House of COMMONS









Thursday 3 July 2008


Evidence heard in Public Questions 121 - 284





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Oral Evidence

Taken before the Liaison Committee

on Thursday 3 July 2008

Members present

Mr Alan Williams, in the Chair

Mr James Arbuthnot

Sir Alan Beith

Malcolm Bruce

Michael Connarty

Sir Patrick Cormack

Mrs Louise Ellman

Mike Gapes

Mr Edward Leigh

Peter Luff

John McFall

Rosemary McKenna

Mr Terry Rooney

Mr Barry Sheerman

Dr Phyllis Starkey

Keith Vaz

Mr John Whittingdale

Mr Phil Willis

Dr Tony Wright

Mr Tim Yeo


Witness: Mr Gordon Brown MP, Prime Minister, gave evidence.


Chairman: Welcome again, Prime Minister, on your second appearance before the Liaison Committee. As we did with your predecessor and as we did with you last time, we told you in advance what the themes were to be, but, of course, you have no knowledge of what the questions are to be. Today, again, we have four themes. We start with your special interest, constitutional renewal, which will be led by Sir Patrick Cormack, then we go on to global economic issues, oil food and energy, led by Malcolm Bruce, then managing the economic slow down, led by John McFall and international flashpoints, led by Mike Gapes. Shall we go straight into the first theme? Patrick.

Q121 Sir Patrick Cormack: Prime Minister, good morning. When you came before us last time I ended the session by asking you if you were enjoying things. Have they got better?

Mr Brown: This is the best job in the world, and it is the best job in the world because plenty of other people are wanting this job.

Q122 Sir Patrick Cormack: Tell us who they are!

Mr Brown: Perhaps I should start by paying a tribute to our colleague Gwyneth Dunwoody. I think everybody recognises that she was a great parliamentarian. That was proven by what she achieved on this committee, and I think she will be sadly missed in all parts of the House.

Q123 Sir Patrick Cormack: Thank you for that, Prime Minister. I am sure we would all echo those words, as she was a much-loved colleague. She had a zest for life: she believed in enjoying herself and she believed in sleep and she believed in holidays. We understand that you do not have much of the former and do not want much of the latter. Is that right?

Mr Brown: I get plenty of sleep, only occasionally interrupted my young children, and as far as holidays, I am looking forward to a holiday. I hope everybody else is.

Q124 Sir Patrick Cormack: I hope you will take one. Prime Minister, you made this business of constitutional reform top of your agenda, and you have stressed often enough that you really believe that Parliament should be central to the nation's affairs, but this does not really sit terribly happily with your continued support of the Government control of the parliamentary timetable and on the insistence that every bill is timetabled. How do you square that particular circle?

Mr Brown: There is a legislative programme that arises from a political party's manifesto. We have got an obligation to the people of this country. If we put forward proposals in our manifesto, if the public then vote for that manifesto, as they have, then we have a duty to move these proposals to the House of Commons.

Q125 Sir Patrick Cormack: That is okay so far as it goes, but until 1997 if a government wished to timetable a bill, it did it individually, it brought its motion to the floor of the House, it sought to justify things after there had been a long committee session. Now, immediately after the second reading, we are told what the timetable is going to be, and that is determined by the Government. That does not really fit easily with a Prime Minister that wants to put Parliament back in the centre?

Mr Brown: It is determined in the end by the consent of Parliament. I think you know that.

Q126 Sir Patrick Cormack: Come off it, with a large majority!

Mr Brown: I think over the last year we have proven that we wish Parliament to take more responsibility. We are changing the power of the Executive to declare war, we are changing the power of the Executive to request dissolution, the power over the recall of Parliament, the power to ratify international treaties, the power to keep public appointments, pre-scrutiny of those people who are holding major public offices. I think there are 60 such appointments that are going to be before the House of Commons. The power to choose bishops has been taken away from the Government, the power of appointment of judges. So I think we are proving that the Executive is capable of devolving substantial power, and I think we are reinforcing the role of Parliament in areas where for too long the Executive, through a royal prerogative, exercised power. Parliament will now have a far bigger role, and I think you would be wrong to undervalue the changes that have been announced in the last year and the changes that have been made.

Q127 Sir Patrick Cormack: The proof of the pudding, and so much of it is window-dressing---

Mr Brown: I do not accept that.

Q128 Sir Patrick Cormack: Of course you do not, but there we are. Let me move on, if I may, to Sir Alan Beith.

Mr Brown: Is it not clear that when there are major public appointments being made, previously simply made by government, now there is scrutiny by the House of Commons, that that is an improvement in the House of Commons' position? Equally, when it is matters of peace and war, the Intelligence and Security Committee's work to give Parliament more authority in this is important. Of course Parliament must prove, both through its committee system and through the work in the Chamber, that it is prepared to exercise these responsibilities in a way that commands support in the country.

Q129 Sir Patrick Cormack: I will say briefly there, you are the Executive, Parliament is not the Executive, but Parliament calls the Executive to account, and you are preventing the Executive being called fully to account if you persist with your timetable notions.

Mr Brown: I do not accept that the changes in the last year have done anything other than reinforce the power of Parliament. Whether it is in the Constitutional Renewal Bill or whether it is in the changes in the organisation of the Intelligence and Security Committee or the ways that we will determine Parliament's right to exercise its opinion on peace and war and the ratification of treaties, this is an improvement in the position of the Legislature in relation to the Executive.

