.

Lord Hamilton of Epsom: Does the noble Lord accept that the pain has not even started in Cyprus yet?

Lord Liddle: They knew perfectly well what they were doing by signing up to the deal that they did. Perhaps I may make another aside. The idea that taxpayers should always pick up the bill for the irresponsibility of bankers is offensive. A lot of people in Cyprus have enjoyed the benefits of relatively high interest rates, which pensioners in Britain have not enjoyed over the past few years. The idea that they made these investments in a noble way that should be protected by the European taxpayer is, I think, offensive.

Thirdly, I agree with the noble Viscount, Lord Brookeborough, that the issues raised in this report are very complicated. I am certainly not in a position to talk about the details. Instead, I want to focus on the Government’s political strategy for handling these financial services questions. This is not a party point; it seems to me that as a nation we have a real difficulty here. A number of propositions form the approach on this side of the Room. The first is that we need a healthy financial services sector; I agree strongly with the noble Lord, Lord Hamilton, and the noble Viscount, Lord Brookeborough, on this. Yes, we need to rebalance our economy. My noble friend Lord Mandelson was right to say that we have had too much financial engineering and not enough real engineering, but the financial services sector is a huge overseas earner for us and we cannot do without it. It is a vital national interest where we have a comparative advantage. However, we have to acknowledge that things have gone wrong in the City in the recent past. Grave reputational damage has been done as the result of the LIBOR scandal and the scandals around mis-selling. Risks were taken that should never have been, and as a result we need to rethink the way we regulate the City.

The second proposition that should inform government policy on a national strategy in this area is that the City benefits hugely from being the financial centre of the European single market. The noble Lord, Lord Kerr, is right to say that what Britain achieved in the 1990s and the early 2000s—I was slightly involved in the 1999 Financial Services Action Plan—was tremendous. It opened up the market and ensured that London got a larger share of it. What happened, though, was that we had liberalisation without putting in place proper cross-country regulation, and we have to acknowledge that that was a UK mistake. It was a UK consensus that we should have light-touch regulation and we got it wrong. The Turner report that was published at the start of the financial crisis said that we have to choose between European regulation and being part of the European market or going back to national regulation, and that is basically right. I think that both the then Labour Government and the new Conservative/Lib Dem coalition have accepted that we are part of a properly regulated European single market in financial services.

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However, the result of all this is that on the Continent there is now a great suspicion of UK motives in this field. I sense this an awful lot as I travel around to various meetings. Therefore, the third objective we have to set ourselves is to accept that we need re-regulation at the European level, but that it has to be done in a proportionate and sensible way. I have some sympathy with the remarks of the noble Lord, Lord Hamilton, about shutting the stable door and things moving on so that the new regulations will not cope with the new circumstances, but we must recognise that we have to put a national effort, as the noble Lord, Lord Kerr, said, into getting our regulatory strategy right.

We face big problems here. There are some basic asymmetries that put us in a difficult position. We had very strong support from what you might call the northern liberals for the positions that we took in the 1990s and 2000s but I am not sure to what extent that support is as solid as it once was, which I think is one of the reasons why the coalition on the financial transaction tax that the noble Lord, Lord Kerr, wants has not occurred. There is an asymmetry of expertise. People complain about the bureaucracy of the Commission, but when you look at the thousands of people employed in the regulatory agencies in London and the dozens who are dealing with these matters in the Commission—a very small group of people covering a very wide brief—it is not surprising that sometimes the proposals that come forward are flawed in key respects. The Commission tries to listen and amend in the light of representations made to it.

Another major asymmetry, which is a very serious one, is that there are euro-ins and euro-outs. We are among the euro-outs, and that is the way it is going to be, but we have to recognise, as a euro-out, that financial regulation is fundamental to the financial stability of the eurozone. If they are going to do whatever it takes to stabilise the euro then they will be prepared in the eurozone to adopt whatever financial regulations they believe are necessary to stabilise their currency.

