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Personal Saving

13. Mr. Geoffrey Clifton-Brown (Cotswold) (Con): If he will make a statement on the contribution of personal saving to the economy. [205222]

The Economic Secretary to the Treasury (John Healey): Saving is important to provide people with opportunity and independence throughout their life, the flexibility to deal with unforeseen circumstances
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and, of course, financial security in retirement. The Government therefore back a wide range of tax-favoured savings and investment, including the individual savings account and other forms of personal saving, amounting to about £2 billion a year of tax support. We also provide tax relief for pension saving worth more than £11 billion a year.

Mr. Clifton-Brown: I thank the Minister for his reply, but one of the Government's biggest economic failures is the reduction of the savings ratio by more than a third. It is hardly surprising that we now have the highest rate of tax for 26 years. For example, £27 billion has been taken out of pensions, and one of the Government's worst tax failures has been to ruin personal equity plans and tax-exempt special savings accounts. Their replacement, individual savings accounts, are now being cut as well. That is a mean measure for small savers, so what will the Government do to restore the savings ratio?

John Healey: More people who are saving through ISAs than did so through PEPs and TESSAs. When the economy is stable, people tend to feel more confident and are less inclined to need the cushion of savings. The hon. Gentleman invited me to make comparisons with the previous Government, but it is not an achievement to scare people into saving, as they did. People were worried by the stop-go economy. They were scared of losing their job, as 3 million people were unemployed, and they struggled to cope with inflation at 10 per cent.

Lawrie Quinn (Scarborough and Whitby) (Lab): I welcome my hon. Friend's answer, but can he tell the House what the Treasury is doing to make sure that the most disadvantaged communities receive support from the British banking industry? How is it encouraging the establishment of credit unions and savings clubs to allow those communities to take appropriate measures for saving for the future?

John Healey: My hon. Friend takes a close interest in this in his constituency, and he is quite right about the importance of such savings arrangements. While we need and want to encourage a stronger savings culture across the country, we have a particular concern for the poorest communities and families. He will be aware of our savings gateway pilot, in which the Government match the savings that the poorest are prepared to put aside. My right hon. Friend the Chancellor announced in the pre-Budget report that we would back that scheme with another £15 million, and roll it out further to test its impact.

European Regional Aid

14. Andrew George (St. Ives) (LD): What discussions he has had with his counterparts in other EU member states in respect of the future of European regional aid. [205224]

The Economic Secretary to the Treasury (John Healey): The Chancellor discussed the future of structural and cohesion funds with his counterparts in other European Union member states at both ECOFIN and bilateral meetings.
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Andrew George: The Minister will be aware that the most significant strength of EU regional aid is that it gives clear geographical focus to distinct economic regions such as Cornwall and Scilly, which have an average gross domestic product lower than many regions in EU accession states. It also provides guaranteed funding for a decent seven-year package. What reassurance can he give me that in the future round, beyond 2007, the Government will ensure that places such as Cornwall maintain that geographical focus and have a guaranteed seven-year package of funding?

John Healey: Like the hon. Gentleman, I represent a constituency in an objective 1 area, so I recognise the role that that form of funding, alongside massively increased investment from the Government, plays in the economic regeneration of such regions. As part of our plans and negotiations on the reform of structural funds, the UK Government have made a unique commitment that we will increase domestic spending so that the UK nations and regions do not lose out as a result of those reforms in Europe.
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Paul Farrelly (Newcastle-under-Lyme) (Lab): Does my hon. Friend agree that European regional aid has been an important source of regeneration funding in the UK? In my constituency, it has recently helped to build two new enterprise centres at Silverdale colliery. People who simply rant against the EU are wilfully blind to the benefits that it can bring to traditional areas such as north Staffordshire.

John Healey: My hon. Friend is right that such spending has a role and that Europe should contribute. We consider that reforms should be put in place from 2007 onwards. EU spending should be focused where it is needed most in poorer member states, which have a weaker financial and institutional capacity to deliver regional policy. He is right about the important role of regional funding, and his constituents will be alarmed by the £35 billion cuts planned by the Conservative party. The shadow deregulation Minister, the right hon. Member for Wokingham (Mr. Redwood), has said that we should discontinue regional and other industrial support, which runs at £1.9 billion.

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Future Infantry Structure

12.31 pm

The Secretary of State for Defence (Mr. Geoffrey Hoon): With permission, Mr. Speaker, I would like to make a statement about the future structure of the Army.