Sir Patrick Cormack: We note all that, Prime Minister. Let us move on to Sir Alan, because he has some questions on those points he would like to ask.

Q130 Sir Alan Beith: Let me start, Prime Minister, with one of the things that is in the Bill, and that is the role of the Attorney General. The Attorney General combines a ministerial role with an independent one, deciding on prosecutions, giving legal advice to the Government, for which a measure of detachment is required. Why, contrary to previous practice, have you decided that the Attorney General should attend all Cabinet meetings?

Mr Brown: The Attorney General is not a member of the Cabinet. He attends Cabinet meetings.

Q131 Sir Alan Beith: In your case you have asked her to attend all Cabinet meetings.

Mr Brown: The Attorney General does so in her capacity as the legal adviser to the Government, but let me just explain, Sir Alan, what the major change is.

Q132 Sir Alan Beith: I want you to answer the question why you have asked the present Attorney General, which has not been the practice hitherto, to attend all Cabinet meetings throughout?

Mr Brown: If I may say so, the previous Attorney General did attend most meetings of the Cabinet, and I do not believe it is the case that in the last ten years the Attorney General has rarely attended the Cabinet. The Attorney General has mainly attended the Cabinet.

Q133 Sir Alan Beith: Previous attorneys (and they have given evidence to this effect) attended Cabinet meetings on request to deal with specific issues. You have told the Attorney General, and she told my committee this, that you would like her to attend all Cabinet meetings. That is a shift in the balance between the independent, legal role and the political role of the Attorney General.

Mr Brown: I do not see that as a major shift at all. I think you are drawing the wrong conclusion. She is there in her position as the legal adviser to the Government. If she is called on to give that advice, she does so, and I have invited her to attend the meetings on that basis, but previously, I think, you will find that the prior Attorney General attended the Cabinet fairly regularly.

Q134 Sir Alan Beith: One of the consequences, though, is that the Attorney General, if this persists, will be seen, even more than now, as part of the political leadership of government, and that makes it very difficult for the public to see the Attorney as acting independently over issues like stopping investigations by the Serious Fraud Office, for which in future the Attorney will have a statutory power that does not now exist under your bill, on issues like deciding whether a minister should be prosecuted, or whether the Government is open to legal proceedings. It is much more difficult to see the Attorney as independent if the Attorney is part of the very political leadership which may be in question.

Mr Brown: Again, I do not accept the presumption of your question, because we are changing the role of the Attorney General quite significantly. There is a very significant change to the status quo. The Attorney General will cease to have any power to take decisions in individual cases, except in cases related to national security. That is the big change that has been proposed and I think people should recognise that as a significant change. It would only be in cases of national security that the Attorney will have the power to take decisions.

Q135 Sir Alan Beith: Why do you not take responsibility for those decisions? After all, you are the person, not the Attorney, who knows about the national security issues and you are accountable to Parliament on national security. The Attorney General has a quite different and legal role. Are you not, again, in danger of muddling the legal and the political?

Mr Brown: If I may say so, you are starting from a presumption that the Attorney General should have nothing to do with the political system. I do not accept that. The Attorney General is still the legal adviser to the Government, but where individual cases are involved, except in the case of national security, he or she will cease to have any power to take these decisions. I think that is a major change and I do not think in your questions you are recognising it to be such as it is, and I do think that it is right that the person with the legal expertise takes these decisions.

Q136 Sir Alan Beith: You cannot avoid the fact that there has been in other cases a perceived conflict of interest, including in national security cases, and in other walks of life conflicts of interest either have to be removed or dealt with with special transparency arrangements. You are not doing that.

Mr Brown: I do not know if these microphones are working well enough, but, if I may so, the Attorney General will only intervene in cases where national security is paramount. She will have to report to Parliament when she does so. She will give an annual report to Parliament on the exercise of her power. So I think we are not only narrowing the scope for the action of the Attorney General, and strengthening, therefore, the independence of the prosecution authorities, but we are creating a system that is more transparent in the manner in which Parliament is both formed and giving an annual report on these matters. I think that is a very significant change and I hope that the committee will come to recognise it to be so.

Q137 Sir Alan Beith: Let us turn to another of your big interests in this bill, which is rights and responsibilities. If you behave irresponsibly by breaking the law, by drunk driving, for example, and you face a penalty, you lose an element of rights because you get a ban or a prison sentence. If you persistently refuse job offers, you lose benefit, but beyond that are there any responsibilities involved in not being a good citizen which will lead to loss of rights under your concept of balancing rights and responsibilities?

Mr Brown: I think you have just seen the publication in the last few days of the constitution for the National Health Service, which talks about both rights and responsibilities. If someone has a time for an appointment and then fails to take that up, then they cannot automatically be expected to be governed by the guarantees that apply to everybody else that they should have an 18-week gap between the time they go to a doctor and receiving the treatment they want. So rights and responsibilities are embedded also in the new National Health Service constitution.

Q138 Sir Alan Beith: Let us move out of the area of public service and look more generally at rights and responsibilities. If you are a bad-tempered recluse who does not get on with the neighbours and will not help at the village fête, you are not being a responsible member of society, but you are not suggesting, are you, that there are rights which people can lose because they are not good citizens as we might like them to be?