In this situation, the national strategy clearly has to be to go out of our way to win friends and influence people. That is where the Government—or perhaps only one part of the coalition—has got it so badly wrong. There is a difficult environment for us in the European Parliament. They think bankers are to blame for the crisis and that Britain is, in part, to blame because we pushed a deregulatory agenda. How do we deal with that? Not by going in with the Thatcher handbag, nor by doing what David Cameron did at the December 2011 European Council in circulating a paper—which, incidentally, has never been disclosed to Parliament, although we have seen it and know what is in it—that had “unanimity” written at the top and which, to anyone who looked at it, would look as though the British Government were basically seeking to reverse qualified majority voting on a large number of financial services questions. It was a disastrous strategy: how could you expect the eurozone to agree to surrender sovereignty over their currency to Britain through our having a veto over financial regulation? We have to argue from a position of qualified majority, and we have to win friends and base our position on reason and good argument.

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I agree with the noble Lord, Lord Kerr, that we have to point out to people the advantages of London being the global centre of the single market and all that that brings. At the same time, though, we have to acknowledge the criticisms of the City that have been made and demonstrate that we are prepared to see them tackled. That is basically the question that I put to the Minister: how are the Government going to do that? What is their political strategy for dealing with these questions, which are of vital national importance, even though they are of great complexity and difficulty for many members of the committee?

6.40 pm

Lord Newby: My Lords, like other speakers, I congratulate the noble Lord, Lord Harrison, and his committee on producing such a comprehensive and thoughtful report on such a technical subject. I hope that noble Lords will forgive me if I start by dealing with some of the technical issues that the report covers before I get on to some of the broader issues that we have discussed.

As noble Lords have accepted, since it came into force in 2007, MiFID has had a major impact on how EU financial markets operate. This in turn has fed through to a significant impact on the wider economy. The directive has been instrumental in reducing barriers to trade in financial services and increasing competition in trading services. To build on these benefits, the Government agree with the committee that a review of MiFID I was necessary. The Commission’s proposals for a new directive and regulation broadly seek to address three areas where problems have arisen: negative side-effects resulting from the implementation of the original legislation; technological developments in how financial markets function; and issues exposed by the financial crisis.

There is much to welcome in the proposals. For instance, the creation of a new category of trading venue, called the organised trading facility, will capture virtually all organised multilateral trading. Another objective of the review—greater transparency in financial services—should help to protect investors and generally lead to greater efficiency in price formation. A policy of open access between trading venues and clearing houses will remove an important obstacle to competition, helping to create a more competitive single market in clearing and trading services. However, the policies contained in the MiFID review must be extremely carefully designed. The Government’s primary focus is ensuring that the measures contained in the review meet their objectives and do not damage competition or the efficiency of financial markets.

First, the Government share the committee’s concerns over the design of the organised trading facility. The Government continue to work hard in negotiations to try to ensure there is sufficient detail in primary legislation so that the proposals achieve their purpose.

Regarding the Commission’s proposal to extend the rules on market transparency to non-equity markets, the committee rightly notes that we must avoid a one-size-fits-all approach, as trading characteristics can differ significantly across asset classes. As the

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committee also observes, without proper understanding of these issues there could be an impact on liquidity and the cost of capital. The Government agree with both these points and continue to prioritise these issues in negotiations.

The proposals also increase transparency for so-called systematic internalisers. The Government believe that the systematic internaliser model has a role to play, but we acknowledge the committee’s comments that this category has not been heavily utilised and that some clarification of the purpose of the regime may be helpful.

As a consequence of recent technological advances in financial markets, the Commission has proposed new rules governing the operation of high-frequency trading. As the committee recommends, the Government’s position is that measures applied to algorithmic and high-frequency trading should be firmly grounded in evidence about its real impact. The Government note the welcome contribution that the Foresight report has made in this regard.

The Commission’s proposals also introduce an EU-wide third-country regime. This would harmonise the rules under which investment services can be provided by non-EU firms into the EU. Although we believe that there would be an economic rationale in extending the benefits of the single market to third-country firms, we fully agree with the committee’s comments on the global nature of financial markets. Our prime objective is to ensure that the UK, and indeed the entire EU, remains open to trade in financial services worldwide. The UK has worked hard in Council to amend the proposal and we believe that the current compromise will avoid the disadvantages and difficulties that the committee has identified.