In July, I announced a re-balancing of the Army designed to make it better able to meet the challenges and threats of the 21st century. The changes that I announced then reflect the need both to complement our existing heavy and light-weight capabilities with new medium-weight forces, and to ensure that the Army is equipped, trained and organised to meet the demands of multiple, concurrent and above all expeditionary operations across the full spectrum of military tasks. Reductions in heavy armour, heavy artillery and the infantry will be accompanied by an increase in the number of key specialists, without whom the Army cannot deploy on operations. Our objective is therefore to develop a more deployable, agile and flexible force.

Since July, the Army has been engaged, under the leadership of the Chief of the General Staff, General Sir Mike Jackson, in detailed work on how the changes should be implemented. I will now set out to the House the results of the Army's deliberations. The future Army structure is underpinned by two complementary changes. First, a move towards a more balanced force organised around two armoured brigades, three mechanised brigades, a light and an air assault brigade, in addition, of course, to the Royal Marines Commando Brigade.

We are moving ahead quickly with the changes required to put that in place, and 19 Mechanised Brigade, based in Catterick, will start its conversion to a light brigade in January. The brigade will be ready for deployment on operations if required in the first half of 2006, when it will serve as the contingent NATO response force. Based in Germany, 4th Armoured Brigade will convert to a mechanised brigade in 2006, and the other brigades will adopt their new structures in a similar time frame. The key foundations on which the future Army structure is to be built will be in place by 2008.

However, it is important to emphasise that we cannot use front-line soldiers if they cannot be deployed and sustained on operations because we lack sufficient supporting forces. In parallel, therefore, we are moving ahead with the second element of the re-organisation—making the Army more robust and resilient and able to sustain the enduring expeditionary operations that have become commonplace in recent years. The overriding requirement is to make significant enhancements to the key specialist capabilities—communications, engineers, logisticians, intelligence experts and other key capabilities. At the same time, we want to make fighting units, including the infantry, more robust by ensuring they have adequate numbers.

This is an ambitious programme of change that will take several years to complete. It is more far reaching in its impact on the Army than "Options for Change" in 1991. Virtually every Army unit establishment has been examined, and 10,000 posts will be redistributed. We still have further work to do in establishing all the new arrangements. However, enhancements that we have
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already decided on include the creation of a new commando engineer regiment, a new port and maritime unit, an additional strategic communications unit and a new logistics support regiment for each deployable brigade. We are also creating a number of new sub-units for surveillance and target acquisition, bomb disposal and vehicle maintenance capabilities.

Those are new capabilities; they are not cuts. They are being backed up by an impressive re-equipment programme, introducing new communications equipment such as Bowman and Falcon, enhanced intelligence collection assets such as the Watchkeeper unmanned aerial vehicle and Soothsayer electronic warfare capability, modern vehicles such as the Panther armoured reconnaissance vehicle, and looking further ahead, the ambitious FRES armoured fighting vehicle programme, which will modernise the armoured vehicle fleet and form the basis of the medium-weight capability.

These enhancements will directly improve the ability of the Army to deploy, support and sustain itself on the range of operations that we envisage. That can only be achieved as the result of the planned reduction by four in the number of infantry battalions, which will release around 2,400 posts for redeployment across the force structure.

I now turn to the changes to the infantry. I know that this is an emotive subject. I entirely understand its importance to morale, esprit de corps and operational effectiveness of regimental traditions. However, we need to consider these changes to the infantry in the wider context of rebalancing the Army and the opportunity that affords to re-allocate manpower to those areas that current and future operations require us to develop. Very few of our regiments and corps exist today in the same form in which they existed in the past. There has been a recurrent process of change and regeneration over the past 150 years. In the last decade, for example, under the previous Government, "Options for Change" represented the first attempt to reshape our armed forces to reflect the post-cold war era. Each change, designed to make the Army more relevant to the prevailing strategic context, was passionately opposed at the time, but on each occasion new organisations were created, fostering military renown while developing their own traditions and reputations to engender loyalty and camaraderie. That remains our guiding principle.

