UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 192-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

LIAISON COMMITTEE

 

 

THE PRIME MINISTER

 

 

Thursday 13 December 2007

RT HON GORDON BROWN MP

Evidence heard in Public Questions 1 - 120

 

 

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Oral Evidence

Taken before the Liaison Committee

on Thursday 13 December 2007

Members present

Mr Alan Williams, in the Chair

Mr James Arbuthnot

Mr Kevin Barron

Mr Alan Beith

Sir Stuart Bell

Malcolm Bruce

Michael Connarty

Sir Patrick Cormack

Mr Andrew Dismore

Mr Frank Doran

Mrs Gwyneth Dunwoody

Dr Hywel Francis

Mike Gapes

Mr Michael Jack

Mr Edward Leigh

Peter Luff

Rosemary McKenna

Andrew Miller

Mr Mohammad Sarwar

Mr Barry Sheerman

Dr Phyllis Starkey

Keith Vaz

Mr John Whittingdale

Dr Tony Wright

Sir George Young

________________

Witness: Rt Hon Gordon Brown MP, Prime Minister, gave evidence.

 

Chairman: May I welcome you very sincerely to your first appearance at the Liaison Committee; I hope it will be the first of many. This hearing will have four themes: first, the future of public services; second, constitutional reform; third, migration and community cohesion; and, finally, foreign policy priorities and delivery. As usual, the Prime Minister has been notified of the themes a couple of weeks ago, but he was not notified of the questions, nor has he asked to be notified of the questions. As we have four themes and we are tight on time, we will go straight into the first theme, public services.

Q1 Mr Sheerman: Prime Minister, good morning. The Labour Government for ten years has been known for its belief in public investment, with a lot of money going into the public sector, but also with the mantra that that must be accompanied by public sector reform with the private sector playing quite a role in that. Is there going to be anything different under your stewardship?

Mr Brown: First of all, it is a great pleasure to be before the Committee and I think you can see the priority I attach to attending this Committee! Let us go straight to the issue that you raise of public sector reform. I think you will see it intensify and I think you will see it wider and deeper in future years than it has been in the last few years. Why do I say that? Our first job after 1997 was to create higher minimum standards and that is why of course there were many targets to make sure that either the Health Service or the schools or any of the welfare agencies performed well. In the last few years, we have concentrated on a diversity of supply, so we have been opening up supply by competition, by contestability and delivering to people more choice as a result of that, and that will intensify. If I give you an example, in the Health Service, primary care will be opened up over the next few years in the way that, through independent treatment centres and independent diagnostic facilities, we have opened up the acute sector. Equally, in the health sector and the social care sector, we will be opening up personal social budgets for people in a way that will probably help 1.5 million people over a period of time. In education, there is a wider diversity of providers, more academies, and I think you will find that the target for academies that was set a few years ago of 200 will be surpassed, 230, we will go beyond 400 in the timescale that we have set, and of course we have got far tougher procedures in the last few months for dealing with failing schools as well as failing hospitals. The next stage is to combine the diversity of supply with a greater attention to the diversity of demand, in other words, services that meet the personal needs of the individual citizen, so you will be talking not just about public services, but about personal services, not just about a universal service that seems to be uniform, but a service that is tailored to people's needs. That is why, when you look around at education, you will see, for example, that we will have one-to-one tuition developed for all those who need it, gifted pupils at one end of the spectrum, people falling behind at the other. That is why I mentioned social care budgets in order for the elderly and for people who are disabled to be able to direct their own care, with finance provided through the social services, but with the choice in their hands about how it is spent. Increasingly, you will see all the different services, welfare services, housing services, social services, health and education services, tailored to people's needs in such a way that people are not only seeing the service organised around their needs, but they are able to dictate how that service develops in the future, so to some extent they will see themselves as co-owners of the service themselves.

Q2 Mr Sheerman: So, Prime Minister, it is the same ship, it is the same course, a different captain. Is there anything more unique about the Brown vision?

Mr Brown: I think you will find over the next few years that, where we personalise services, we will be focusing also on the one-to-one relationship between a tutor, a coach, a mentor, a teacher, a nurse, a practitioner and the relationship that they have with the individual. If you take all the big social problems that we face, long-term unemployed not being able to get back to work, people leaving care and lacking the direction that is sometimes necessary for them to succeed after they leave as children in care, people who have tried to break from drug dependency, elderly people who feel isolated and on their own, what usually makes the biggest difference to their lives is a one-to-one relationship with someone who can help them. Sometimes, when you talk about bureaucratic, uniform services, it does not capture what the individual who is trying to escape from poverty, from unemployment, from a drug dependency or from crime needs. They need one-to-one help, they need someone who is there to be of assistance to them and it is more than a public service can normally provide and that is why we want to support the voluntary sector in being able to do this. That is why we set up what is called the Council for Social Action which met this week and its first investigation is into how we can expand one-to-one support for people. That is why I think volunteering is going to become more important in this country because people who are willing to give of their time with an expertise that they can develop to support an individual, that is more likely to make a difference to whether that individual can get a job or get a skill or break from a dependency than perhaps anything else. You will see public services develop as personal services, you will see them organised around people's needs, you will see individuals increasingly able to direct these services and spend the money themselves and make the choices that they want, but you will also see, I think, the development of far more one-to-one support for people who need it and that will be an increasing ability to draw on the great strengths of the voluntary sector in Britain, whose role, I think, has often been undervalued in the past, so that, by volunteering but also by the professionalism of some of the voluntary organisations, we can help people who have got particular needs that sometimes in the last ten years the system has not been as good at picking up as it should be and will be in the future.

Mr Sheerman: Thank you, Prime Minister. We would now like to drill down on the course and the vision.

Q3 Mr Barron: Good morning, Prime Minister. Could I develop a bit further this issue of diversity and choice in healthcare, and you say you are looking at extending the independent sector in primary care. What do you say to some of the charges which have been made by the independent sector about the recent decision-making in secondary care and ISTCs, that is, the cutback in the second wave of ISTCs? Perhaps I can just quote from the Managing Director of Carillion Health, which saw one of its schemes pulled, who warned that "this might undermine the confidence of the private sector". If the private sector think that actually they are always diminishing in secondary care, how is that going to give us confidence to see it expanded elsewhere in healthcare systems?

Mr Brown: The role of the private sector in the areas that you are suggesting is expanding, will continue to expand and will be a lot bigger in the next few years than it is now. If you take independent treatment centres, I think we will move to the first million patients who have had their operations or their diagnoses done through independent treatment or independent diagnostic centres by April next year, so we move very quickly to give a million people the chance to use these independent centres. If you look ahead, in terms of elective operations, it has been one per cent a few years ago and it will be about five per cent by the end of next year, so it is moving up very quickly. The issue about independent treatment centres for the future of course has been how much local control there should be as opposed to national control. The original independent treatment centres were decided nationally. Should local organisations in the Health Service be able to make their own decisions about that, and that is where the basis of the argument lies? Perhaps I can just say that we have set up a new forum to encourage more private sector operators to come into the healthcare centre. Ara Darzi, the Minister, is holding a meeting in the next few days with people to discuss this. We have been asking in people from the private sector to review what we can do to give them a better chance to compete for contracts which we want them to do. We are carrying out, as John Hutton announced over the last few days, a review into the total role that the private sector plays in the Health Service. We believe from the recent evidence available that it is about 22 billion of expenditure that goes through the private sector. Now, that is a very considerable amount of expenditure and, if you think pharmaceuticals is a 9 billion industry in Britain, the private sector's involvement in the Health Service is 22 billion, so that is a huge amount of money, so the private sector plays an increasing role and will play a bigger role. The question really is: how much of it is by local decision-making, which I think most people would want to see, rather than by national decision-making? Perhaps I could just emphasise that the extension of it to the GP sector and to the social care sector is going to be particularly important in the years to come, so the independent sector increases its role, will continue to increase its role and, in a wider and broader range of areas, will have a bigger role in the years to come.

Q4 Mr Barron: Could I just ask you about that because Alan Johnson told the Health Committee a couple of weeks ago that the third wave of ISTCs would be procured locally. I have to say, my experience is that, if the first wave had had to be procured locally and had not been driven from the Department of Health, it would not have happened. I think most of us around here would say that the National Health Service was hostile to the introduction of the independent treatment centres or certainly those in my area that spoke to me, as an MP. Do you think that the culture has changed inside the National Health Service and that they will be able to happily engage with the independent sector if there is no direction from the centre?

Mr Brown: I think the financial disciplines that local organisations have now got to meet mean that they will be seeking value for money at all times. Now, of course in any organisation you are dealing with all the vested interests and part of the reason that the independent treatment centres were started at a national level was to break down the old vested interests, but now that local organisations can see the benefit in value for money from building up their capacity through the private and independent sectors, then I believe that they will take up these opportunities. The test at the end of the day is not private versus public, it is value for money, and it is not dogmatic to support one against the other. It is value for money you are trying to achieve all the time and where a project, such as the one in the Midlands, was only five per cent used, then that was a waste of taxpayers' money. Where, however, in another area of the country it is more than 100 per cent used based on previous projections, that is achieving, as I understand it, far greater value for money than was expected, so value for money will be the test. I think increasingly locally the financial disciplines will lead people in that direction and, let us remember, at a local level you can see lots of providers coming in to offer GP care, you will see lots of additional providers coming in to offer also social care more generally, so the independent treatment centres will go side by side with it. I think Neil Dixon of the King's Fund said a few weeks ago that the issue for independent treatment centres, which you have raised, is now that the capacity in the Health Service is being built up, then the independent sector will have to continue to prove that it is genuinely value for money, but that is a good thing because that is competition effectively working on behalf of the patient.

Mr Sheerman: Prime Minister, we now move on to efficiency savings and Michael Jack.

Q5 Mr Jack: Prime Minister, since you took over your office, what have you done from your standpoint in Number 10 to ensure that departments are actually delivering the real value of their Gershon savings?

Mr Brown: Well, the whole Public Spending Round, which concluded in October with the announcements by the Chancellor, was effectively about greater efficiency and greater value for money, so you have a situation where departments are being asked to make three per cent efficiency savings, where their budgets are costed on the basis that they do make these savings and, side by side with that, we are having regular reviews, including the work of the Delivery Unit on each of the individual departments, and I have these exercises almost every week looking at what individual departments are doing to achieve the efficiencies that are both promised and necessary if we are to get proper value for money.

Q6 Mr Jack: By how much are departments actually out from achieving the targets that have already been set? How bad is the situation in terms of their not doing what they said they would do to Gershon?

Mr Brown: I think the Gershon Report and his recommendations have been more or less achieved.

Q7 Mr Jack: Well, that is not what the National Audit Office say. In their report to the Public Accounts Committee, they indicate that 3.1 billion worth of supposed savings are substantially incorrect and, with a further 6.7 billion worth of savings, they indicate that there are measurement issues and uncertainties. That is nearly 10 billion of a saving programme that you cannot account for.

Mr Brown: Hold on! The 6.7 billion, what they are actually talking about is how these savings are measured because some of them are savings in working time, some of them are the better use productively of time, so, when you say 6.7 billion, you cannot write off these savings. What they are saying is that there is a debate about what has actually in practice been achieved and 6.3 billion or 6.5 billion -----

Q8 Mr Jack: There might be a debate, but how is that going to be resolved because, if you cannot account for the savings and they are an integral part of the budgets of departments, you are going to find that you actually have not in real terms got the money. If you question 6.7 billion, 3.1 billion, the NAO say very clearly, are substantially incorrect. That is an awful lot of money not to be able to account for.

Mr Brown: Yes, but I think what you are actually talking about is the Gershon set of proposals that I think involved, was it, 20 or 30 billion over a period of time. You are talking about a procedure by which these are achievable. Look at the Health Service, look at what has been achieved in terms of waiting times and look at what has been achieved in terms of the waiting lists, look at the increased number of operations that have been done, look at the introduction of some of the new technology and how more patients are being treated; there are millions more patients benefiting from what has happened. Equally, in schools, in colleges and in universities, there are more students now than there were in 1997.

Q9 Mr Jack: But the NAO has quite definitely, Prime Minister, agreed with you that there have been some improvements, but there is still an awful lot of money unaccounted for, so, in conclusion, if you cannot make these improvements and you are, for example, 3 billion short, what are you going to do?

Mr Brown: Well, I do not accept these figures.

Q10 Mr Jack: So you disagree with the NAO? You put a lot of store by it when you were Chancellor.

Mr Brown: What I am saying is, if you look at what the NAO and other bodies are saying, you then set your Spending Round for the next few years on the basis of the information that you have, and each department has been asked to get, in most cases, three per cent annual efficiency savings. Now, that is a big target for a department, that they have got to get three per cent, and of course, if they do not get these savings, then it will become very clear in what is happening to the service. Now, I just tell you to look at the services themselves, and the merit of what has happened over the last few years is that the value for money achieved in the Health Service is hugely greater and the value for money achieved in education is greater, but we are never complacent and that is why the Spending Round set very strenuous targets both in terms of cutting back central bureaucracies, cutting back the number of civil servants overall, so overall, I think it is, 80,000 civil servants have had to go as a result of the changes that we have made, and I think you will see over the next few years the benefit in increased efficiency savings, but also in a better service.

Mr Sheerman: Prime Minister, you are rattling through, and now I would like to call on Andrew Miller to talk about problems with IT programmes.