While we support greater transparency in commodity markets, the Government agree with the committee that price volatility in these markets is dependent on a range of factors. In particular, in 2011, the G20 commodity study group was clear that fundamentals—in other words, supply and demand—have been driving commodity prices. The Commission’s proposed rules for commodity markets did not recognise this, placing undue emphasis on a particularly rigid regulatory regime. However, we are satisfied that the current compromise in Council provides for a suite of position management tools that will ensure that commodity derivatives markets are properly regulated throughout the EU.

Turning to the powers granted to ESMA under the MiFID review, the Government agree with the committee that ESMA has a strong coordinating role to play. However, it is important to ensure that powers assigned to EU agencies are in accordance with the treaties and relevant EU case law. The outcome of a legal challenge on certain powers conferred on ESMA in the regulation of short selling and certain aspects of credit default swaps will inform our long-term approach on this issue.

Finally, the Government believe that the Commission’s proposed measures to improve investor protection could be strengthened. However, there is considerable pressure from other member states to not implement an inducements ban at EU level. Therefore, the

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Government’s main objective in the remaining discussions is to ensure that the UK is still able to implement tougher measures domestically under the FSA’s retail distribution review.

The noble Viscount, Lord Brookeborough, talked about inducements. Our view is that the evidence suggests that inducements are being shown time and again to bias advice. Mis-selling, as we have seen many times in the UK, is an extremely serious issue and we must protect people against future scandals. It is relevant that research for the European Commission by Synovate suggests that as many as 57% of investment recommendations in Europe are unsuitable. We cannot ignore this very serious and ongoing issue.

I will say something about where we have got to in the negotiations. Our current expectation is that the Irish presidency will try to seek political agreement in May, although no firm schedule has yet been confirmed. There are still a few areas of outstanding disagreement. The main obstacles are the open access provisions, which Germany and a group of member states oppose, and the equity transparency regime, where France and some others want to see a uniform standard of transparency across all venues. On both these issues, the Government’s objective is to ensure that the regulatory framework does not impose unnecessary costs on the end users of financial services and supports growth in the real economy. We continue to work constructively on these high priority areas in Council, with the aim of reaching a compromise.

Questions were asked about the European Parliament and whether we are trying hard in both the Council and the Parliament. The Parliament compromise was agreed in September. As it stands, it is likely that the biggest difference between the Parliament and the Council will be the third-country regime. Although the Council has deleted much of the regime, Parliament has broadly opted to retain it, but with some positive amendments. However, in many other areas the Parliament and the Council texts are broadly aligned. We have been lobbying hard in Strasbourg and are working extremely hard in the Council to ensure that we get the best possible outcomes.

I turn to some of the broader comments which have been made. It is fair to say that they have occupied the bulk of this afternoon’s deliberations. There has been a lot of discussion about the financial transaction tax and where we are on it. The noble Lord, Lord Kerr, asked me six questions about that tax. As he knows, the proposals are relatively recent; some aspects of them are relatively unclear and the Treasury is, at the moment, analysing the proposals and seeking to understand them in greater detail.

Lord Kerr of Kinlochard: I have tremendous respect for the noble Lord, but that is the kind of answer we have been getting for a year on the financial transactions tax. The Council made a decision in January, with the UK—absurdly, in my view—abstaining. The point of principle is whether we agree that they may go ahead with levying a tax among 11 countries but requiring the rest of us, including the UK, to collect the tax for them and send it to them. Do we agree to damage our

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market? Do we agree that they have the right to do that? The key question is whether our interests are adversely affected. If so, they do not have the right to do it. Why did we abstain?

Lord Newby: We agree that they have the right to do it. The question which the noble Lord asked about whether this measure would damage the EU and the UK is not one to which there is a simple or straightforward answer. There are two completely different views about the impact of this tax on London. To a certain extent, we will not know, until it is implemented, which of these two views is correct. One view is that London will benefit significantly because we are out of it. If you look, for example, at what happened in Sweden, which had a transaction tax, the bond market collapsed totally and Sweden had to abolish it. If you take that view, a financial transaction tax is good for London.