Mr Brown: I think, in the case of anti-social tenants, there are, indeed, rights that they could lose if they are bad tenants and destroy the peace or harmony, the serenity of life of their neighbours.

Q139 Sir Alan Beith: Those are crimes or legally defined forms of anti-social behaviour, are they not?

Mr Brown: Yes, they tend to be set down in the legislation, but, again, I am talking to you about how we have gradually moved towards a situation where we do talk about the responsibilities that people have that they have to exercise as good citizens.

Sir Alan Beith: Is not the danger in all this that you dress up what is really, in the end, preaching about how we would like people to behave, and there is nothing wrong with that, I am the last person to complain about preaching---

Sir Patrick Cormack: He does it all the time!

Q140 Sir Alan Beith: ---but it is confusing, giving guidance on how we would like people to live and how society is improved if people behave responsibly towards each other and confusing that with rights that cannot be taken away and can be enforced. If you cannot enforce responsibilities, what are they doing packaged up with rights?

Mr Brown: In some cases you can enforce responsibilities - that is what I am referring to - whether it is the Health Service patient who abuses the goodwill of the Service by refusing to turn up for appointments that they have made, or whether it is the anti-social tenant that you have referred to who refuses to be a good neighbour and disrupts the life of their neighbour---

Q141 Sir Alan Beith: I said a bad-tempered neighbour.

Mr Brown: ---then it is right for us to insist that these responsibilities be enforced by them being penalised in one way or another.

Q142 Sir Alan Beith: I did not say bad tenant, I said the bad-tempered neighbour who just does not get on with people and does not do very much in society?

Mr Brown: There are ways of describing that behaviour, but when that behaviour becomes in an extreme form, really hurting the whole neighbourhood, action should be taken.

Sir Patrick Cormack: I would like to move on to my very good neighbour. Yesterday you were somewhat perplexed as to how he should be rewarded. He has been rewarded by being given the opportunity to ask you some questions today.

Q143 Keith Vaz: I do not know whether that is being short-changed!

Mr Brown: He is not, however, sending me letters on this occasion!

Q144 Keith Vaz: I want to ask you about your counter-terrorism proposals. Some have argued quite strongly that the proposals that have been put forward by the Government will affect the constitutional settlement of this country, because for the first time Parliament and the Home Secretary will be asked to be involved in a judicial process once it has begun. What is your answer to that?

Mr Brown: I do not accept that. The Home Secretary would come to the House with the support of the Director of Public Prosecutions and the police and say, "A terrorist incident has occurred. It is of a grave and exceptional nature and, on that basis, she wishes to trigger the commencement order for the legislation." It is as straightforward as that. She is not involving herself in the action on the individual case, which is a matter for the courts and a matter for the police in relation to the courts, but she is telling the House that there is a grave and exceptional terrorist incident.

Q145 Keith Vaz: But do you not feel that the safeguards that the Government has put in place are not going to be sufficient in order to guarantee that constitutional settlement?

Mr Brown: No, I think the safeguards are sufficient. I believe the safeguards, by the way, for the individual are sufficient because the worry had been, when we put forward the proposal for up to 90 days, that essentially people were arguing that you would put someone in a cell and throw the keys away. That is not the case. In the case of going beyond 28 days, not only has the action to be approved by the Director of Public Prosecutions and by the police, but there has to be an independent legal opinion put before the House of Commons, she has to inform the Chairman of the Human Rights Committee and yourself, as Chairman of the Home Affairs Committee, and the Intelligence and Security Committee, she has to come before the House, obviously, and get the approval of the House for nominating this incident as exceptional and grave. At the same time, the independent reviewer is brought into play. He has got to look at the individual case, not generally report on the work of this Act, and every seven days that person has to come before a judge. So the protection for the individual is there. The Home Secretary will be very careful not to go beyond what is stated in the Act.

Q146 Keith Vaz: Liberty have made it very clear, and they were in discussions with you during the progress of the legislation, that they feel that the compensation arrangements announced by the Home Secretary are totally unworkable. Are they legally sound?

Mr Brown: The Home Secretary has said she will bring before the House proposals about compensation. You have got to remember that the argument that we had with the organisation Liberty was that they wished to use the Civil Contingencies Act in these circumstances, and they would have wanted us to come before the House and declare what was effectively a state of emergency that gave powers far greater than we were asking for in the Anti-terrorism Act. These powers would have concluded preventative detention as well as the detention that we are talking about, and these powers, in my view, would have given the oxygen of publicity to terrorists so that an individual terrorist incident would be leading to, effectively, a state of emergency in a way that would give massive publicity to a terrorist organisation.

Q147 Keith Vaz: Prime Minister, with hindsight, you are going to amend the Civil Contingencies Act anyway with these proposals. Why did not the Government, right at the start of this process, decide that that was the best way forward, to amend the Civil Contingencies Act, rather than to bring these other goals to the fore?

Mr Brown: Because, if I may say, the Civil Contingencies Act contains a whole range of other powers and a whole range of other circumstances in which the civil contingency measures can be triggered. We were dealing specifically with terrorism and only terrorism. We were dealing, not simply with a terrorist incident, but with a grave and exceptional set of terrorist incidents. This is a power that will be rarely used, but it is a power that I wanted us to have without having to declare a state of emergency and give the oxygen of publicity to terrorists and a power that was in place long before we had the sort of terrorist incident that would trigger it. I do not want to have to come to the House and say that a terrorist incident has occurred that is of such a nature that we need to trigger greater powers than we have at the moment. To do this in a period of calm where we could have a reflection on what has happened was by far the best way of doing it.