Q11 Andrew Miller: Prime Minister, in the Modernising Government White Paper, there was a commitment to publish an IT strategy for government that would focus on the needs of citizens and business. Do you think that has been a success and, if not, what are you going to do to improve it?

Mr Brown: We have got a long way to go. I think all private and public organisations are coming to terms with both the security issues relating to the use of IT and the proper organisation of data, and I know you personally are an expert on IT issues, I think every organisation knows that it has got a long way to go. We are only now aware of the explosive power of information if properly co-ordinated to make a difference, but we have got to get the better systems in place.

Q12 Andrew Miller: But seven out of ten projects, according to the Chief Information Officer at the Department for Work and Pensions in May, have failed. The well-known contractor, the IT Contractor's Portal, raises very serious questions about the roll-out of ID cards because of contract management and even today we have had a statement on the BBC that victim surcharges are not going to be collected because of the failure of Libra. This is a fundamental weakness in the system. Is it that the Government has failed to abide by its own advice in the McCartney Review?

Mr Brown: I think the first thing that we are recognising, as the events of recent months have shown, is that care and security in the use of information is incredibly important, and I know you are not specifically asking about that, you are asking about how we organise our systems, but let us remember, when the Chancellor reports next week on the Pointer Review, that we are dealing with issues about the care and security of data and information, and these are very important issues. Secondly, I think every organisation, and I am talking about every country in the world, is recognising that so much more has to be done to make for the efficient use particularly of computerisation and IT in the future, so I do not think we are alone in having to learn the lessons from present experience about how things can be done better in the future.

Mr Sheerman: We will move straight on to look at another aspect of the public sector.

Q13 Mr Leigh: Good morning, Prime Minister, and thank you for thinking that the affairs of this Select Committee are more important than the mass ranks of EU Heads of Government; we are very grateful.

Mr Brown: I have got the advantage of being able to do both! You, I gather, will not wish to join me there!

Q14 Mr Leigh: Obviously this proclaims your view of the importance of Parliament. I wonder if you could help me because on Monday we have got a PAC hearing into the HMRC loss and we have got the acting Chairman coming along. We know about the email of 13 March that was sent from HMRC to the National Audit Office and that was the email which said that it was too expensive to strip out all the data, so they put all the names and addresses, bank details and all the rest of it into the post. Now, we know that was copied to an assistant secretary and I understand, and this is new information, that that was actually written by a senior executive officer. I am not asking for the clerk who put the stuff in an envelope, but so far the acting Chairman has refused to bring these people. Will you instruct him to bring these people on Monday so that we can have a proper hearing and actually find out what happened?

Mr Brown: I will obviously look at what you say on this, but I think the position is this: that, as far as this data is concerned and the relationships between the National Audit Office and HMRC, that is precisely what the Pointer Review is looking at. Because I was expecting that you may ask these questions about these emails to which you attach, and have attached over the last few weeks, such importance, having got these emails here, I think it is important to recognise that there is a lot of information in them. The Pointer Review is looking at it and the Pointer Review will report and then we can make a judgment on these issues.

Q15 Mr Leigh: Precisely. I am not going to ask you about the actual substance of this because the Pointer Review, we hope, will be published maybe tomorrow or Monday morning. I was just asking you, and you said you would look at, I am grateful, about the principle of instructing the acting Chairman to bring these officials. This is very important because my dream, if you like, is that these select committees should have as powerful a role as congressional select committees in an advise and consent role. Previously in scandals, the Civil Service has hidden behind the Osmotherly Rules and they have said they can bring who they like and then we have found in the Hutton Inquiry that all sorts of information which is available to High Court judges is not available to select committees. Now, you have said that you want to have a new start, you want select committees to be more important, so can you at least look at this so that we can have proper select committee inquiries and get to grips with all the information and all the players in any particular event?

Mr Brown: Can I just say about March, however, that the issue that arose on child benefit data was essentially an issue about what happened in October. In March, there was a transfer of data and there was no data lost at that stage or mislaid or which went missing in the post and, as I understand it, the data was then returned to HMRC.

Q16 Mr Leigh: Well, you are now getting into the detail. I can debate this with you, but you said you do not want to discuss these details before the Pointer Report. The fact is that that request was made in that way in March and, because HMRC refused to change their minds because of their contract with EDS, they did not want to waste money and all the rest of it, this whole process carried on until October, but we do not want to get into the detail. Perhaps I can just ask you one general question. I have had several emails from HMR staff, for instance, saying, "I am shortly to retire from 35 years with the Inland Revenue. I am glad this horrendous error has occurred because something may at last be done about this disaster area known as HMRC: the disregard for providing a service for taxpayers; the inability to contact HMRC easily by telephone; the tax credits fiasco..." Now, what this is saying to me, and what the acting Head admitted in his evidence to the Treasury Sub-Committee, is that there appear to be systemic failures. Do you believe that this is a useful event to try and clean up HMRC and make it the best department in Whitehall, which it was before the reforms that frankly you brought in?

Mr Brown: Well, the reforms were recommended after a long investigation by Gus O'Donnell who is now the Cabinet Secretary. One of the reasons for the reforms was, if I may say so, that business complained that it had to deal with the Customs & Excise authority on the one hand and then, with the same type of information it had to provide, it had to deal with the Inland Revenue. The idea was in this particular instance that there would be one service for business through HMRC and not two agencies that people had to deal with. If I may say so, this reform was supported by business, small and large, because it was a major breakthrough in preventing them having to deal with two agencies. As far as the individual instance of child benefit was concerned, the specifics of the transfer of Customs & Excise and Inland Revenue did not affect the Child Benefit Office that is concerned in the particular issue of the investigation at the moment, so I think one needs to separate, if you like, the individual instance of rules not being followed and whether of course there is a case for better procedures. The general amalgamation of HMRC from Customs & Excise and the Inland Revenue, I think, has very considerable benefits, particularly for business, because it becomes, therefore, a one-stop shop for them dealing with -----

Q17 Mr Leigh: I am not asking about the overall thing, it is just that we want to use this event to improve. There have been seven security breaches since April 2005, so this is a useful occasion to try and improve this for everybody, is it not?

Mr Brown: I think you are putting some words into the mouth of the acting Head of HMRC. He said that the Pointer Review would have to decide these issues and undoubtedly we should wait until the Pointer Review comes out. My whole point of mentioning March is that the incident which is the issue was something that happened in October and that has been the cause of the difficulties that have been revealed and hopefully, because there does not seem to have been any criminal activity as a result of it, nobody has lost any money and people's bank account details appear to be protected.

Mr Sheerman: The Chairman has been very generous with the time, but Edward is on Lisbon time already! Sir George?

Q18 Sir George Young: Prime Minister, can we wind back to the answer you gave to Barry Sheerman at the beginning of this session and try and tease out the role of consumer choice and the delivery of public services. One of your ministers has described consumer choice as a 'fetish', another one, Ed Miliband, has called for an end to the obsession with choice, and I read your speech at the University of Woolwich about education, a long speech, where there was no mention of parental choice at all. Was this just an oversight?

Mr Brown: I think if you read that speech closely, what I was actually saying was that we looked at educational opportunity as being absolutely crucial for the future of every child, but we had not sufficiently taken on board the need for high aspiration on the part of the child and parental involvement in education. I think you will find in that speech that I was talking about the important role of both parents and the aspirations of the children. Now, on this general question of choice, Sir George, I would just mention the social care budgets ----

Q19 Sir George Young: I want to come on to that, but can I just pin you down a bit on education. Your predecessor wrote a foreword to the Education White Paper and he praised the school choice programme of Sweden and Florida where parents can use the money earmarked for their children's education in independent schools. Would you endorse that approach?

Mr Brown: The issue about the independent sector, I have not supported the state-assisted places scheme and actually Tony Blair was the Prime Minister who abolished it, so, if you are suggesting we are going to bring back the state-assisted places scheme, we are not, but far more people are benefiting from the academy programme than ever benefited from the state-assisted places scheme. There are more children, as a result, getting an education through the development of academies and the freedoms that they have in poorer areas than was possible under the other schemes. If you look at what we are actually doing, and this is why I think we should turn our attention to the specifics of academies, specialist schools and trusts, what we are trying to root out is failing schools. What parents hate most of all is where there is a school that they do not want to send their child to, but they have got no choice, but to have to send their child there, so let us root out failing schools. In that speech that you mentioned, I set the objective in the next five years of rooting out all the failing schools in our country. Now, that is an ambitious objective which I hope you support, but that is a means by which we give parents more control over the quality of the education ----

Q20 Sir George Young: Can I then pick up the point at which I interrupted you. You were going to go on to talk about the social care budgets where in the beginning you said this enfranchised people, you gave them the money, they could decide how to spend it and indeed they could add to it. If you accept the logic of that in personal social care, why do you not accept it in education?

Mr Brown: The way that we have funded education over the last few years is to increase the diversity of choice available to parents by having academy schools, specialist schools and trust schools. In fact, in academies we are now inviting independent schools in this category, as well as colleges and universities, to play their part in the development of academies. I think that is the best way forward and I do not propose that we return to the state-assisted places scheme. I do not know if you wish to return to it or not.

Q21 Sir George Young: No, I was just pressing you on the logic of enfranchising people by giving them budgets in one part of the public sector, but denying the same freedom and liberty in another sector.

Mr Brown: You are essentially talking about, in the social care sector, adults who have got a chance to choose a range of provision that is suitable to them.

Q22 Sir George Young: Why can parents not do that with their own children?

Mr Brown: In the state sector, we are providing a range of choice, including of course the first parent-created school in Hackney that has actually been set up in the last few months, so the range of choice is available in the state sector. The question you were asking is: should we have a return to the state-assisted places scheme?

Q23 Sir George Young: That was not my question.

Mr Brown: Well, that is the logic of your position, that parents are given money. That is the logic of your position, that you return to the state-assisted places scheme, and I think that did not achieve the results that were intended for it. I think our academies programme, our specialist schools programme, our trust programme and the action that we are now taking perhaps more ruthlessly than before to deal with failing schools is the best way forward.

Q24 Sir George Young: Can I just press you finally on this. We saw your predecessor here for about 20 hours, a lot of it on public sector ----

Mr Brown: I certainly would not get to Lisbon in those circumstances!

Q25 Sir George Young: ---- a lot on public sector reform, and we heard about the scars on his back, how he always wished he had gone further and faster with reform, the forces of conservatism. Do you have the same impatience as he displayed to us to drive this agenda forward or are you slightly more cautious?

Mr Brown: No, we are just going further and faster now and I have just described how we move in increasing the diversity of supply through greater competition and contestability, extending right across the board in the Health Service moving obviously into social care, in education as well, and I think you will see announcements in the future about how we can do exactly the same in welfare, so I am describing how that can happen. I am also saying, if you take health, education and social service, let us root out failure. The culture of the second best is not acceptable to me. It is a culture of excellence that we have got to achieve and, therefore, we have got to root out failing schools, we have got to deal, as we will, with failing hospitals and failing trusts and, in every area of the public services where there is failure or where there is a toleration of second best, my motto will be, "Failure no more. Second best no more. Tolerating failure no more".

Q26 Mr Sheerman: Prime Minister, to have a successful public sector, we have to have a successful economy. Even with the announcement of the tackling by the international banks of this problem of lack of liquidity, are you sure that the measures that your Government is taking at the moment fully compensate for the problems that we have had and that you are going to steer us away from recession?

Mr Brown: I think I have circulated to the Committee this morning the statement I am going to make when I get to the Lisbon Summit about measures that we can take collectively to deal with the turbulence that now exists in the global economy. I think the step forward that was made yesterday by the agreement of the central banks in America, Europe and the UK, including the Bank of Canada and the Bank of Switzerland, to inject what was the equivalent of $100 billion into the world economy is an important step forward. I do believe that the lessons of this summer have shown that you need a better early warning system in the global economy and you need greater co-operation between the international authorities to head off difficulties and, given that this was financial turbulence that started in the United States of America but which has affected some of the smallest organisations in Germany, France, European countries, as well as in Britain, there is a case for looking very seriously at how we can co-ordinate our activities better, so I do believe that it is a wake-up call for the global economy. I do believe that the existing institutions are not good enough and I am going to make it my business to try and reform these institutions to make them better able to deal with the sorts of problems that we have got, for example, reforms that are needed in the credit rating agencies. There is greater transparency needed in the banking and financial institution sector, but also greater co-ordination of the different institutions across frontiers to make possible a better co-ordinated response to the difficulties that arise in the world economy.

Q27 Mr Sheerman: So, Prime Minister, the quintessential Brown stamp is going to be what - determination, ruthlessness, or is it personalisation?

Mr Brown: In the public services the issue is how services can not simply be public, but personal and how you can organise them around people's needs and tailor them to people's needs, but also ensure that the individual can direct the development of that service in the future. I think you will see in every area of the public services that that will happen, but rooting out failure is going to be a very important part of the next period of time because we are not going to tolerate second best.

Mr Sheerman: Thank you, Prime Minister.

Chairman: I have Kevin Barron's apologies incidentally. He was not walking out because he was dissatisfied with your answers, but he is chairing his own Committee, so he had to leave. We now move on to a subject which you claim very much for yourself, constitutional reform.