Other people take a completely opposite view. The modalities of collecting the tax, and exactly how those will work, are clearly, from everything that the Commission has said, a work in progress. It is not, I believe, a unique suggestion within EU law and practice that member states will collect taxes that revert to other member states. I do not think it is a matter of principle; it will be a matter of practice and whether it is possible to put in place a practical solution.

Lord Kerr of Kinlochard: Surely, the complacent school of thought that says all the business will flow to the United Kingdom, others will damage themselves and we stand to gain, does not still exist in Whitehall. Surely, Whitehall has now persuaded itself that putting more grit in the cogs of the London financial markets is a bad thing, as is trying to persuade two American banks doing a transaction in London that, according to an instrument which originated in Germany, we should collect from both banks not for the British Exchequer but to send the money to the Germans. Surely, Whitehall has decided that that scenario is mad because the American banks will not trade in London if we apply this absurd regime. Surely, Whitehall is clear that we are approaching a crossroads and that we do not know which road to take. What are we going to do? Are we going to sit at the crossroads?

We have to decide what to do on the balance of the evidence. Surely, the balance of the evidence is overwhelming that this measure is a bad thing for the EU and a bad thing for the UK. Eleven countries do not agree, but I guess that 15 or 16 other countries do agree with us. Are we trying to construct an alliance with them or have we, as the noble Lord, Liddle, said, such a pariah status that we cannot construct an alliance? I do not believe that. I still think that this situation could be remedied. Are we going to go to law? We need legal advice on who is right. I believe that if we could be damaged by this measure, and the chances are that we will be, it is not permitted under the treaty. Therefore, I do not understand why we abstained and I do not understand why the Prime Minister was silent.

Lord Newby: My Lords, if I did not know the noble Lord better, that speech would seem to me to typify the attitude that gets us into difficulty. He asserts with

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absolute certainty that the French do not know what is best for them, the Germans do not know what is best for them and the other nine who have signed up to this tax do not know what is best for them as he believes that it will be very damaging.

Lord Kerr of Kinlochard:I am sure that none of my friends or none of the noble Lord’s friends would do this but it is just possible that some people in France would like to damage the London market.

Lord Newby: I am sure that some people in any country will want to do virtually anything, but the question I was addressing was whether the 11 countries that have signed up to this tax can be dismissed as not knowing what is best for them, even though we are deeply sceptical about it and are not going to sign up to it. We have had a number of debates in your Lordships’ House about Greece, for example, in which some noble Lords seem to have known what is best for Greece. It is just that the Greeks have not agreed. We have to let other member states move forward with this within the rules because they are keen to do so.

Lord Hamilton of Epsom: Does my noble friend accept that at one stage the Germans were very much against this proposal and then they changed their mind? Was it that they did not know what was best for them originally and then they did know subsequently, or did they get it the other way round?

Lord Newby: I think that my noble friend should ask them because I have not the faintest clue what was in their mind, but they have now formed a view. If the German Government have a settled view, even if I do not agree with it, I would not write it off as a mad one. I am sure that we will come back to the financial transaction tax, but it is not unreasonable to say that an extremely complicated tax using very difficult mechanisms to make it work should necessarily be capable of instant analysis in terms of how we are going to deal with it. We are looking at it. We have had the proposal for only a few weeks, and my right honourable friend Greg Clark, as the noble Lord, Lord Harrison, pointed out, is actually one of the better Ministers in any Government in terms of working with Parliament and, indeed, across the EU. I am sure that in due course he will come back with a full description of our response.

Lord Kerr of Kinlochard: I am testing the Minister’s patience, but we are now past the point where we can affect it. The only question remaining for us is whether we can overturn it. After the January ECOFIN it is now up to those who participated in it to devise the tax as they think is best for them. We cannot affect that, but we will be obliged to collect it. I am not clear what we are working hard on at the moment. What are we trying to do? We are not in the room any more. I would say that we ought to try to derail this exercise by going to law. We need to mount a legal challenge. We must create a political alliance and mount a legal challenge.

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Lord Newby: My Lords, I am conscious of the time. Much as I would like to go on until eight o’clock on this subject, I think that we are going to have to return to it.