Q148 Keith Vaz: We have heard those arguments put forward, but you put yourself forward, quite rightly, as the Prime Minister of the whole nation. The fact is that these measures will disproportionately affect members of one community, the Muslim community. Is that not the case?

Mr Brown: I do not accept that either. I think the support for these measures in the Muslim communities will be as high as the support in other communities. The reasons is that they too want protection against both terrorist incidents and the action of individual terrorists; and I do not usually go through these things, but I believe from what I can see, there is a large amount of support right across the nation for these proposals, and I was actually sorry that we could not achieve an all-party consensus on these proposals. I tried very hard to get that consensus, and so did the Home Secretary. We approached the other parties, we talked to organisations like Liberty and, in my view, what separated us was not sufficient to have justified the major attempt to destroy the legislation.

Q149 Keith Vaz: You only got your legislation through by nine votes. Is it the case that you authorised or offered any backbench member of Parliament a peerage or a knighthood, even the governorship of Bermuda, in order to vote for your legislation?

Mr Brown: Not at all. Nor do I recall sending any letters to anyone.

Q150 Keith Vaz: What about the Ulster Unionists? Did you offer them anything?

Mr Brown: I think the criticism of the DUP has been totally misplaced. If there was any party in the House of Commons that knows what terrorism can do and what is its impact on our society it is the Ulster Unionists, and many members of that party have suffered themselves, or their families, at the hands terrorism, and I think those parties that are criticising the DUP should instead be listening to what they say about how terrorism can cause such damaging and deleterious effects.

Keith Vaz: Thank you Prime Minister.

Q151 Sir Patrick Cormack: I am sure that will strike a chord with Northern Ireland. Last year, in those giddy days in June when you were forming your ministry of all the talents, you decided Parliament did not have quite everybody you wanted and so you looked outside. Those appointments that you made, Lord Digby Jones, Lord West, et cetera, how have they worked out? What is your report on their year's progress?

Mr Brown: I think the performance of these ministers has been excellent, and I think they have done a very good job for the country. Digby Jones, of course, spends a great deal of time going round the world making sure that our trade relations with so many of the countries with whom we want to have good relations are, indeed, very good. Admiral West is doing an excellent job in security. Mark Malloch Brown is just back from the work that he has done with the African Union in trying to make sure that we have a better outcome in Zimbabwe and has been much involved in what is happening in Burma, and I think people have seen the benefits of Lord Darzi's report only in the last few days.

Q152 Sir Patrick Cormack: So three cheers for the House of Lords.

Mr Brown: I think those people who can be brought into the Government to support the executive responsibilities that governments have got to discharge and can bring a wealth of experience from the outside world are to be welcomed.

Q153 Sir Patrick Cormack: I could not agree more, and, therefore, is it not a good thing if you have got somewhere to put them?

Mr Brown: That is the position at the moment. There are other ways, of course, by which you can add to your government.

Q154 Sir Patrick Cormack: As that is the position at the moment, I do not want to get bogged down whether we should finally have an elected House or anything like that, but as for the foreseeable future, Prime Minister, even Mr Straw would agree that we have what we have; would it not make sense to deal with some of the anomalies at that end of the corridor? I have raised this with you before and you gave a half-hearted reception, but you did not totally dismiss it. What about dealing with the things in Lord Steel's Bill, bringing to an end the absurd by-elections for hereditary peers? What about having a statutory appointments commission, which would fit in well with the other things you boasted about earlier today? What about these things? Why not give this Bill a fair wind in the next session?

Mr Brown: There are proposals about to come from the Government on the promise that we made when the House of Commons voted on the reform of the House of Lords, and some of the things that you mentioned will be part of these proposals. I do not think it is for me to presume what is going to be published quite soon, but we are aware of both the Steel proposals about the statutory appointments and about by-elections and so on, but we are also aware that we have got to honour our promise to the House of Commons that we will bring forward proposals about the reform of the House of Lord based on the decisions and the votes of the House of Commons at the time.

Q155 Sir Patrick Cormack: You do know, of course, do you not, that when those votes took place, the majority of your own party voted against 80:20, the majority of the Conservative parliamentary party voted against 80:20 and what gave a good majority, with 100 per cent elected, was the tactical vote of the Labour members who wanted to throw a spanner in the works and did not want any elected members at all, and you know that to be the case as well as I do. So, building this White Paper on this fiction is a bit daft, is it not?

Mr Brown: I do not think so. We have got to honour the promise that we made at the time. There is going to be a lengthy debate about the future of the House of Lords. There always has been. We did say we would bring forward proposals in our election manifesto. Let us see what these proposals lead to in terms of the debate that takes place in the country. I am aware that there are immediate issues that might be able to be addressed, but I am also aware that we have got a responsibility to honour the votes of the House of Commons.

Sir Patrick Cormack: May I bring in Dr Tony Wright?

Q156 Dr Wright: Thank you very much. I am one of those who do welcome the Constitutional Renewal Bill, not least because some of us were involved in some of the ingredients of it. Could I follow Sir Patrick and just ask about the House of Lords? I actually voted for more time than is good for me, thinking about House of Lords reform. When I hear again that we are going to do this after the next election on the basis of consensus, I have great doubts about it. What I do know is that there are things that we could do now. We issued a report after the "cash for peerages" affair, saying there are things we could do now, and we could do it without legislation, just to clean up the place. After ten years of progressive government, we have still got a raft of hereditary peers. Why do we not just do a bit of cleaning up and at least do what we can do now?