Q28 Dr Wright: Prime Minister, we wanted to ask you some questions about the Governance of Britain proposals that you have brought forward. Before I do that, could I just ask you to say one more thing about something that you spoke about in Prime Minister's Questions yesterday because, as you know, the Parliamentary Ombudsman some time ago made a report, saying essentially that justice has to be done to all those people who lost their occupational pensions through no fault of their own. Yesterday, you seemed to say that, as a result of the Young Review, the sources had been found, I thought you said, to bring them up to the Pension Protection Fund level. Is that exactly the case now?

Mr Brown: I think you will find the Secretary for Work and Pensions will make a statement very soon on this. The Young Review was intended to see whether within these schemes there was sufficient money so that the guarantee of the 8 billion that we have made as a government over the next 30 or 40 years could be matched by additional money from the schemes. We now believe it will be possible to pay the 90 per cent that obviously people have rightly wanted and the Young Report will be published very soon with the recommendations about how that is done, so I think you can be reasonably confident that the demand that 90 per cent protection be given, as is the case in the specific of 90 per cent of the Pension Protection Board, can be met, but of course there are other issues which will be dealt with when the Young Report is published.

Q29 Dr Wright: Thank you for that and I am sure we shall look at it again in the next few days. Could I then return to the broader constitutional prospectus that you have laid out and which you have very much made your own mission. When you produced the document back in July, you said that you wanted, and I quote the document, your foreword to it, "to begin the journey towards a new constitutional settlement". I notice this morning in relation to Europe that you said Europe should not waste its time worrying about these constitutional questions about itself, it should concentrate on the things that matter to people. If that applies to Europe, why does it not apply here as well?

Mr Brown: Well, I think in Europe, everybody who looks at what has been happening in Europe over recent years knows that they have spent an enormous amount of time, and we had to as well, looking at the building of the institutions for a Europe of 27 and, whereas other people say that that has been a waste of time, it was necessary to improve the institutional framework within which the European Union develops. That, in a sense, became the major item in Europe at the expense of the economy, security, the environment and all the big issues that we know we have to deal with. In Britain, I think the opposite is true partly because our Constitution has been, in the traditional sense of the word, unwritten and, partly because a lot of what we think about Britain and Britishness has been implicit rather than explicit, we have not spent the time in our country looking at how modern relationships between the Executive, the Legislature, the judiciary and the people can actually further both a strong sense of cohesion in our country, a sense of national purpose and national unity, and actually make for better governance. I think whereas in Europe there has been an over-emphasis on institutions, and understandably of course when you have had to grow to a Europe of 27, in Britain we have not actually done what I think is of great benefit, looking at how we can actually make our constitutional arrangements far better to deal with the undoubted demands of people for better forms of government in the future.

Q30 Dr Wright: Countries usually have a new constitutional settlement as a result of some seismic moment in their affairs. Now, unless I have missed it, I do not think we have had such a seismic moment. We have had an intense period of constitutional reform and I can hear people saying, "Look, we've had all that constitutional reform. Surely the task now is to let it bed down and to sort out some of the loose ends that come from it and, above all, to concentrate upon sound administration". Is that not what people really want?

Mr Brown: Can I put the issue the other way? If you look at every problem that a modern economy and society like ours faces, whether it is the environment, whether it is terrorism, whether it is community cohesion or whether it is skills or facing the global economy, one of the lessons that I have learnt is that you cannot have top-down government anymore, you cannot make decisions and assume that people will simply follow them. Most of the decisions you are having to make can only be successful if people themselves are part of the process. If you take climate change, you cannot solve the problem of climate change without the personal and social responsibility of individuals, so you cannot have a sort of top-down government dictating climate change targets without at the same time having a debate about the personal and social responsibility of people and people have, therefore, got to be involved in that debate. It is true of community cohesion. You are not going to have community cohesion in Britain unless people themselves are involved in the building of their communities. You will not solve our problems in relation to global competition unless the people themselves recognise that they have to change the way they behave, particularly in acquiring skills for the future, so every issue that we face demands a greater involvement by the public themselves in meeting these challenges and you must, therefore, have a constitution that allows people to play their part, sometimes in an unstructured way, but sometimes in a far better structured way, such as some of the reforms that we are proposing now.

Q31 Dr Wright: I am not sure if that quite amounts to a case for a new constitutional settlement ----

Mr Brown: It is surely telling you that it does.

Dr Wright: ---- let alone for some of these things like a written constitution, but I think Alan Beith wants to come in on that.

Q32 Mr Beith: Prime Minister, you have talked about involving the citizens, but you have produced a document, a fascinating document, with all sorts of things from war powers to ecclesiastical appointments, but some of the key things seem to have been off limits. A written constitution itself, which you mention, is not floated in here at all. The electoral system, which clearly affects the balance of power in society, is not considered at all, despite a Manifesto commitment, and a shift in the balance of power between central and local government is not mentioned at all. Did you at an early stage say that certain of these things were off limits when the paper was being drafted?

Mr Brown: I do not accept that. I think on the three issues that you raise, we have said not only important things, but are actually doing important things. On the question of the Constitution itself, what I actually said in my statement was that we should discuss a Bill of Rights and Responsibilities and we should discuss whether there is sufficient support to move to the next stage of a discussion which would include a written Constitution.

Q33 Mr Beith: Those are different points.

Mr Brown: On the electoral system, if I may say so, there is a report being prepared, as promised, and will be published soon on the electoral system, so that ----

Q34 Mr Beith: We have been waiting two years for that!

Mr Brown: Yes, I am saying it is going to be published soon. Then, on central and local government, you may have seen yesterday that a new concordat was signed between the Government and local authorities, including local authorities of all political colours, so the debate about local government and its role in a future constitutional settlement is very much part of the discussions, so I would not say that anything is off limits from these discussions. I think a lot of this is waiting also to hear what the people of different groups in society have got to say about how they see this process moving forward themselves, and part of Jack Straw's review is to consult around the country with groups of people about what are the best next steps forward, so this is a debate which again has got to be not just led by the Government, but has got to involve large numbers of people in different communities of the country.

Q35 Mr Beith: When people in the communities in Northumberland voted as to what system of local government they wanted, one authority or two, they voted for two and the Government gave them one, so we start from a rather cynical standpoint. Just looking at local government, surely, unless you give local government a viable tax base and the ability to make decisions which central government will not like and, therefore, will not be delivering central government's priorities, you will not have changed the balance of power, will you?

Mr Brown: Well, as you know, we have had a review that has published its results on the future of local government finance and there is a great deal of discussion going on about how the changes recommended in that might be implemented, so the debate about local government finance is not one that is being ignored at all. There has been a report, we are looking at what we can do and there is a number of suggestions that have been made. This is a perennial problem, as you know: what is the right balance between central and local government for the future and can the balance be struck in a way that is satisfactory for local communities if it excludes the tax base that is available for local taxation? I think what we are seeing actually at the moment is local people wanting to exercise more control, but not necessarily in the ways that we have traditionally expected. People want the authorities that they have in their areas, like the police and the different social services authorities, to be answerable to them and that is why the right of recall, that is why the right to complain and that is why the right to hold some of these authorities to account are regarded as very important. Therefore, I think there is a debate going on, but it is not necessarily a debate only about the future of local government, but it is also about the future of local communities and how people can make authorities more answerable to local communities, and I think that is a debate which will also continue in the future.

Q36 Mr Beith: Do I detect from that that you actually want to bypass local government, that you see local government as not the best way?

Mr Brown: No.

Q37 Mr Beith: That carries the danger that central government sets targets and then simply uses these other mechanisms as some means of trying to ensure that the targets it has set are delivered.

Mr Brown: No, I do not want to bypass local government, but I recognise, however, that communities are organised in different ways in trying to make authorities answerable to them and some of the big advances in recent years have been holding some of the authorities to account not through local government, but through other mechanisms that are available at a local level. The great story of the development of local government in Britain is one that we should be very proud of and the municipal initiative and enterprise that was shown in the 19th and 20th centuries by local authorities is something that was very important to the development of our society. The concordat that we are trying to strike with local government is to enhance the power of local authorities in future and of course to make them accountable more effectively to their citizens for what they do.

Q38 Dr Wright: Could we just move this on slightly and turn to this Britishness stuff which I am having a bit of trouble with because it says that "the Government is going to work with the public to develop the British statement of values which will set out the ideals and principles that bind us together as a nation". Now, that is not a modest undertaking. Now, I do not understand what such a statement might contain that could not be made in any decent western European society. Indeed, in the document it talks about the principles of liberty, democracy, tolerance, free speech, pluralism, fair play and civic duty. Well, almost any Western society would recite those, so what would be distinctive about ours? There are bits of distinctiveness of course, and I can think of binge-drinking, I think of family breakdown, I think of a growing incivility, but presumably those are not British values that we want to articulate, are they?

Mr Brown: I think you are making a case for this discussion actually happening rather than not happening. We had some experience a few years ago in writing a book together when we looked at all these different issues and there is something uniquely British about the relationship between liberty, civic duty or social responsibility and fairness. I think Britain was the pioneer of liberty for the modern world, and I think in later years America took it upon itself to claim that it was the leading country in promoting liberty, but our view of liberty is different from the American view of liberty. Our view of liberty is not the 'leave me alone' liberty that you characterise with some of the American Constitution. Our view of liberty is liberty in the context of social responsibility and, in the 19th Century, the idea of civic duty that emerged in response to the industrial revolution is something that also Britain can claim some credit for pioneering, so it is the distinctive relationship between liberty, civic duty and, in the 20th Century, the ideas of fairness that, in my view, characterise what it is for people to think of themselves as British, and that is why we find it easy to accommodate both the liberty of the individual citizen and having a National Health Service that is free to people at the point of need. You rightly say that different countries have different ideas about what the boundaries are between acceptable and unacceptable behaviour, and you mentioned binge-drinking, but guns is a very good example. Guns are tolerated in America, but guns are anathema to people here if it is just citizens going around carrying guns without a particular use that they have for them that can be justified for their occupation or for some other purpose, and bullying was not an issue that people thought important in Britain in the 1970s or 1980s in the way that people think of it as something that has got to be eradicated now. British values, I think, can be set down. You can have a debate about what it is to be British, and what is the importance of it? The importance of a debate like that is that it brings people together and it allows people to test what it is that holds them together and gives them purpose as a nation. We are a multinational country which cannot base our identity purely on ethnicity or simply on the existence of institutions. At the end of the day, what holds us together are the values that we can agree we hold in common and I think it is possible for us to discuss and debate these and then, out of that discussion and debate, we get a stronger sense of national unity, so that is why I am proposing that we have this debate.

Dr Wright: Andrew wants to explore this in relation to a British Bill of Rights.

Q39 Mr Dismore: Just expanding on that answer, Prime Minister, and you also talked earlier on about the need to create a sense of cohesion, purpose and national unity, do you see a Bill of Rights playing a role in that and, if so, why is it apparently the case that the things that actually matter to people are going to be excluded from that? You have just mentioned the Health Service, for example, and 88 per cent of people felt that the right to hospital treatment within a reasonable time should be in the Bill of Rights. Why will those things, the issues that actually people think they have rights about, which they do not, social and economic rights, why will they be excluded from the Bill of Rights? Surely with the right draft of proportionality, making sure we have got the resources to express it in an aspirational way, that can be achieved? Albie Sachs said to me that a country without social and economic rights in its Constitution is a country without aspiration. Would you agree with that?

Mr Brown: This has been the debate about modern constitutions round the world as to how far these constitutions can accommodate people's desire not simply for political rights to be enshrined in constitutions but social and economic rights. The issue actually comes down to not being against social and economic rights being accorded importance in constitutions but whether they are justiciable, whether people actually go to court or take actions in law on the basis of these rights being set down. That is part of the debate that I think you will see ushered in in January as to whether social and economic rights should be included in this statement but I think the issue becomes not so much whether you think they are important but whether you agree that you should take judicial action on the basis of trying to enforce these rights. That is where a lot of constitutions have had a great deal of problems in recent years.

Q40 Mr Dismore: So the suggestion that seems to come out of The Governance of Britain and other documents that social and economic rights are effectively off-limits in this debate is wrong?

Mr Brown: I do not think they can ever be off-limits in a debate and I think when people look at what does hold Britain together, some of the social changes that happened in the 20th century are seen by people to be of such importance that they accord them the status of rights in the way they talk about them, as you have rightly said about the National Health Service. The question however is whether, if you are setting down in legislation rights, are you setting them down so that people can take legal action on the basis of enforcing them or not?

Q41 Mr Dismore: Ultimately, you can have checks and balances, as we see in other constitutions. Can I come back to the point you were also making about Britishness? Rights are universal. What particular rights are British and will they only be applied to British citizens as opposed to everybody who is resident within the UK? What is so special about certain rights that other people should be excluded from them?