We are able to reduce the size of the infantry because of the reduction in the requirement for permanently committed forces to support the Police Service of Northern Ireland that flows from the encouraging progress towards a lasting settlement in the Province; and the decision by the Army Board that the infantry arms plot—the mechanism by which units routinely move location and change role every few years—no longer represents the best way to deliver operational capability. In future, battalions will be fixed by role and largely by location. That requires that we find a new means of providing variety of experience and posting for individuals to sustain the operational flexibility for which our infantry units are rightly famed. In future, this will be provided through individual posting. The only means of doing that within the framework of the regimental structure is by having regiments of more than one battalion.
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Let me emphasise that this is not a revolutionary concept. The Army Board took a decision as long ago as 1962 to establish large regiments. Nearly half the infantry is already organised in this way and operates extremely effectively. Multi-battalion regiments will allow individuals to move between battalions while at the same time maintaining the sense of regimental identity that is so critical to the Army's ethos and fighting effectiveness.

Those who argue against ending the arms plot need to explain why. Ending it will ensure that we get far more military capability out of the resources that we have. Of the 40 battalions in the current order of battle, as many as 11 are likely during any 12-month period to move location or to re-role. At any one time, as many as seven may be unavailable for operations. That is simply not efficient. The logic is undeniable: at the end of this process, many more, if not all, of the future 36 infantry battalions will actually be available for operations.

Phasing out the arms plot will mean that the infantry is able to offer much greater stability for soldiers and their families. It will allow career development for soldiers and officers to be much more carefully planned, while keeping the variety, opportunity and challenge of new roles and locations open to all soldiers within large regiments; and it will give greater brigade cohesion by maintaining units within formations.

There has been a wide-ranging and detailed consultation exercise, with the infantry being invited to express their views on how the restructuring should be implemented. I am also grateful to the many hon. Members who have played their part in representing the interests of their local regiments.

The Army has concluded that the only prudent basis on which to make decisions is one that has regard to the long-term sustainability and effectiveness of the battalions concerned, based on an analysis of historic manning statistics, regional demographics and future manning predictions. But it has, rightly, tempered that with a recognition of the need to take account of regional and geographic representation. That is why, for example, we are looking to Scotland for only one reduction, and why the Royal Irish Regiment has been exempted from consideration.

The Army also considered the Gurkha battalions but concluded that, given the requirement to sustain the Brunei garrison and their excellent manning record, they should not face any reduction. It also took account of the ceremonial duties required of the five battalions of the Foot Guards, and concluded that those justified the status quo in relation to both the number and organisation of these battalions. In considering the Foot Guards, the Army took the view that any change to titles or structure would ultimately affect their ability to sustain the ceremonial roles that are so important to the fabric of our national life. Their existing structure already provides the geographical stability that we are looking to achieve elsewhere.

Against that background, I have decided, as recommended by the Army, that the first three battalions should be reduced by taking one battalion from the Scottish Division. The Royal Scots and the King's Own Scottish Borderers will merge. That and
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the other four battalions—including the Black Watch—will become part of a new large regiment, to be called the Royal Regiment of Scotland. The identities of the antecedent regiments will be preserved in a variety of ways, not least by including them prominently in the battalion titles of the new regiment. So, for example, 1st Battalion the Royal Highland Fusiliers will become the Royal Highland Fusiliers (2nd Battalion the Royal Regiment of Scotland).

One battalion will be taken from the area west of the Pennines. The King's Own Royal Border Regiment, the King's Regiment and the Queen's Lancashire Regiment will amalgamate to form two new battalions within the new King's, Lancashire and Border Regiment.

One battalion will be taken from the Prince of Wales's Division, in the south of England. That will be achieved by merging the antecedent components of the Royal Gloucester, Berkshire and Wiltshire Regiment with, in the case of the Glosters, the Devonshire and Dorsetshire Regiment, which will then merge with the Light Infantry, and, in the case of the Duke of Edinburgh's Royal Regiment, with the Princess of Wales's Royal Regiment.

In considering how the fourth reduction should be made, I have taken into account the need for additional specialist enabling support, which will underpin our future expeditionary capability.

Our special forces are critical to our prosecution of the war against terror. We were able to announce some improvements to our special forces in July. We are also considering the broader arrangements whereby the armed forces provide support to special forces operations. One option that has emerged in that continuing work is the creation of a tri-service "ranger" unit, which would be dedicated to special forces support. I have decided that it would be appropriate to develop such a unit over the next few years, and it would take its place alongside the other enhancements to specialist support elements of the Army. The fourth infantry battalion reduction will therefore be found by removing the 1st Battalion the Parachute Regiment from the infantry structure and using its highly trained manpower as the core of a new, tri-service ranger unit.