Mr Brown: I have said before that the House of Lords should be both accountable and it should not remove the primacy of the House of Commons in so many different areas. As far as these individual changes that you are talking about are concerned, I think you have got to wait until we put forward our proposals in the next period of time and then let us have the debate about what we can and what we cannot do immediately to make sure that the democratic process works better. I have a great deal of sympathy with your proposal about the hereditary peers, but let us see how we can move these things forward. As you know, the reason why people talk about consensus is that proposals need normally to get through both the House of Commons and the House of Lords.

Q157 Dr Wright: Your predecessor was not keen on elections to the Lords; he was in favour of an appointed House. I do not quite understand what your sense of the balance between election and appointment should be?

Mr Brown: As you may know, I voted for the 80 per cent myself. I think there are very good arguments in the modern world for those chambers that have responsibility for legislation and the ultimate power with the House of Commons to decide what is legislated in our country and have a very substantially elected element, but I am also aware that we have got to deal with this other issue, and that is that the House of Commons, in my view, should have primacy.

Q158 Dr Wright: People quite like the idea of a cross-party non-party element in the House of Lords, do they not?

Mr Brown: Yes, but I think you will find that the House of Lords can be pretty political as well.

Q159 Dr Wright: Let me ask you a couple of different things. There is a lot of talk at the moment about the English question. Do you think there is an English question?

Mr Brown: I think you are dealing with a constitution in the United Kingdom where 85 per cent of the population, 85 per cent of the representations in the House of Commons, the representatives, are from one country: England. So the pressure in recent years has been for special arrangements that can guarantee the position of the minorities. That is why the pressure for devolution arose in Scotland and then in Wales, and that is why, of course, for nearly 90 years we have tried to find the best way of governing in a democratic way in Northern Ireland. In a constitution where 85 per cent of the population come from one country and a very small number, eight or nine percent, from another, five from another, three from another, the pressure has always been, I think, in recent years, to find a position that would protect, reflect and give attention to the rights of minorities. Now, of course, we have got devolution in Scotland, we have got a Scottish Parliament, we have got devolution in Wales, we have got the Welsh Assembly, devolution is working in Northern Ireland with, as you will know, the policing justice issues still to be dealt with in a second stage of devolution, but it is working, and I think people see it as a success. People will then look at what is the position of those people in England in a United Kingdom Parliament. One of the ways that we have sought to deal with that issue is to enhance the power of the regions of England, and therefore you have got regional ministers now that we did not have before and these proposals for regional committees in the House of Commons that will give greater voice to the English regions, particularly so when you have regional offices of government. As far as the issue of voting in the House of Commons itself on what is seen as English legislation, first of all a lot of the legislation that is seen to be simply English has repercussions for the rest of the United Kingdom, so that has got to be understood. Secondly, English votes for English laws would, in my view, in the end, split the United Kingdom; it would divide the United Kingdom fundamentally. So if we are looking for better solutions for the future, having recognised the rights of the minorities, having seen that there are issues affecting England, I think we have got to look for solutions in a way that is not along the headline: English votes for English laws. I think that would inevitably mean for the Executive to have to draw its power from both the United Kingdom representatives and from the English representative, and that would be an unstable situation. I think you would probably agree with that.

Dr Wright: I would have hoped you would have said that we might take a serious look at the governance of England after devolution to see what devolution now means for England, and I would urge you to do that. We have just had the new Equality Bill, which I think we all welcome. You mentioned the word "prerogative" earlier on. It seems to have an exemption for the Royal Family. We have still a royal family which manages to practise religious discrimination and gender discrimination, and there was some suggestion that this might be covered by the Equality Bill, but it does not seem to have been.

Q160 Sir Patrick Cormack: Thank God it is not!

Mr Brown: I think you will find in relation to these issues, both succession and other related issues, that the support for change has got to be wider than the United Kingdom Parliament for change to actually happen. The Queen is not simply the Queen of the United Kingdom, she is queen of many of the Commonwealth countries. I think any changes would have to be discussed at a far wider level than simply the United Kingdom Parliament before you could get agreement.

Sir Patrick Cormack: Thank you very much for that, Prime Minister. Could I now bring in Edward Leigh, who I know would like to ask a particular question?

Q161 Mr Leigh: I want to ask a couple of supplementaries arising from what Mr Vaz and Sir Patrick asked you. Mr Vaz asked you if any inducements had been given to the Democratic Ulster Unionists, and you quite correctly enumerated their personal experience of terrorism, but I want to ask you a direct question: there were absolutely no discussions about anything with the DUP except the merits or otherwise of the 42-day legislation? You just have to give a yes or no answer.

Mr Brown: Yes, and there was a great deal of discussion, including about the security issues.

Q162 Mr Leigh: There was no discussion about any other issue apart from the 42 days? You have to say yes or no.

Mr Brown: We were discussing the 42 days.

Q163 Mr Leigh: Only, you were only discussing the 42 days?

Mr Brown: We were producing security information. That is absolutely right. We were discussing the issue on its merits, and I think you do a great disservice to many members of this House of Commons if you suggest otherwise.