Mr Brown: If I put it this way, I think the rights and responsibilities of citizenship will be distinct in different countries. I used the example of being able to carry a gun as being a right that people would think important in America but not think so important in Britain. I think there is another set of rights in all sorts of different areas where some countries accord them importance and a country like ours may not think that they are as important as other rights, like the right to health care. I think there are rights and responsibilities that go with citizenship and, because responsibilities go with citizenship, then becoming a citizen is an important act because people are getting rights but in return for that they have to accept responsibilities. So if someone comes to our country, I think it is right to say also that if they are applying for citizenship of our country, or even the right to be a permanent resident, they also have to accept responsibilities. That is why, for example, I have said that you should be able to speak the English language, you should be able to understand and be able to explain and talk about British cultural traditions. I think there are other responsibilities that perhaps we can consider for the future that people who apply to become citizens of our country should be expected to assume and discharge. I think that is a very important part of the debate about a modern world where you have massive global mobility. It is a completely changed world in the sense that a population the equivalent of Brazil is moving round the world seeking new countries every year, and we have to insist that people who come to this country accept responsibilities as well as ask for rights either of residence or citizenship.

Q42 Mr Dismore: For people who are within our jurisdiction human rights are universal. Will there be rights that they are not entitled to? Effectively, do you have to speak English to access your human rights under this?

Mr Brown: If you wish to apply for citizenship or permanent residence in this country - and there is a debate about what the distinction between these two is, of course - you should be expected to and have the responsibility to learn our language.

Q43 Mr Dismore: Will visitors to the UK not have the same rights?

Mr Brown: No, visitors to the United Kingdom are people who come as tourists, not planning to stay here and not therefore demanding the same sort of rights as other people who are permanent residents can. Students of course are in the same position because they are coming for a short period of time and then leaving.

Q44 Mr Doran: Prime Minister, the Green Paper acknowledges the position of the devolved administrations and in some areas it is quite clear, for example, a Bill of Rights or new powers for local authorities, that in the case particularly of Scotland there would need to be legislation, so there would need to be agreement between the Westminster Parliament and the Scottish Parliament on some laws. Can you say a little bit more about the process that you envisage in that debate and, in particular, if we look at the situation at the moment, there is no guarantee that agreement could be reached. I may be wrong about that. Could you say a little about how your goal of a shared national purpose for all the people of the UK would look if we could not reach agreement with the Scottish Executive and people in some parts of the UK had different rights from people in other parts of the UK?

Mr Brown: This is a United Kingdom constitution and the powers that are devolved are powers that are actually devolved by Parliament to the Scottish Parliament and there are areas where it is the right of the Westminster Parliament to legislate and it is not within the power of the Scottish Parliament to legislate. I think sometimes people have forgotten that this is devolution. It is not a form of federalism; it is a form of devolution. If you look at the relationships between Scotland and the rest of the United Kingdom, we should not forget the shared identity. When the Act of Union was signed only three per cent of Scots had relatives in England. Today 50 per cent of Scots have relatives in England so the bonds of family relationships that hold the United Kingdom together are a lot stronger than they were in the past. The bonds of economic interest that hold the United Kingdom together are far stronger as well. There is hardly a business in Scotland or in Wales that does not have trade or relies upon a market that is broader than Scotland and Wales, if it is in the big industry category. The financial services industry: most of its services in Scotland are to the rest of the United Kingdom. The bonds that hold us together are actually growing stronger over the years and I think that has to be increasingly recognised in this debate about the future of the United Kingdom.

Q45 Mr Doran: Do I take it from that that what you are saying is that, for the purposes of the Green Paper, Westminster will legislate?

Mr Brown: Where the powers have not been devolved to the Scottish Parliament or to the Welsh Assembly or indeed to the Northern Ireland Assembly, these are powers that Westminster continues to hold and acts in a way that is consistent with that. So the future of the issues that I am dealing with - there may be some but most of them are entirely within the province of the UK Parliament and have not been devolved.

Q46 Mr Doran: Can I be even more parochial? The constitutional debate in Scotland is not about the Green Paper; it is about the SNP idea, for example, of independence, which you have rejected, and, on the other hand, the debate about increasing powers to the Scottish Parliament. Has the Government got a position in this debate? At the moment nobody seems to be arguing for the status quo.

Mr Brown: The debate about the Welsh Assembly is happening, the debate about the Northern Ireland Executive and police and judicial powers is happening. There will inevitably be a debate, whether it is about the Scottish Parliament or about the other devolved parliaments about what future powers and responsibilities they have. I do say to people that on all the evidence two-thirds of the population of Scotland wish to remain part of the United Kingdom. There is no evidence of any great increased support for independence. I have just mentioned the fact that in an increasingly inter-dependent world the bonds of belonging have actually strengthened over recent years, and whatever the day-to-day politics and the day-to-day calculations of politicians are, I think you will find that people see in the United Kingdom and in the British identity that they have a great deal of strength over the years to come. I think when the debate happens about independence rather than just about people's verdict on one particular administration, two-thirds of Scottish people, in the same way as large numbers of Welsh people, do not want independence, they do not want separation and they feel the Union is of benefit to them.

Q47 Mr Doran: The poll seemed to say that Scottish people want more powers for the Scottish Parliament. Does the Government have a position on that?

Mr Brown: It depends what you are actually talking about. This will be a debate that will continue to happen. It always has been a debate about whether in devolution of Wales, Scotland or Northern Ireland you should tidy up in different ways, but the central question that has to be addressed is whether people want to be part of the United Kingdom. Two-thirds of the population want to be part of the United Kingdom and there are very good reasons why people in Wales and Scotland want to be part of Great Britain.

Dr Wright: You have not mentioned England. The man from the Borders here wants a word about that.

Q48 Mr Beith: Do you recognise that there is an English question? After all, support for independence for Scotland, although limited in Scotland, appears to be rising in England.

Mr Brown: That is not the result of the latest poll, if I may say so.

Q49 Mr Beith: Is it worrying you though? Does the English question worry you?

Mr Brown: If I may say so, the Sunday Telegraph - and I do not usually quote newspapers individually - had a poll on Sunday saying that the support in England for being part of a Union that included Scotland and Wales was very high indeed. Contrary to what you have said, I think within the whole of the United Kingdom there is a recognition of the importance of being part of the United Kingdom. Why is that the case? Because we have common interests, we have shared values, we have shared institutions, we have shared economic interests, and we have a form of shared citizenship.

Q50 Mr Beith: So there is no problem for England in a devolution system in which England remains a very highly centralised country and sees powers exercised in Scotland and Wales which are exercised wholly centrally in England?

Mr Brown: The sentiments of every part of the United Kingdom, and particularly in this case the English people, always have to be recognised but I am suggesting to you that the most recent evidence is that people want to be part of the wider Britain, indeed, the wider United Kingdom, and people see their future as best guaranteed being part of that. Of course, in a single island, if you are talking about Scotland, Wales and England, when you come to environmental issues or when you come to issues related to terrorism, as we saw in the summer, the advantages of us working together are even clearer in future years than they were in the past. We have to tackle climate change together. There is no Scotland-only or Wales-only or England-only solution to climate change.

Q51 Mr Beith: But there is Scotland-only free personal care for the elderly, there are Scotland-only provisions on a wide range of issues which my constituents and those of other English Members here say, "We don't have this in England. Our taxes are paying for it in Scotland. Some of the reasons we don't have it in England rest with having a Prime Minister who actually comes from Scotland and does not give to us in England what his constituents in Scotland have." What is your answer to those people?

Mr Brown: You, as you know, are a member of a party that is a supporter of very extensive devolution and not against it. I would make two points to you. First of all, all parties have supported not only devolution in recent years but also the Barnett formula, which is the distribution of funding between the different constituent parts of the United Kingdom. The second thing is within these budgets, if more money is spent on, for example, personal care, then less money is spent on something else. If, as happened yesterday, there was a police award in Scotland, it is at the cost of employing more police officers and that was recognised by the fact that the plan to employ 1,000 police officers was dropped and only 500 police officers were employed.

Q52 Mr Beith: There is a cost to police morale in England as well.

Mr Brown: You can come back to that later, because the whole issue of police pay, if I may say so, goes back to the question that Barry Sheerman asked at the beginning about the state of the economy. If you believe, as I do, that inflation has always been a problem for the British economy that can only be dealt with by taking decisive action whenever inflation threatens to return, then the action that we took earlier this year, when inflation started to rise as a result of oil prices, and then as a result of utility price rises, and inflation moved beyond its target of two per cent to threatening to go above three per cent, then it was right to take decisive action to deal with the inflationary pressures in the economy. That is why, while I would love to pay the police more, as I said yesterday in the House of Commons, and while I accept that all the different public sector groups have a case to be made, and some have particular cases that they are right to put forward, it was in the interests and still is in the interests of the national economy that we tackle inflation and do not allow a return to the stop-go problems of the past. No policeman would thank me if their pay rise was wiped out by rising inflation that we could not control and we ended up in a situation of facing global financial turbulence where we could not cut interest rates because, as was true in the early 1990s and the early 1980s, inflation was out of control. The reason for the public sector pay policy is not to save money in particular areas, although that is an argument that you can have at any particular point in time. It is to bear down on inflation in our national economy so that we do not have the problems that we cannot react to global financial conditions by cutting interest rates at a time because inflation is rising.

Dr Wright: If I may say so, the Committee may want to come back to that later on. We have a couple of final questions in our section.

Q53 Sir Patrick Cormack: Prime Minister, as you well know, there are a variety of opinions in all parties, particularly in yours and mine, about the ultimate shape and composition of a second chamber. You have made it plain that that really is for the next Parliament and I do not want to press you on that today but I think most people would agree that there are certain tidying-up things that need doing in the other place at the moment. There is the absurdity of the by-elections. There is the question of statutory appointments. There is the question of the size of the House of Lords. Lord Steel of Aikwood, with all-party support in the other place, has introduced a modest Bill that would address these three issues and, by signing up to that Bill, one is not in any sense cutting across ultimate ambitions, whether you want to see ultimately a wholly elected, a partly elected or an appointed second chamber is a matter for the future but this is a matter for the present. Is it a measure that will have your personal support?

Mr Brown: I think Jack Straw said that we will look at this. Obviously, there is an issue about legislative time and obviously there is an issue about amendments to any legislation that would come forward that people may wish at that stage to put forward and therefore the difficulties of getting that legislation through. I do not think the three proposals that you are putting forward are so contentious but I do say that people are looking for a House of Lords that achieves two things. One is that it is accountable and secondly, that the House of Commons remains the body that is regarded by the people as the more important part of the legislature. Nothing should affect the position of the House of Commons by changes that take place in the House of Lords. That is the way I see it.

Q54 Sir Patrick Cormack: But you will look carefully at these three proposals?

Mr Brown: I think Jack Straw said that we will. I do suggest to you that we look at the Bills before Parliament this year but there is an issue about legislative time and whether, given that you were producing a Bill that was a constitutional reform Bill related to the House of Lords, people might not wish, because of the controversy surrounding the House of Lords, to bring a large number of amendments to it, which you, as an expert in the constitution, will understand.

Q55 Dr Wright: Just one final question. There are some excellent proposals in this Governance of Britain paper which many of us have been arguing for for a long time, not least, from our Committee's perspective, the proposal to legislate on the civil service. There are good things but, inevitably, I will ask you right at the end about omissions. There is one thing in particular which I had hoped to see there because when I was elected in 1992 our manifesto had a ringing commitment to fixed-term parliaments. It said, "Although an early election will sometimes be necessary, we will introduce as a general rule a fixed parliamentary term." Is it just an omission that it is not in there or have we changed our position on this?

Mr Brown: I do not think that was in the 2005 manifesto. I think the one change we recommended in The Governance of Britain was that to hold an election generally Parliament should legislate to see whether we should go to the House of Commons before we actually make that decision. Fixed-term parliaments have not been in our manifesto since we lost that election in 1992. The public did not endorse that particular proposal. I am not sure that was the reason why we lost!

Dr Wright: It was worth a try!

Chairman: We go straight to John Whittingdale and the third section, on migration and community cohesion.

Q56 Mr Whittingdale: Prime Minister, you will be aware that in recent years there has been growing public concern about the level of immigration into this country and the impact that that is having on community cohesion and on the demand for public services. Obviously, we need to handle this issue carefully but, at the same time, we cannot ignore that public concern. Can I put it to you first, in the last four or five years the level of net migration into the UK has been approaching 200,000 people a year. Do you think that that figure is too high?

Mr Brown: I think that the rules we apply to immigration are really what matters and I think you will find that, as a result of what has happened and what seems right for the future, we are introducing probably the biggest changes in policy to immigration for 30 or 40 years, and that is to introduce a points system for people coming into the country in the future. That would mean that highly skilled workers, of course, would continue to come into the country, subject to the needs of the economy to have them but it would mean, as Jacqui Smith said only a few days ago, that people without skills would be unlikely, outside the European Union, to be able to come into the country. It is a recognition that more and more people are travelling round the world looking for the country of choice. We as a country have a responsibility to set the rules by which we wish to offer people the chance to come to our country, and that is why the big change is the points system, which will be backed up by far tougher measures to deal with people coming into the country illegally, including - although it is contentious - ID cards for foreign nationals coming into our country. These are the changes that we propose to make.

Q57 Mr Whittingdale: Do I take it from that answer, the fact that you feel it is necessary to take these actions, that you do think that the levels we have had in the last few years are unsustainable?

Mr Brown: No, I am not going to say that. What I am going to say is that we now know that there are far more people in the rest of the world looking to come to different countries, either to offer their skills or because they find that a more convenient or acceptable place to stay. It is incumbent upon us, with 200 million people a year looking for different countries of residence, to set the rules that we, Britain, wish to apply for the future and, therefore, the rules that we wish to apply for the future include a points system that is going to be far tougher than what has happened in the past and include far bigger and stronger controls to deal with the problem of people coming unlawfully into our country and I believe the ID card for foreign nationals is one form of protection that I would have hoped there could be all-party support for.