The changes that I have announced today mean that the infantry will now, with the exception—for the reasons that I have outlined—of the Foot Guards and the Royal Irish Regiment, be organised into large regiments. The seven existing multi-battalion regiments will continue.

In addition to the changes that I have already announced, the Royal Welch Fusiliers and the Royal Regiment of Wales will combine as the Royal Welsh. They will be known respectively as 1st Battalion the Royal Welsh (the Royal Welch Fusiliers) and 2nd Battalion the Royal Welsh (the Royal Regiment of Wales).

The Staffordshire Regiment, the Cheshire Regiment and the Worcester and Sherwood Foresters will combine as the Mercian Regiment and be known as 1st Battalion the Mercian Regiment (Cheshires), 2nd Battalion the Mercian Regiment (Worcesters and Foresters) and 3rd Battalion the Mercian Regiment (Staffords).
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The Duke of Wellington's Regiment, the Prince of Wales's Own Regiment and the Green Howards will come together to form the Yorkshire Regiment and be known as 1st battalion the Yorkshire Regiment (Prince of Wales's Own), 2nd Battalion the Yorkshire Regiment (Green Howards) and 3rd Battalion the Yorkshire Regiment (Duke of Wellington's).

The move to larger, multi-battalion regiments is the only sustainable way in which to structure the infantry for the long term. In implementing the new system, the Army will ensure that the regimental traditions, heritage, cultures and local connections will live on in the new arrangements. Golden threads of identity will be preserved in any new uniform, for example, by the retention of accoutrements—[Interruption.] There are hon. Members who would like to hear this. Those accoutrements include the Black Watch hackle.The new battalions will continue to recruit in the areas of their original constituent elements. Regional recruiting will remain the bedrock of the British infantry.

There will be no diminution in the role of the Territorial Army and the reserves. The TA will, in future, be more closely integrated with the regular Army for both training and operations. Each of the 14 TA infantry battalions will be part of a regular parent regiment, one per regular regiment with the exception of the Royal Regiment of Scotland, which will have two, and the Guards Division, which will have one affiliated TA battalion.

The TA is also to be rebalanced to support large-scale operations and home defence, as well as remaining capable of reinforcing regular units deploying on enduring operations. It will remain broadly the same size as today but with a structure that is more capable and relevant to future operations. Complementing the changes to the regulars, those changes will provide more TA manpower for specialist areas including intelligence, engineers, Military Provost Service and attack helicopter support teams. TA establishments will be organised to accommodate personnel who may not be able to deploy in support of large-scale operations. They will also be sufficiently robust to take account of personnel undergoing individual training. The final arrangements will be the subject of further announcements in due course.

As part of our work on the future Army structure we have also examined the requirement for Army musicians. On the basis of recommendations made by the Army, it has been decided that there should be a reduction from two to one in the number of bands per division of line infantry, and the number of Royal Armoured Corps bands should be reduced from four to two. We will also reduce the band of the Light Division by 14 posts, to bring it into line with the rest of the line infantry.

We will try to ensure that individuals affected by these changes are provided with the chance to retrain and re-role to take on new tasks. But the changes in the infantry and bandsmen that have been announced today will require a limited redundancy programme. The scheme will be carefully targeted on the small number of infantry personnel and Army musicians who, for whatever reason, are unsuited to be retrained and employed elsewhere in the Army. It will be designed to ensure that we maintain a balanced rank and age structure, and are able to continue recruiting. Not to
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do so could impact on military effectiveness by creating promotion blockages. We anticipate that about 400 personnel will be affected. Details of terms and conditions will be set out in the new year.

However—let me be clear about this—a redundancy programme does not mean that career opportunities in the Army will be reduced. The Army will continue at around its current size. At around 102,000 strong, it will continue to require more than 11,000 new recruits every year, and offer a wide range of high-quality employment and training opportunities.

I have never failed to be impressed by the Army's professionalism, courage, and determination to succeed. It is a body of men and women of whom the nation is justifiably very proud, and I know that the whole House will want to join me in paying tribute to them. I am convinced—and so is the Army—that the transformation that we have set in hand is the right course for the future. The new structure will deliver an Army fit for the challenge of the 21st century. It will preserve the vital traditions and ethos, and it will improve the lives of soldiers and their families. I commend it to the House.

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