Q164 Mr Leigh: I just wanted to get that absolutely clear. Thank you. In relation to what Sir Patrick was asking you about the powers of Parliament, obviously there are shifting sands in the economy and we do not know how long you are going to be there. What do you want to leave as your legacy in terms of constitutional renewal and the powers of Parliament? Do you think that the powers of this Parliament are relatively weak compared to the Executive? Here you are surrounded by chairmen of select committees. Do you think that you would like to move gradually to a system where, for instance, the Defence Committee have the same sort of powers eventually as the Armed Services Committee and Congress? I know it is a long step, but what are your views on this?

Mr Brown: I want a new set-up in Britain where we strengthen the role of the individual citizen through the power that Parliament has to represent their interests, and I feel that by changing the royal prerogative and by making many of the other changes that we are talking about, including a bill of rights and responsibilities and a statement of values, we move our country more thoroughly into the modern world. Removing all these areas where the royal prerogative has been exercised in the past is only the first stage, the discussion of the bill of rights and responsibilities is a further stage, and I have always left open the question that this could lead to a discussion in our country of a written constitution at some stage.

Q165 Mr Leigh: I was specifically asking you about the powers of the select committees. Obviously our audit system is very good in this country. The scrutiny of the Budget is weaker, we know that. You have been Chancellor of the Exchequer for ten years. The Finance Committee has very little time to discuss these amendments. Do you think we could learn from other jurisdictions about how we could create a more powerful budget committee that actually could look at spending plans, with your experience as Prime Minister?

Mr Brown: I think traditionally in Britain, partly because of what happened with the Budget in the early years of the twentieth century when the Budget was rejected by the House of Lords, the Government's ability to get its budget through has been seen as a very major issue about the credibility of the Government itself. So the Budget in Britain has been seen quite differently from budgets in many other countries. I think the House of Commons itself could do more, and members could do more, if they wish to scrutinise both the expenditure and the finance measures of government, and I do not think there is anything preventing the House of Commons taking a bigger interest in these matters. You are Chairman of the Public Accounts Committee. We have here the Chairman of the Treasury Select Committee. I have always thought that it is possible for more investigations to be done, for more information to be provided, and I have tried to make that possible when I was Chancellor and will try to make that possible in future, but the more information that is out there in the open the better.

Sir Patrick Cormack: Sir Alan has one more question to ask you.

Q166 Sir Alan Beith: How can a constitutional renewal bill meet the ambitions which you have quite rightly set for it, despite all the useful things in it, if it does not address the centralisation of power, fixed-term parliaments, the electoral system, all of those issues, which would, if altered, change the real balance between the Executive and the Legislature?

Mr Brown: I think it depends what you think is absolutely crucial to the future of our constitution. Surely what is crucial to the future of our constitution is that the individual citizen feels more empowered, and we are bringing forward proposals in the next few weeks with a local government reform that will give the individual citizen far more power to petition, far more power to question, far more powers of recall in relation to many of the issues that affect their lives, and then the second issue is the powers of Parliament itself. I do not think the powers of the House of Commons in particular start and end with whether there is a fixed-term parliament or whether there is electoral reform. These are two of the issues, but these are not the major issues. I think the changes we are making about the declaration of war, the dissolution of Parliament, the recall of Parliament, the ratification of international treaties are very important issues.

Q167 Sir Patrick Cormack: Prime Minister, we do know all that. We are moving to the end of this session. I would like to ask you one final question on the constitution. There was a little bit of argy-bargy between you and the former leader or the Labour Party in Scotland over whether there should or should not be a referendum and whether it should be brought on or put off. Where do stand on that?

Mr Brown: In terms of that, there was no wish on the part of the Scottish Parliament at that time to bring forward a bill for a referendum.

Q168 Sir Patrick Cormack: Where do you stand?

Mr Brown: We have set up the Carman Commission. I do not know if you know the details of that. Professor Carman is chairing the Commission.

Q169 Sir Patrick Cormack: I am sure he is, but where do you stand?

Mr Brown: Hold on. It involves all the major parties. They are looking at the outcome of the devolution arrangements over these past few years in Scotland. They will make a report. If they make far-reaching proposals, we will then have to look at them in the context of what support you have for the public do so, but I think we should wait until we see the Carman Report.

Q170 Sir Patrick Cormack: So you are not prepared to give an opinion at the moment.

Mr Brown: I think you have got to wait see whether the Carman Report recommends major changes, which in the original Scottish Parliament was voted through by a referendum of the Scottish people that was organised by the United Kingdom Parliament, but let us wait and see what the Carman proposals suggest.

Sir Patrick Cormack: Thank you very much.

Chairman: We now move to the second theme, global economic issues. Malcolm Bruce.

Q171 Malcolm Bruce: Thank you very much, Chairman. Prime Minister, the Treasury published a document a couple of weeks ago on commodity prices and their implications. There is one bald statement that says, "High commodity prices negatively affect the popularity of governments", which is something you have experienced. Prime Minister, you are rather fond of lists. Can I put some lists to you? Forty years ago the population of the world was three billion. It is currently 6.7 billion and it is predicted to be 9.1 billion by 2050. The World Bank says that we will need to increase grain production by 50 per cent by 2030 and the International Energy Association says we need to increase oil production by 30.5 billion barrels a day (that is 15 North Seas) by 2030. In those circumstances, first of all, is there anything we should be doing to try and level off the world population, or do we just have to accept it as a given? Do you not think, in this situation, that there is a real possibility that in a generation the world could actually run out of oil and food to meet the needs and aspirations of the population of the world?