Q58 Mr Whittingdale: So the points system that you are introducing is intended to reduce the net level of immigration?

Mr Brown: The points system we are introducing is to give us a choice as to who we wish to accept into the country in the circumstances of people coming here to work. If you take the City of London, 200,000 people are working in the City of London who have come from other countries of the world, many from America, Europe, and many also from Asia, some from Africa and other parts of the world. That has been a benefit to the City of London. There is nobody I meet who says that the City of London has failed to benefit from large numbers of people coming from different countries with particular skills. In general, the growth rate of the economy has been higher as a result of people that we have attracted to our country who have wanted to work here but we are dealing with a new situation where larger numbers of people are wanting to have, if you like, a citizenship of choice. We as a government and as a country must therefore set the rules that we think are appropriate for us in the future, bearing in mind our responsibilities as a member of the European Union, bearing in mind our responsibilities under a whole series of arrangements we have made in the past about spouses and about children but bearing in mind also that we have a right to be able to say that there are skills that are suitable to our economy that we want to attract and there may be skills that we no longer think are as important as we thought they were previously.

Q59 Mr Whittingdale: All of us would recognise that we will benefit from immigration of skilled workers but a lot of the concern actually revolves around relatively unskilled people coming to this country. The Government Actuary's Department has recently produced projections which suggest that the overall figure for the population is likely to increase to around 70 million in the next 25 years and could reach 90 million in the next 50 years. Do you have a view of what is the maximum size of population that this country can accommodate?

Mr Brown: These figures cannot be on the basis of the policy changes that are being made and I have said they are the biggest policy changes that have been made for many years. These are projections without taking into account the policy changes. Some people are saying that there should be a total cap on migration into our country but then they have to accept when they say that that they are not proposing a cap on people coming from the European Union, they are not proposing a cap on people coming as dependants, they are not proposing a cap on students, for example, who come to the country. The cap would, of course, as a result of being a blanket cap in relation to those people they can exclude, exclude skilled workers. I do not think that is the right decision. We need some of these skills but, obviously, we do not need some of the unskilled workers who may wish to come to our country but under the points system will have the right to say that is not what we need at the moment, that is not what the future of our country requires and that is why the points system is going to be brought into operation. I think it has worked quite well in Australia. It is similar to some of the things that other countries do and it is a major change for us to introduce it. So any projections do not take into account the changes that we are actually making.

Q60 Mr Whittingdale: In actual fact, Frank Field I think this week did suggest that we should re-approach the European Union with a view to asking whether there could be a cap on the migration of workers from the former Eastern European countries. Can I finally just put it to you, you must be concerned about the rising level of support for extremist parties like the BNP in traditional working class areas, like Barking and Dagenham. Do you see that as a reflection of a failure of immigration policy?

Mr Brown: The first thing I should say to you is that there is a limit on Romanian and Bulgarian people coming into this country. When I meet people from these countries they say that of course, the decision that we made in relation to Romania and Bulgaria has had quite a big effect. So a decision was made there. I think parties like the BNP have to be opposed head on for what are racialist views that are completely unacceptable in a democratic society and I do not think there is anything that justifies the racialist views that they put forward.

Mr Whittingdale: Can we explore one or two of the specific consequences, particularly employment to begin with? Can I turn to Keith Vaz.

Q61 Keith Vaz: Prime Minister, good morning. You coined the phrase on 6 June last year "British jobs for British workers" yet statistics show that 80 per cent of the new jobs created since 1997 have gone to people who may have been born abroad. On reflection, do you think that statement was a little unwise?

Mr Brown: No, because if you look at the employment structure of Britain, yesterday we were able to announce that there are now 29 million more people in the workforce, the highest number of people working in the British economy at any stage in our history. So we have created over the last ten years very large number of jobs, nearly 3 million jobs. Two million of these jobs are held by people who were born outside the country. If you go to Australia, it is 25 per cent of people; if you go to Canada, it is 20 per cent of people; if you go to America, it is 15 per cent of people. In Britain the figure, as I am showing you, is far lower, and indeed considerably lower than Australia, Canada and America. When I talk about British workers getting the jobs that are available in Britain, I am pointing to a situation where we have 600,000 vacancies in the British economy today, we have people who are inactive, who are on the unemployment register or inactive in one way or another. We have 200 employers prepared to help them come off the inactive register into work as a result of a decision we made over the last few months. I want those people who are on the inactive register to be encouraged to take those jobs that are available in the British economy, and I think it should be a matter of support right across the parties that where you have people who are out of work and inactive, we should be doing everything in our power to encourage them to get the jobs that are available in Britain. There will be increasing jobs in available in the years to come as a result of the success of our economic policy. Do not forget that about 5 million to 6 million jobs change hands every year and we are continually looking for people from the unemployment register and inactive register to take these jobs and it is my responsibility, I think, and the responsibility of the Government, to make sure we do everything in our power so that these British people are available for the jobs that are on offer.

Q62 Keith Vaz: At the same time, we should be talking about the benefits of migration because migration has really helped the British economy, has it not?

Mr Brown: As I said a few minutes ago, the growth rate of the British economy is higher because of the benefit we get from the skills. It is however important to recognise that we still have people who are inactive and not in work, we have young people leaving school who we want to get jobs that are available, and our duty to these young people and to people who are inactive is to make sure we do everything in our power to give them either the skills or the encouragement or the training so that they can get the jobs that are available. I think we would be failing in our duties if we did not do that.

Q63 Keith Vaz: Prime Minister, you very generously in October made some new proposals concerning Iraqi interpreters. The figures released show that half of those who have applied have been turned down and that there is also no right of appeal for some of them. Are you satisfied with the process and the timetable that has been adopted?

Mr Brown: The figures that I have seen reported are not the accurate figures. There have been a large number of people who have applied. There will be many of them who will be accepted. Where there is evidence of intimidation, which was the issue in the newspaper report yesterday, that can be proven as deterring people from completing the work that they started, that will be taken into account. I do not think people should fear that people who have done their best working for Britain in the way that they did will be... It will be taken into account if there is evidence of intimidation that prevented them from finishing their work.

Mr Whittingdale: Prime Minister, can we now look at the local impact of significant population growth.

Q64 Dr Starkey: Primer Minister, the Commission on Integration and Cohesion, when they reported on community cohesion in England, pointed out that, although it is generally good, there are areas in the country, particularly those experiencing very rapid change and high rates of migration, where the funding is not properly reflecting need and there are cohesion problems. As Chancellor, you gave much greater stability to the funding for local authorities, the police, the NHS, by giving funding on three-year funding cycles. Do you accept that the downside of that is that funding cannot now rapidly react to change?

Mr Brown: Most people want the three-year settlements, as you know. They want the long-term commitment to finance that will enable them to plan ahead. There are really two issues here, not just the long-term funding but of course the availability of up-to-date information, either from the census or from other studies, that would enable people to make a reliable judgement of what the particular needs of an area are. I think you will find that there is far more cross-government working on this issue to try and find a way forward. I think you have probably noticed that we announced that there was going to be more money provided for schools in particular areas. We are, of course, looking at what the Local Government Association said in relation to general funding to deal with some of the areas where there is very intense or where there have been suggestions of intense population pressures.

Q65 Dr Starkey: If we can deal with those two points separately, the first one about refining the data and making them more accurate, obviously that would be a good idea but, even if it is accurate now, if there is rapid change, on a three-year funding cycle there will be a huge difference developing over the three years. That is the first issue. The second issue is in relation to the extra funding. The DCLG has announced 50 million of funding for community cohesion over three years but the LTA has assessed it is 250 million a year for a migration contingency fund. Can you address those two issues?

Mr Brown: There are always going to be arguments. I would be surprised if the Local Government Association did not have a higher bid for most things that were eventually agreed. There is a recognition of the pressures in the announcement made by Hazel Blears. There is also a recognition in the announcements of the exceptional circumstances grants in relation to education. I do think we have to look at some of the figures and statistics that are in the public arena with a considerable degree of caution. Many of the statistics that we have, as people who have looked at these round the table will know, are in cases based on relatively low samples, relatively small numbers of people being either interviewed or assessed. The reliable evidence we have, of course, is every ten years from the census and I think we have to be quite careful in making judgements on the basis of very small percentage samples. But, of course, there is a recognition of the pressures in what Hazel Blears has said and in what the Schools Minister has announced.

Q66 Dr Starkey: People who live in communities that are experiencing rapid inward migration are very well aware that there are pressures on services. Do you not think it would be sensible to be spending the money upfront to diffuse the competition for scarce public resources, not waiting for community conflict to arise, which will inevitably cost more?

Mr Brown: We are putting the money upfront. There is an issue about what one group's assessment is of the need for money and the others. That is always the case when you are bargaining about what money is needed for particular functions but there is a recognition of this issue in the announcements that have been made and we understand that in some areas things are changing faster than in others. That will be part of a continuing debate. Of course you are absolutely right to support community cohesion and we will do everything that we can. I do not think you can say the problem has not been recognised. I think the amount of money is of course something that will always be part of the debate but more money has been provided.

Q67 Dr Starkey: Can I turn to another issue related to cohesion, which takes us back to the discussion earlier about Britishness and a sense of identity and belonging. Obviously, it is difficult for people to feel that they belong to our society, people born here or people who have migrated here a while ago, if they feel they are being treated unequally or discriminated against. The Equalities Review in 2007 identified a number of very persistent inequalities in employment for various black and minority ethnic groups in this country. I will just cite one: the employment rate amongst the Somali community is 12 per cent compared with 62 per cent for all new migrants. When you are talking about British jobs for British workers, what are you going to do to make sure that the new jobs actually reduce that gap in employment between black and minority ethnic populations and the majority population?

Mr Brown: You are absolutely right. That is why there is a need for a new deal. That is why we need to support people who have found it particularly difficult to get employment opportunities, sometimes because they do not have the skills, sometimes because in some of the areas in which they live there are not the jobs that have been available in the past. I do say that round the country this is a dynamic economy that has large numbers of vacancies, so the issue is not, as it was ten or 20 years ago, the lack of jobs. The issue is mainly the lack of skills for jobs, and that will increasingly be the focus of our welfare policy as well as our education policy, to give people the skills that they need for the jobs that are available for the future. I think you will find that, in helping ethnic minorities get employment opportunities, there is a major emphasis now being put by the new deal on particular projects in areas where there has persistently been these high levels of unemployment to get them into work.

Q68 Dr Starkey: Are you confident that that will be sufficiently different from what we have done before to actually close the ethnic employment gap before 2015?

Mr Brown: Yes, because it is back to how we started this discussion about the role of public services. The old idea was a labour exchange. If people were out of work and there were jobs available, you made the information available to people to get these jobs. We now know that we need to give people a better personal service, to coach, mentor, encourage, help people get the jobs that are available. Some people have fallen through the net by accident, some people have criminal convictions, some people have other problems that need to be solved. We need to give people that personal help, often one-to-one help, that enables them to feel confident and therefore to get the skills that are necessary to get the jobs. If you look at Britain at the moment, the one thing that is absolutely clear is that there are 6 million unskilled jobs in our economy, most of which will not be needed ten years from now. Therefore people who are even in unskilled work at the moment will have to find new skills so we have to encourage people who are inactive and people who are in unskilled employment to get the skills that are available for the future. Education and training policy is going to be so important for that because we cannot compete simply on low pay with the Chinese, the Indian or the Asian economies. We can only compete on the basis of the skills that people have and that is why this new deal, that helps people get the skills that are necessary, particularly in communities where there has been a history of high unemployment, is absolutely crucial to our future.

Mr Whittingdale: Prime Minister, as you know, there are different perspectives on this issue from the different parts of the UK.

Q69 Dr Francis: Prime Minister, I want to ask you about some myths and misconceptions surrounding migrant workers. The Welsh Affairs Committee has had an inquiry into globalisation and one of the major themes of that inquiry has thrown up that the biggest challenge for community cohesion, certainly in Wales and I am sure it applies across the United Kingdom, in our society is to explain, to explore and to explode some of the myths surrounding migrant workers, for example, the extent to which migrant workers allegedly access social housing. What new and practical strategies does the Government intend to pursue in order to address such misconceptions and in order to foster greater social integration?

Mr Brown: I think the points system will emphasise the importance of people who come to the country actually being in work. I think everybody knows that the vast majority of people who have come from Eastern Europe are actually in jobs, working, making a contribution to the British economy and paying taxes to the British economy. I think the evidence is that more people who come to this country are actually in employment than perhaps is true in other countries.

Q70 Dr Francis: In Wales the Welsh Assembly government has actually funded a friendship association, a Welsh-Polish Association in Llanelli. What is surprising is that that appears not to have happened anywhere else in Wales and I do not think it is happening in other parts of the country. One of the features of that association is a celebration of the contribution of Polish people to Welsh life in a contemporary sense but also historically - academics, doctors, scientists, artists have all made a major contribution to Welsh and British society. Do you think we could actually do a little bit more celebrating and a little less criticising and complaining?

Mr Brown: I think one of the other features of British life that has developed in recent years is the number of inter-faith groups in different communities around the country. That is not exactly the same as your friendship association but it is people who have either come to this country or who are in this country who have different faiths from the established religions getting together to discuss what they have in common rather than what divides them. I think it is fascinating to see that there are several hundred inter-faith groups being formed in different communities of the United Kingdom, even in areas where there has not been a history of large immigration people realising that is a very important part, even with small numbers of integrating people into the community. We have said we will publish a paper about how we can encourage these inter-faith groups to develop in other areas of the country where they do not exist at the moment. That is one way in which we can recognise that, despite differences in denomination in faiths, there are shared values that bind people together.

Q71 Rosemary McKenna: Good morning, Prime Minister. One of the issues that Dr Francis did not address was that perhaps a more responsible media would help dispel some of the myths and misconceptions that there are about immigrants. In Scotland in particular we welcome immigration and in fact we have always been a country of immigrants and our economy has always grown with that, but there is a serious concern just now because the working population is declining, which will have adverse macro-economic consequences. Can you tell me what the Government proposes to do to improve the situation with dispersal to those areas of the UK, particularly Scotland, where we need immigration?

Mr Brown: As you know, there have been so many reports over previous decades about the dispersal of jobs by the civil service and government agencies out of London. You had big reports in the Sixties and in the Seventies. We had the Lyons Report recently and the issue is not whether you make these recommendations, because they have always been made in these reports in the past. The issue is actually whether you deliver on these recommendations. I think you will find that the Lyons recommendations about dispersal are being honoured in practice and that there is a large number of jobs that are being moved out of London and the South East into the regions, into Scotland, Wales, and of course Northern Ireland. That is an important part of stimulating an economy which is balanced throughout the whole of the United Kingdom. The other thing I would just emphasise is that, while there are concerns about population in different parts of the country, the number of vacancies for jobs that are available are high in all parts of the country. Twenty years ago you would have found that vacancies were high in the South East. They are high in Scotland, in Wales, in the North East, in the North West and there are jobs available for people who want them. One of our challenges is actually to encourage people to take the jobs that are available by giving them the skills that can get them these jobs.

Q72 Rosemary McKenna: Will the Government use the points systems to assist in dispersal of immigrants coming in rather than the concentration that there is just now in London and the South East, to get people out into the other regions and nations of the UK?

Mr Brown: I think the key thing is making a lot of the opportunities that are available in the different parts of the country exciting so that people see the opportunities for jobs outside London and the South East as good opportunities. If you look at the North West, it is attempting to develop a science base. If you look at Scotland, there are the financial services and health care industries. If you look at Wales, there is the aerospace industry and all sorts of other things developing new technology. It is the attractiveness of the industries and the services that are developing in these parts of the country that will make people want to work there and create opportunities that people want to take up. So it is a combination of more indigenous investment, more inward investment in private sector industries and civil service dispersal that will make a difference.

Mr Whittingdale: Prime Minister, I know Keith Vaz wants to come back to the issue of police pay, which we touched on earlier.

Q73 Keith Vaz: Prime Minister, did the Home Secretary consult you before she decided not to implement the award from the tribunal in full on 1 September?

Mr Brown: Of course. It is a government decision. You have got to look back to what has happened during the course of this year. Nobody wanted to say either to the nurses or to the teachers or to the doctors or to prison officers that public sector pay awards had to be staged, but it was the right thing to do for the national economy as a whole.

Q74 Keith Vaz: What is the point of going to arbitration if you do not honour the arbitration award?

Mr Brown: The decision about the police pay award is finally a decision in the hands of the Home Secretary. As you know, we are moving from a system where police pay was related to private sector pay to one where we have this arbitration system and to one where there is a discussion about having a police pay review body but the decision at the end of the day was a decision the Home Secretary had to make in the national interest.

Q75 Keith Vaz: We understand that.

Mr Brown: I do suggest to you that people should look at the bigger picture here about the future of the British economy. Does anybody fail to remember the stop-go problems that we had in the Seventies, the Eighties and Nineties, when people were not prepared to take the difficult but long-term decisions to keep inflation under control? While you want to focus today, Keith, on a single pay award, you have to look at the national picture as a whole. We had inflation that was rising and in danger of getting out of control. We had to take action and the action included having a tough public sector pay round. Nobody wanted to do this. Everybody would like to pay our police, whom we admire and believe do a brilliant job, at the rate that was awarded by the system itself but you have to take into account the national interest, and the national interest is that we bear down on inflation.

Q76 Keith Vaz: Is it worth the kind of headlines we have seen today? The Government needs the support of the police in implementing local policies, in the struggle against terrorism. Is it worth all this hassle, with motions of no confidence being passed on a Home Secretary who everyone regards as having done a very, very good job indeed, over a three-month staged pay award?

Mr Brown: Just to be clear, nobody wants to say to the police "You cannot get a higher salary" but nobody wants inflation to return to the British economy and to have pay awards wiped out simply by rising inflation and therefore of no value to people.

Q77 Keith Vaz: Why not make this clear before you go to arbitration? Why do it afterwards?

Mr Brown: It was absolutely clear, right from the beginning of the year, that we had made a decision to stage public sector pay awards. That was known when the announcements were made earlier this year. It happens that the police pay award was the last of all the pay awards in the public sector at a national level during the course of the year. I repeat, I would like to pay the police more, just as I would like also, by the way, to pay the nurses and to pay those people who commit themselves daily to public service more, but you have to take a broader view of the national interest. It is easy for people looking at one particular instance to say "This costs X" or "This costs Y." We have to look at the economy and the state of our preparedness to deal with the global events as a whole. There is absolutely no doubt that politicians in the Seventies and the Eighties and the early Nineties were prepared to make short-term political decisions for political gain and lost sight of the long-term interests in tackling inflation in the British economy. The only reason why interest rates were able to come down a few days ago was because inflation was under control in the British economy, and the only reason inflation is under the control in the British economy is because we have been prepared to take difficult but long-term decisions that are necessary in the national interest.

Q78 Keith Vaz: We appreciate that, Prime Minister. Finally from me, have you met representatives of the Police Federation or ACPO on this issue? If you have not, would you be prepared to meet them to discuss their concerns?

Mr Brown: I have met representatives of ACPO recently on other issues.

Q79 Keith Vaz: On this issue.

Mr Brown: The point I would suggest to you is that the award is now being paid at 2.5 per cent from 1 December, so the award, while postponed in its full implementation from 1 September, is now being paid from 1 December. So the 2.5 per cent is now being paid from 1 December. Of course I will meet people to talk about these issues but I think this Committee, which has always taken a wider appreciation of what the national interest is in this matter, will understand that this is part of an anti-inflation policy which is essential to make sure that we are properly equipped to deal with the problems that every country is facing in the global economy.

Q80 Mr Whittingdale: On that, it has always been the case that the police were regarded as being in a special category, not just because they have to put their lives at risk but also because they have given up the right to strike. You will be aware that many of them are now saying that if they are no longer regarded as a special case by the Government, why should they behave differently to other public sector workers; why should they not now consider taking some forms of industrial protest within the law?

Mr Brown: You are wrong to suggest that everything that is happening in relation to police pay is as it always has been except for this decision. We are moving from a system of police pay which was related to one index to discussions about how it can be related to a different system. So a lot is being discussed about changes in the police pay system and I think these discussions should go ahead and people should draw the conclusion. I also note that there are many people in the police who do not want to break the decision that has been both a decision of the police and a decision of governments that there is a no strike agreement.

Q81 Mr Whittingdale: But what is the point of going on having discussions if you have made it absolutely clear that you are not prepared to make any movement on the question of pay?

Mr Brown: The discussions that are taking place are not simply about 1 December's pay rise. They are about the long-term system for setting police pay for the future. Let me just repeat: I value the police. The fact that we have more police in this country than ever before is a recognition of the important job that they do in building community cohesion as well as protecting law and order. I would like to pay the police more. That is what I think the Government would wish to do under circumstances in which we did not have to counteract what is a major economic issue that had to be dealt with. I am sorry if people from other parties do not recognise that it was the failure in the past to deal with economic problems when they started to arise that caused us to have a stop-go economy for so many years and caused us to move from boom to bust and into recessions on so many different occasions. I think people should bear in mind that for the last ten years we have had consistent, stable growth in this economy and I am determined that that is the pattern for the next period as well.

Chairman: We come to the final section, foreign policy priorities and delivery.

Q82 Malcolm Bruce: Prime Minister, this Government is active in foreign policy issues all over the world, perhaps more active than it has been for a considerable amount of time. Initially can I turn attention to Afghanistan? You made a statement yesterday in the House which had a great deal of detail and I think which was generally welcomed. Do you accept in the context of Afghanistan that there is a real problem with border security, both specifically from Iran and from Pakistan? When my Committee was in Afghanistan at the end of October we were constantly being told by the Afghan authorities that the difficulty of dealing with the Taliban was that they retreated across an unpoliced border into Pakistan. We then met the Pakistan Ambassador, who said actually, terrorism in Pakistan was increasingly being sourced by cross-border activity from Afghanistan. Can you say what talks the Government is having about how to deal with security in the federally administered tribal areas on that border, which, after all, has never been internationally recognised?

Mr Brown: This is exactly the discussions I had with President Karzai on Monday, that there can be no long-term solution to the security of Afghanistan if it does not involve regional co-operation. First, of course, Iran has got to play a more positive role, and I said that in the statement yesterday. Second, as you rightly detect, the relationship between Pakistan and Afghanistan has to be a stronger one where they are co-operating together to deal with the terrorist problems that they face. There has been considerable success in Afghanistan in dealing with the Taliban but equally, of course, there are problems relating to Al Qaeda which have to be dealt with and ought to be dealt with by stronger regional co-operation. What I saw my role as on Monday was to urge President Karzai to build stronger relationships, as he is trying to do, with President Musharraf and others in Pakistan who also have an interest in dealing with these problems.

Q83 Malcolm Bruce: In those areas, that is the centre of the poppy production and the opium and heroin trade. Again, we were told that eradication of poppy can only come about with greater security. In reality, the UK has a responsibility in Helmand, which has become the world's greatest centre of poppy production. The reason for that apparently is that the opium dealers will buy the poppy direct from the farm gate, which makes it a much more attractive crop than any other where you have to get it to market and with no security you cannot do it. In that context, you said yesterday there will be no deals with the Taliban but there is a lot of discussion about how you separate the Taliban and actually get the tribal leaders on side across that disputed border area. Can you tell us how you think that can happen in ways that will actually enhance security and not actually drive the poppy farmers more into the hands of the Taliban?

Mr Brown: This is the big issue, as you rightly suggest. There has been some success in some provinces which are classified as poppy-free. There has been limited success in Helmand, which, as I understand it, has about half the world's production and therefore is the major source of the problems that we have to deal with for the future. I said yesterday that eradication of course on the ground - and there has been a huge debate about aerial spraying, and our view is that there should be eradication on the ground - has to be matched by better judicial systems, it has to be matched by a determination to talk to and involve the tribal chiefs, but it has also, of course, got to be matched by alternative sources of economic activity that can be attractive to people who otherwise would see their only source of livelihood in drugs. Therefore the counter-narcotics programme has to involve all these things. It has to be a combined set of measures. To make that work you require a stronger national government. That is the importance that I attach to building up the capacity to govern both nationally and, of course, locally as well.

Q84 Malcolm Bruce: Just finally on that point, do you agree that sometimes talk about the Taliban is not entirely clear or helpful? We were asked in Afghanistan if we understood what the definition of "Taliban" was and they said "unemployed young man". In other words, the Taliban is a great catch-all for a whole variety of different issues. Do you accept that it is really important to understand that there is a real Taliban which clearly want to overthrow and re-establish an Islamist society? There are many disaffected people that need to be won back, and both our military and civil strategy has to ensure that we separate the real Taliban from those disaffected people.

Mr Brown: I hope I emphasised yesterday that the Taliban leadership has to be eradicated and that is why the Musa Qala attacks are important, because the Taliban were routed from that area but, you are absolutely right, there is a large number of people who can easily come under the influence of extremist elements if there are no alternative sources of economic activity and if there are no alternative messages, either through the tribal chiefs or through others, that are being put to the people. President Karzai says that over the last few months about 5,000 former fighters have come over from what would be called the Taliban into supporting the democratic structures that have been created in Afghanistan and, of course, where you can break the Taliban, divide and rule, where you can defeat those people by isolating the leadership from others who may come under their influence, you are going to be able to make a difference for the future, and that is part of the strategy of reconciliation that the President is pursuing.

Chairman: Before we leave Pakistan and Afghanistan, Mohammad Sarwar would like to ask a question.

Q85 Mr Sarwar: Prime Minister, may we agree that the best way to defeat terrorism and extremism is to promote democratic governments in the world, particularly in the Islamic countries? As you know, there are going to be elections in Pakistan on eight January. I think it is encouraging that President Musharraf has taken off his uniform and he has set the political prisoners free, but still there is a state of emergency, the constitution is suspended, one of the most popular TV channels, Geo, is still off the air. Would you encourage or use your Government's influence on President Musharraf to say that the emergency must be lifted, the constitution must be restored and the media must be free to ensure free and fair elections in Pakistan?