Mr Brown: Let us put this in context. You are absolutely right about the population rises, but in the last ten years we have had two of the great benefits of globalisation, which have been cheap consumer prices for goods like electronics and clothes, and we have had low interest rates as a result of the low inflation that has come out of low manufacturing prices from China and elsewhere. We are now seeing the two difficulties. That is the massive restructuring that is taking place in the world economy, a shift of power to Asia is obviously happening and there is pressure on resources. Some people have called it resource nationalism. There is pressure on food, pressure on oil, pressure on commodities, and I think we have got to deal with these as global problems that now require global solutions, and although we can do a great deal in the United Kingdom, and other countries can do so, to deal with the costs of energy or to deal with the problem of food shortages, in the end these are global problems that require global action. If you take, first of all, food, it is pretty clear to me that there is a food shortage, the worst for 30 years; it is pretty clear also that we will need to increase food production. One of the great tragedies of our time is that Africa is a net importer of food when it could actually be a net producer, or exporter, of food. At this time the worst thing we could do is to cut the support to developing countries, preventing them from developing their agricultural systems, and we will have to make progress on the removal of the food subsidies in what is a very protected market.

Q172 Malcolm Bruce: I was going to say, Prime Minister, your document, the Treasury's document, seems to me to say that just by applying international co-operation and market forces will bring supply and demand into balance and that is fine. Do you not accept it is an underlying pressure that cannot ultimately be delivered on an ever rising scale unless we find other ways to deal with it?

Mr Brown: I think that is absolutely true. When I talk about oil - you mentioned the IEA's proposals about oil - I think it is reducing our dependence on oil that makes the environmental imperative about climate change come together with an economic imperative, which is that we must reduce the world's dependence on this one fuel, or oil and gas if we put them both together. In Britain's case we will soon be 80 per cent dependent for gas imports on other countries, and that is not a situation we want to be in. It is ultimately a decision about, first of all, nuclear power, secondly about renewables and how we can expand renewables and, thirdly, about greater energy efficiency, and the agenda, which is an economic as well as environmental agenda, for the world is now very clear indeed. We have a once in a generation opportunity to reduce our dependence on oil and we will have to take big strategic decisions, and these include decisions that other countries as well as us, because we have made these decisions about nuclear energy, have got to make decisions about the stimulation of renewables. We will soon become the world's biggest off-shore wind producers, as a result of the decisions that we made in the North Sea, and we will have to make decisions about energy efficiency, and that is about cars and it is about the efficiency of the use of energy in households. These are three major changes that arise from what we see both round the world and the rising oil price itself.

Q173 Malcolm Bruce: We had a once-in-a-generation opportunity to get out of oil dependency in the 1970s and we did not do it.

Mr Brown: We did reduce our dependence on oil, but not sufficiently, and there are signs in America and in Europe that the usage of oil will be reduced, but we are dealing with a massive expansion in demand for oil from China, from India and from Asia. China has got about 37 million cars at the moment. Every year another 10 billion, or so, cars are being bought for Chinese roads. They are building 100 airports at the moment, they are building 1,000 cities, so the demand for oil from them and from the oil producers, because a very substantial amount of the oil that is being produced at the moment is being consumed with subsidies in either China or India or in the oil-producing countries, and it is one of the most protected markets and it has got to be opened up.

Q174 Malcolm Bruce: Can I move you on to food. One of the reasons why food prices are rising is the rising living standards of, for example, the Chinese and the Indians. They are actually having a better diet.

Mr Brown: Which is itself a good thing.

Q175 Malcolm Bruce: That is a good thing, but Bob Zoellick, the President of the World Bank, has stated that the increase in food prices has put between 73 and 105 million people back into poverty this year, wiping out all of the aid and development that the world has delivered over the last seven years. Is not the reality that the rising living standards of the Chinese and the Indians is actually increasing poverty in other parts of the world?

Mr Brown: That is why I would go to the G8 with a proposal that we increase the support for agricultural production in developing countries, that all the G8 and other countries are prepared to help the Africans particularly but other countries invest in increasing both the production and the productivity of their agriculture where, of course, the ability to use fertilizers and other means by which productivity is improved has been limited. In other words, we need another new green revolution in the developing countries to enable them to produce what they will need for the future, but that will cost money and I think it is important to recognise that this will be the wrong time to cut aid to developing countries, even though we are in difficult circumstances ourselves, and so are the other industrialised countries, because of the rise in oil and food prices. It would be in the short-term and long-term a huge mistake to cut that aid.

Malcolm Bruce: You know I would agree with you on that, Prime Minister.

Q176 Michael Connarty: Welcome, Prime Minister. Can I turn to international organisations, which I know you have been very involved in trying to direct and encourage over the last period? Specifically for the EU, I wonder, not philosophically but in reality, in terms of action, what the UK expect the European Union to do. It does appear to me, it has been said that the people in the developed world complain when food prices rise but that people in the poor parts of the world starve. We seem to have in the EU a greedy, selfish club in the reactions that have come recently to the limited efforts made by the trade commissioner to reorganise the arrangements worldwide. There is criticism from aid organisations about the limited changes to the CAP arrangements, but what we have had is a reaction from the EU of selfishness. Can we really look for anything from the EU other than protectionism, this new economic patriotism, it is called, in the face of what are internationally devastating changes to food prices?