Mr Brown: I think it is important for Pakistan and for people who are elected in these important elections that these elections are seen to be fair, and therefore it is important that they happen with a free media, and it is important that they happen without a state of emergency. To President Musharraf's credit, he has kept his word that he will remove the uniform, he has released large numbers of political prisoners, and he says that he wishes to end the state of emergency as soon as possible but you are absolutely right: if the elections are to be seen to be fair and can bind the country together in a serious way, then other steps will have to be taken before these elections actually happen.

Malcolm Bruce: I am going to ask James Arbuthnot to talk about the relationship between the Government and our Armed Forces.

Q86 Mr Arbuthnot: Prime Minister, your visit to the troops in Afghanistan was, I think, much appreciated and welcomed, as was your recent visit to Iraq, but I do not think you visited the troops deployed abroad when you were Chancellor of the Exchequer very frequently. I wonder whether you think there would be any merit in having a regular programme of visits by Treasury ministers to see the troops deployed abroad?

Mr Brown: I think you are being very unfair. I did visit the troops when I was Chancellor and, of course, I have had a long-term interest in defence issues because my own constituency was included, and that is next-door to the naval base in Rosyth Dockyard, and I have a tremendous affection for what the Armed Forces do and continue to do and wish to give them all the support possible; so I think the assumption of your question is wrong. Of course, every senior minister will wish to give what support he or she can to the Armed Forces.

Q87 Mr Arbuthnot: How about a regular programme of visits?

Mr Brown: Are you talking about the Treasury or are you talking about myself?

Q88 Mr Arbuthnot: The Treasury Minister. I think the Defence Minister visits troops very regularly.

Mr Brown: Of course we want to see that happen, but I do not think you should assume that there has not been contact in the past in a way that has been beneficial to both the Treasury and to the Armed Forces.

Q89 Mr Arbuthnot: Once again, something else that has been welcomed is the fact that the pay for the Armed Forces went up by three per cent, and for some of the junior ranks it went up by nine per cent, but it was not funded. Given that the Ministry of Defence's budget went up by, I think, one and a half per cent, do you accept that that leaves the Ministry of Defence with some really difficult decisions to grapple with?

Mr Brown: I do not accept the presumption of your question either. I think you are basing this on misleading information. The Ministry of Defence has had a budget that has risen every year. The recommendation to accept the pay review body award in full was theirs. The money that was provided to the Ministry of Defence also has an addition for every operation that the Ministry of Defence and our Armed Forces are involved in, so over these last few years, in addition to the 30, 31 billion or so budget of the Ministry of Defence, six billion has gone in monies that have been paid by the Treasury for operations that they are conducting in Iraq and Afghanistan. What has actually happened over these last few years is that urgent operational requirements have been met from the reserve, additional money has been paid for the work that has been done in Iraq and Afghanistan and that is on top of a rising budget for the Ministry of Defence that now makes our defence budget the second biggest in the world. Where ten years ago it was only the fifth biggest in the world after France, after Russia and after China, it is now second only to America. Of course, that is right because of the work that we have to do, but I do not think the assumption of your question is right at all.

Q90 Mr Arbuthnot: I am just telling you what the Permanent Secretary of the Ministry of Defence told us last week, that the pay rise was not funded. He may have been wrong.

Mr Brown: I have to say to you that that is based on a misconception about how pay deals are done. If there is a public sector pay award and the department wishes to propose that it pays it in full, then that will come from its own resources, for which allocation has been made in the three-year settlements. It is not usual for any public sector pay award to come from the reserve - that has not been the practice, and that would, of course, be a very inflationary way of doing things.

Q91 Mr Arbuthnot: My final question is about the Defence Export Services Organisation. Did you discuss the change in the status of the Defence Export Services Organisation with Lord Drayson before you did it, and do you accept that the general view of the defence industry is that the change was a quite serious mistake?

Mr Brown: I think you will find that the change now announced in detail by John Hutton only two days ago is something that the defence industry and the defence establishment can be happy with, because the defence security organisation that has been built within the UK TI will draw on the expertise of the Ministry of Defence but have all the advantages that the UK TI has in resources that allows it to work in 100 countries in the world. I think you can see from the statement that was made by Mike Turner, the Chief Executive of BAE, that some of the things that people were concerned about have actually been dealt with in the detailed work that has gone into building the new organisation, but the argument for doing this is very clear, that those people who award the licenses should be separated from those people who promote the exports, otherwise there is a potential conflict of interest, and that is what has underlain the change that has been brought about. I repeat that the Cabinet ministers who were involved in this were consulted.

Malcolm Bruce: Thank you. Prime Minister, on foreign affairs issues Iran is virtually in the headlines every day. I am going to ask Mike Gapes to address some questions on that.

Q92 Mike Gapes: Prime Minister, last month the United States National Intelligence Council estimates judged with high confidence that Iran halted its nuclear weapons programme from the end of 2003 until mid 2007 and with moderate to high confidence that it is at the minimum keeping open the option to develop nuclear weapons. Do we agree with that assessment?

Mr Brown: I think the issue that we are most concerned about in relation to what you say is the enrichment of uranium. If Iran is enriching uranium or seeking to do so in a context where it has no real programme for civil nuclear power, then there is a question mark over their motive, and over hiding the information from the international community for years, and over the purpose of what the enrichment of uranium could in a very short period of time lead to; so the United Nations Security Council motions are related to the enrichment of uranium and the threat that that potentially poses, because you can move from enriching uranium quickly to the production of nuclear weapons.

Q93 Mike Gapes: You have referred to the United Nations Security Council resolutions. Those two existing sanctions, resolutions 1737 and 1747, have led to an Iranian reaction whereby they have accelerated the production of enriched uranium, and the IAEA Board's report from Mr ElBaradei three weeks ago says they now have up to 3,000 centrifuges operating and it also says that they are being less co-operative with the inspections of the IAEA. How do you interpret that?

Mr Brown: I interpret them in breach of the Nuclear Non-Proliferation Treaty and, therefore, that the world is right to insist, by sanctions, that Iran comes back into line. There are a number of offers on the table to Iran, important offers. One is that uranium enrichment could take place and be on offer for people wanting to develop civil nuclear power, there is a proposal for a uranium bank and there is a proposal that uranium enrichment takes place in another country but is made available to Iran and other countries in the region. There are many proposals on the table that would allow Iran to meet any ambition it has for civil nuclear power while at the same time joining the international community, and really the offer to Iran is: "Abide by the Nuclear Non-proliferation Treaty and we will offer you cultural, economic and political co-operation for the future, but break the Nuclear Non-proliferation Treaty and we have no alternative but to pursue sanctions."

Q94 Mike Gapes: But the sanctions that already exist - and our Foreign Affairs Committee were in Iran a few weeks ago - are very limited. They are clearly and visibly not having any major impact on the Iranian economy in society and there has been opposition within the Security Council for strengthening sanctions; so is there any real prospect that there will be a change of regime behaviour by the Iranian Government even if there is a stronger sanctions regime?

Mr Brown: I appreciate that you have been in the region very recently, but the evidence that we have is that sanctions are having an effect. We are prepared to intensify sanctions, including in the oil and gas industry, and intensifying the financial sanctions in relation to Iran. I think there is wider support in the international community for doing so than you are suggesting by the statement you made at the end of the words that you uttered a few seconds ago, and I think we can persuade other countries to join us to intensify the sanctions. Remember, the issue is if the world has a Nuclear Non-proliferation Treaty and if by agreement people stand by that treaty, then for countries that break that treaty and fail to disclose that they are breaking that treaty, we have a right to take the action that is necessary to try to bring them back into line, and sanctions have been the chosen course.

Q95 Mike Gapes: I understand that, but is it not true that the big problem with Iran is actually that this is a revolutionary regime that yearns for international legitimacy, and the big thing they want is for the United States to accept their existence and because the US and Iran have not had diplomatic relations since 1979 and because Iran is seeking to feel that somehow it is existing and accepted in the world, that there is an alternative approach which might have more effect to strengthen the more moderate and pragmatic voices in the society, which is a very dynamic, young, pluralistic society with a theocratic cap on the top and that somehow, by the rhetoric and by the sanctions, we may only be strengthening Mr Ahmadinejad and the hardliners and those who take the more conservative approach rather than the prospect of engagement, as the EU did, which coincided with the period of the halt to the programme?

Mr Brown: I think you make a powerful case that there are divisions within Iran and that there will be people who are not happy about the position that Iran has been taking in secretly developing a uranium enrichment programme. I think that sanctions will bring to the surface some of these divisions that are actually there already within the Iranian regime, but I do also say to you, if you want to rejoin the international community and to have the status that a country that has the traditions and history of Iran should have, then the best way of going about it is not to break the international community's Nuclear Non-proliferation Treaty and to do so in a secret way over many years, and the best way for Iran to come back to the international community in the way you suggest and to build up support round the world and to have the cultural, economic and political context that I want to see is for Iran to come into line with the Nuclear Non-proliferation Treaty and suspend the original programme or find a way by which uranium enrichment can take place to promote a civil nuclear programme but perhaps enrichment taking place outside the country rather than inside it.

Q96 Mike Gapes: Prime Minister, would it not be helpful if the US was to intensify its dialogue with Iran with a view to developing diplomatic relations at some point, because at the moment there is almost no contact between the United States and Iran?

Mr Brown: I think the world community wishes to see Iran brought back, as you rightly say, into the international community in a way where there is cultural, political and economic contact that is to the benefit of the world and to the people of Iran, but I think you have got to start by dealing with the problem that we have, and the problem that we have is, in breach of all its international obligations, Iran has been developing a uranium enrichment programme which is not, it seems, for the purposes of civil nuclear power, and until we can get a solution to that particular problem, then it is likely that the rest of the world community will want to impose sanctions.

Q97 Malcolm Bruce: Just on that, Prime Minister, the main democratic opposition to the Iranian regime is the People's Mujahideen organisation of Iran, which has been proscribed in this country. The proscribed organisation's appeals committee have said that they are not involved in terrorism and that the refusal of the Home Secretary to de-proscribe them was flawed, perverse and must be set aside. Why does the Government not accept that?

Mr Brown: I have looked at that issue that you raise. It is certainly, however, the case that the organisation that you describe has been, in the past, involved in terrorist activity, and I do not think there is any doubt about the evidence that that has been the case. Therefore, to proscribe an organisation that has been involved in terrorist activity seems the right thing to do by the decisions of this Government to be consistent with other decisions that we make.

Q98 Malcolm Bruce: We have accepted sometimes that terrorist organisations can change their ways?

Mr Brown: But I do not think we have that evidence.

Malcolm Bruce: Another item that is very much in the news at the moment and is likely to be watched closely over Christmas is developments in Kosovo. Can I ask Mike Gapes to deal with that?

Q99 Mike Gapes: Prime Minister, you are going to Lisbon, where there will no doubt be a discussion with other EU leaders about how to deal with the fact that the UN deadline of December 10 expired, that there was no agreement between the troika, that the incoming Prime Minister of Kosovo, Mr Tachi, intends to have a unilateral declaration of independence. There are divisions in the European Union. Are you expecting a united statement out of Lisbon?

Mr Brown: Yes, and I think we have already seen that the foreign ministers have made advances in that area. I think the way forward is supervised independence. I do think that the Kosovans are to be applauded for not reacting in a way that would make it impossible or difficult for us to get the agreements for the future, and I hope that Serbia will come to an understanding that its wish to be part of the European community of nations means that it should accommodate what is the legitimate desire of the Kosovan people; so a supervised form of independence is how we see the next stage.

Q100 Mike Gapes: Are you confident that a supervised independence in line with the Ahtisaari plan is legally watertight, even though UN Security Council Resolution 12/44 is still in existence, which says that Kosovo is part of Serbia?

Mr Brown: As you know, there is a proposal for a further UN resolution, and I think that ought to resolve the issue, and I hope that all countries can support that. Obviously, the European Union has got a responsibility to help. There are troops on the ground, of course, at the moment with the responsibility to help in that area, but I do think that we can move forward. There is more agreement than your original question suggested.

Q101 Mike Gapes: You are implying that we are going to get another Security Council resolution. I thought Russia had made it absolutely clear that it would veto any attempt at a resolution which legitimised the independence of Kosovo.

Mr Brown: If that were to happen, of course, we would have a European Union mission and we would have a European EDSP mission in relation to Kosovo.

Q102 Mike Gapes: If there is this European mission, what will we do? What will we and what will the rest of the European Union do, and the UN forces who are still in Kosovo? What will we do if the Serbs in the north of Mitrovica decide to break away to clear their own UDI from Kosovo at the River Ibar or if blockades are put up in other part of Kosovo?

Mr Brown: I think that is hypothetical actually. I think a Kosovo settlement is actually in Serbia's interest, and I hope we can reach a situation where they are persuaded that that is the case. I would not want to jump in stages and speculate about what might happen if certain things that you speculate about do in fact eventually result. I think the important thing is that Serbia has got an interest in a peaceful resolution of this issue as well.

Q103 Mike Gapes: What inducements, carrots, encouragements can we give to Serbia to try and persuade the Serbian Government and, more importantly, the Serbian people (and the democracy in Serbia is very fragile at this moment) that their future destiny lies with accepting, however reluctantly, an independent Kosovo and an aspiration to join Europe?

Mr Brown: I think you know that it is the last part of what you are saying that is very much in Serbia's thoughts, that it wishes a better relationship with the European Union, it wishes to see itself as part of Europe, and, of course, it would not make it easy for people to see it that way if we could not get a settlement over the Kosovan issues.

Q104 Mike Gapes: Is there some tangible thing that the European Union today, tomorrow, can offer to Serbia to try to sugar this pill that they regard in a very bitter way?

Mr Brown: I think you are pointing in the direction of Serbia recognising that if its future lies, as we believe it does, with a better relationship with the European Union over a longer period of time, then it is not in its interests that the Kosovan problem is left as one that cannot be sorted out. Whether you are talking about something specific or not, I think the long-term interests of Serbia really depend on it recognising that that relationship with Europe is put at risk if we cannot find a solution to the Kosovan issues.

Malcolm Bruce: Thank you, Prime Minister. I guess as we speak your plane is warming up to fly you to Lisbon. You will not be surprised, therefore, that Michael Connarty would like to ask you some questions about the European Treaty that you are about to sign.

Q105 Michael Connarty: I might state that if you look back at the Maastricht Treaty, Prime Minister, you will find that it was signed by a very junior member of the Foreign Office, not signed by the Prime Minister at all. I notice, by the way, that you fell back on your Fife dynasty by referring to what seemed like the Proclaimers' paraphrase on education: "No more, no more, no more"?

Mr Brown: That is right.

Q106 Michael Connarty: But another good Scots phrase is that truth is a chiel that winna ding, and that is the basis on which we approach the Reform Treaty; so we obviously disagree about its final effect but I am certain you have read and considered the impact of certainly the drafts that we have, because we have not yet seen the final copy of the 294 amendments of the amended treaty, or the Reform Treaty on the EU, which you intend to sign at the forthcoming European Council. Are you aware that that impact will be positive or negative for the UK? Do you accept that increasing use of qualified majority voting in many, many additional areas, plus the use of co-decision-making, we are told by the European Parliament, in 95 per cent of EU policy-making in the future will fundamentally alter the way that the EU will function and it will also alter the UK's relationship to that policy process?

Mr Brown: Qualified majority voting has been a feature of every treaty. The 1986 Single European Act contained very large changes by introducing qualified majority voting in particular areas. That was extended in all the different treaties - Nice, Amsterdam and so on - and so there is nothing new in qualified majority voting, the question is whether the changes in qualified majority voting are in Britain's interest or whether they are not in Britain's interest; and I think you could make an argument going through the changes in qualified majority voting that some of them are actually minor and procedural and the other ones are in Britain's interest and, if they are not, then you have usually got an opt-in or an opt-out to decide whether we wish to be part of it.

Q107 Michael Connarty: I will come to the question of opt-in and opt-out, but they are actually two different things, because there are a number of passerelle clauses in this Reform Treaty that will again and again bring up the question of transfer from unanimity to what they call the community method of qualified majority voting, and the opt-in and opt-out is not exactly the same thing.

Mr Brown: But that has got to be agreed by unanimity.

Q108 Michael Connarty: Correct, but many do not, many are automatic, but there are new areas, with passerelle clauses, for example, in common foreign security policy, that may or may not be used in the future. Turning to the question of opt-in, Article 10 to Protocol 10, which is a new added protocol article, and the new Article 4A, which cover, as the Foreign Secretary told us, 70 to 80 areas where the UK has already opted in but will then have to decide whether they stay in should it go to the community method, which means final jurisdiction by the European Court of Justice and infraction ability on the part of the Commission, the UK will have control over these decisions to opt-in when they are transferred to that method, but do you accept that when we use the opt-in it will transfer final jurisdiction to the Commission and to the European Court of Justice and, if so, will the process that will be put in place in the UK law allow the solemn UK parliament the right to have a view on whether we do in fact opt in or opt out? Underlying that is the question that, if we are not going to have a referendum, will we be given a multi-clause bill that is amendable that will be put before Parliament before this treaty is finally ratified or will we get a one clause, in or out, which we are supposed to talk about for 20 days?

Mr Brown: You are right to say that there are issues where, where we have opted-in in the past, we have got the right now to opt out because of the change in the status of justice and home affairs from being a matter for, if you like, national governments to being a matter for the community of the Union as a whole. We as a government will be able to make that decision as to whether we opt out or not and whether, if having the right to opt out, we decide to take it up in particular instances, and there is a whole series of procedures that will have to be adopted. That will be the subject of a debate in Parliament when we go through the Bill. Obviously the Bill is not yet published, but when the Bill is published I think it will be clear that there is more scope for Parliament to debate some of these issues than there has been in the past. The problem, however, if I may say so, on the opt-in, if we decide we wish to opt in on areas, is that you will only have three months to make that decision under the rules that have been set out; so it will have to be a matter for the Government to make that decision on the basis of what we know to be in the best interests of the country, but the general debate we will have in the House of Commons when the Bill comes before it.

Q109 Michael Connarty: Can I press you on the point about will it be a multi-clause bill with clauses that are amendable but will cover these points of principle? At the moment you are saying that your opinion is that this is a matter for the Government and that the Parliament will just have to basically lump it or like it.

Mr Brown: On the passerelles, if I may say so, which you mentioned---

Q110 Michael Connarty: Can we stick to the principle we are talking about, about whether these opt-ins are implemented by the Government or will have parliamentary scrutiny? Will it be in the Bill?

Mr Brown: There will be scrutiny, of course, but in a situation where you have only got three months to make a decision, it will have to be the Government that actually makes that decision but if you are bound by this three-month window, I think it is going to be very difficult. On the other hand, all these issues that you raise are going to be discussed during the passage of the Bill, and if Parliament chooses to do things differently from what is recommended, that will be a matter for Parliament, but I think all these issues will be before the House when we discuss the Bill.

Q111 Michael Connarty: Will amendments be allowed on the Bill?

Mr Brown: I do not quite know what you mean.

Q112 Michael Connarty: There are a series of clauses. We went through the Maastricht process. Will it be similar?

Mr Brown: There is going to be a very considerable period of time set down for these debates to take place, and I am sure that those people who are ingenious in the matter of amendments will find ways of amending or suggesting amendments to the Bill, but I cannot announce the details of the Bill here, the Bill will be published very soon. Can I add for the passerelles, however - you did raise the question of the passerelles and this is a very important issue - you can only decide by unanimity, of course, to move in a passerelle to a different position from where you have been, but I do believe that is a matter that has got to come before the House of Commons.

Q113 Malcolm Bruce: Thank you. One final area, Prime Minister, is the Middle East peace process. Whilst it was welcome that the American administration proposed to try and kick it back to life in Annapolis, does the Prime Minister accept that what was agreed in Annapolis (a) was not very substantive and (b) was not very inclusive in terms of the parties who were involved?

Mr Brown: What was agreed in Annapolis was that Prime Minister Olmert and President Abbas will have regular meetings to work through a framework document that was agreed in Annapolis, and what now follows is the Donors Conference in which Tony Blair, rightly, has had a very big involvement, and there is a large group of countries now willing to contribute to the development of the Palestinian economy and to rebuilding the social fabric. I thought that after that we could have an Abyssinian investment conference as well so that not just money be provided in terms of aid but we can attract people, including Israeli business leaders, to invest in the West Bank and in Gaza. As you know, President Bush is going to visit Israel and the Middle East in the next month or so. So, side by side with the political process moving forward to resolve some of the issues, where there are regular meetings agreed at Annapolis. There will be also what I think is an important effort to provide encouragement to the Palestinians in particular that we will support the economic and social development of the territories so that we can relieve a lot of the unemployment and poverty that is a major source of retention.

Q114 Malcolm Bruce: Can I say to you, Prime Minister, that was exactly what was not addressed at Annapolis. The issues of settlements, the future of Jerusalem, refugees, borders and water were unmentioned. Can you not acknowledge that the credibility of a commitment to a two-stage solution is simply not acceptable in circumstances where there is no serious discussion for withdrawal of settlements, the road blocks and restrictions on movements, and, indeed, settlements are still continuing to be built?

Mr Brown: You have got two issues there: what was said about settlements and what was said about the current, if you like, security problems that prevent things moving forward as things stand between Israel and the Palestinian areas, and I think there was progress actually in these areas, although not as much as you or I would like to see. I think the framework document, however, is about dealing with the long-term issues. You rightly say that they did not reach conclusions or have big discussions on the detail of what happens to Jerusalem or what happens to the future of refugees, but that is very much part of the discussion that is started by the framework document that is agreed, and I would imagine over the next period of time, as the Prime Minister of Israel, Mr Olmert and Mr Abbas, representing the Palestinians, have the discussions, all these issues are on the table; and what you had at Annapolis was not a final document listing all the things that had to be included, but what you had was a framework agreement where they agreed that they would look at the issues, particularly the issues that you say are the most controversial ones and have got to be dealt with.

Q115 Malcolm Bruce: The other issue - the final point - that was not addressed is Gaza. In fact the agreement was between Prime Minister Olmert and President Abbas. Conspicuous, of course, and in no way party to it is Hamas, who runs Gaza. Can you, Prime Minister, give us any indication of what progress can be made firstly to alleviate the suffering and the crisis that exists in Gaza and to recognise that, whether we like it or not, Hamas was elected - I do not forgive any of their actions or what they stand for - and that to ignore them and not engage with any section of Hamas is simply not going to be a way to achieve real peace which has a united Palestine negotiating with a United Israel and an international community that can actually produce a solution that will genuinely see the creation of two viable states?

Mr Brown: I am not going to announce a change in our policy relating to Hamas. What I can, however, say is that we set aside $500 million for specific aid for the Palestinian areas, subject to reaching an agreement about security. So we are prepared to provide substantial sums of money to help the Palestinian people; we have actually made the sums of money that we can provide immediately known and DFID has made announcements to that effect. We believe we could encourage other countries to do exactly the same, and substantial funds could be made available for the Palestinians, and that, I think, will be a matter for discussion at the Donors Conference and, then, as I say, I do not want just to provide aid for the Palestinian people, I want to help provide an economic framework by which the economy of that area can develop and get new investment and infrastructure for the future, and that would also be the next stage if we could solve some of the security problems. That is what I think the challenge is over the next few weeks and months.

Q116 Malcolm Bruce: I agree with you, Prime Minister. I just hope we can see those things being talked about rather than left outside the room.

Mr Brown: Thank you very much.

Chairman: I have had two requests to put individual questions. Rosemary McKenna.

Q117 Rosemary McKenna: Thank you very much, Chairman. I suppose we can call this our version of the topical question! Prime Minister, I would suspect that most of us round this table have at some time in our political career visited a British Council facility across the world, and so it was with great dismay yesterday we read or heard of Russia's decision to expel the British Council from Russia. The Foreign Secretary has today given a written ministerial statement saying that we are urging the Russian authorities to reconsider; at the same time we are working closely with the British Council to ensure the welfare of their staff - absolutely crucial. Could you speculate what hope there is for us being able to achieve this, because the British Council is a force for good throughout the world? What actions can we take if the Russians do not respond to our request?

Mr Brown: This is totally unacceptable action that has been taken or is being mooted by the Russian Government. The British Council does a tremendous job, both in Russia and in every part of the world. The British Council deserves to be supported in its activities. I think the Foreign Secretary has said that there are only two other countries in which this treatment has been meted out against British Council staff, and that is Iran and Burma. I think it is very important to recognise that the British Council is doing valuable work in Russia that is actually recognised to be so by the Russian people; so we wish this action to be desisted from immediately. We are making our views known to the Russian government on that part. We want good relationships with Russia and with the administration there, but that must be dependent upon the Russians dealing with the problems as they arise, and one of them is that they should not be either putting at risk the welfare of the British Council staff or removing the facilities that it offers to the people of Russia.

Q118 Sir Patrick Cormack: Prime Minister, in many of your statements and speeches over the years, you have made it very clear, explicitly or implicitly, that you believe in job satisfaction. You now occupy a job which you have aspired to for many years. This morning it has been quite clear to me that you are taking the job seriously and acting very diligently, but are you enjoying it?

Mr Brown: I was saying to someone a few days ago, I was reading the newspapers more but enjoying them less, repeating what President Kennedy had said in the 1960s. I think the excitement of the job is that every day there is a new challenge to deal with. When I started in the summer months and we had the terrorist incident and then we had the floods, someone said to me in the Cabinet Office, "At least there is not foot and mouth", and then suddenly there was foot and mouth, and then they said, "At least there is not avian flu", and then there was avian flu. So we have had a series of challenges to deal with and we will continue to deal with them, and I think that is really what the business of government is about. Enjoyment: I am not sure that you could ever say that in some of the circumstances we have found ourselves in the last few weeks it has been enjoyable, but it is certainly a challenge.

Q119 Chairman: May I thank you, Prime Minister. At our very first session of the Liaison Committee with your predecessors, as I left this room, two ex-friends - journalists - approached me and said, "But there was no blood on the carpet", and I said to them, "But that is not necessarily what parliamentary accountability is about. We can have scrutiny; it does not have to be frenetic." I hope you have found it perhaps valuable as an exchange, also to understand our worries and our concerns as we have come to understand your position. We thank you for your first attendance. As I said at the beginning, we look forward to many more. I hope I will not be here for many more because I retire at the next election, so go on as long as you can.

Mr Brown: Thank you, Chairman. Maybe I should end on a non-partisan note by wishing you all a happy Christmas.

Q120 Chairman: Thank you very much. Enjoy your visit to Lisbon.

Mr Brown: Thank you.