Mr Brown: I am happy to join you in criticism of the Common Agricultural Policy, which we along with some other countries want to change fundamentally, but I do not think you should fail to recognise that the European Union is the world's leader in development aid, not selfish, but the leader in development aid, that we are the leader in climate change reform, pressing the rest of the world to take the action that is necessary for a sustainable environment.

Q177 Michael Connarty: In the last year?

Mr Brown: In the last year, and the European Union is also leading in seeking a trade deal. The problems of the trade deal are not those created by the European Union, which is prepared to reduce its tariffs, but we must persuade the other continents to take the action which is commensurate with it, and so at the moment we need to get a deal with the Brazilians and with the South American and Latin American group of countries about the aid that they give to the manufacturing industry. We need to cement what are the proposals from the Americans about reducing agricultural subsidies and, of course, we need to be sure that we are helping the developing countries, because it is a development round that we are proposing for trade. I have said we are a few minutes before midnight. If we cannot get a trade deal in the next few weeks, I think it may elude us for many, many months if not longer and it may, indeed, be a trade deal that, if we cannot get, suggests that these multilateral trade deals are not going to be easy at all to get in the future. So there is a great responsibility on the shoulders of the G8 when it meets next week. There are then the ministerial talks that are taking place on 21 July organised by the world trade negotiation of Pascal Lamy, and I think we have got to show, in a world that is becoming increasingly protectionist, as you rightly say, that we are capable of standing up to that and showing that the world is, on a multilateral basis, capable of reaching an agreement on trade.

Q178 Michael Connarty: Unfortunately, my understanding and perception of the EU over the last ten years is that we have failed to do that, we have failed to get the CAP properly reformed and (?) abolished, and it is very difficult to go elsewhere and say, "You should bring down your trade barriers", when in fact we have clearly done a deal that leaves them in place within the EU?

Mr Brown: Can I say on that, very briefly, that the European Union is offering to reduce its tariffs very substantially indeed, and I think that the European Union has shown itself willing to agree a trade deal and we must get that trade deal over the next few weeks.

Q179 Michael Connarty: And for doing so you get attacked by the French President.

Mr Brown: I think it is important to recognise that the EU negotiating position is one that the whole European Union has supported.

Q180 Michael Connarty: It does seem that everyone is looking for popular selfishness to get votes. It worries me that, in fact, we are not willing to take on the big issues and say we really have to do something unique in the developed countries, particularly in the EU, half a billion people who are quite well off in the privileged world, particularly in our very advanced economies. We do not seem to be willing to do that because it is all about the voting side.

Mr Brown: The worst thing that could happen in this particular period is that the world resorts to an old form of protectionism, and there is a danger, yes, of protectionist sentiment rising. It is rising because people can see the losses from globalisation and are not appreciating the gains. People see their jobs being lost as a result of the big transfer of manufacturing strength in which about a million jobs a year are going from America, Europe and Japan to the developing and emerging market economies, and people are, therefore, worried about the cost of living. What they are not appreciating, of course, is that they are able to buy cheaper consumer goods as a result of that, that our economies are capable of adapting and developing high value added goods and services, that we are actually capable of competing in an open global economy, but it has got to be an inclusive economy. In other words we have got to make sure that we take care of the needs of people who are being forced to make big changes.

Q181 Michael Connarty: Tell me specifically about biofuels in the EU. The recommendation of the European Environment Agency Scientific Committee is that the ten per cent target which has been set should be abandoned, in fact, because of its effect on food prices. Do you think the UK should be pushing the EU to focus on sustainable biofuels, for example, using sugar rather than the general biofuels policy it has at the moment?

Mr Brown: I think this debate has veered from over-optimistic predictions about what biofuels can achieve and now very pessimistic views of the damage that biofuels are doing to basic food production without actually making for better environmentally sensitive products. I think probably in the end we will get to a better equilibrium in this debate, that there are good biofuels and there are bad biofuels, which is the implication of your question. We will be publishing very soon the Gallagher Report on biofuels. We have looked at the scientific evidence, or the review has, very carefully. It will make its recommendations, and on that basis we will approach the European Union with our proposals for any changes that are necessary in policy. I think it is really important, as your question implies, to look at the scientific evidence.

Q182 Michael Connarty: Can I turn to the wider economic institutions. We referred generally to the Bretton Woods Institutions, but I have been in discussion with people who are interested in development aid and growth, and they say the World Bank, the IMF and the body which later became the World Trade Organisation were established in 1944. Are they equipped really to deal with the commodity price problems and the changes in the world that we now face, or do we need a new Bretton Woods, which has been talked about in the context of the twenty-first century?

Mr Brown: I think you are absolutely right. We are part of a group of the Commonwealth countries as well as part of a discussion in the European Union about major reform of the international institutions. I think we found with the financial crisis, the credit crunch, that we have got no proper early warning system about issues of financial stability for the world economy. We have got the Financial Stability Forum, which we actually played a part in setting up, but I think the International Monetary Fund, which used to deal with balance of payments crises that countries had in what were basically sheltered economies, has got to change for the new global economy; so we need that early warning system, we need to be better at dealing with issues of financial stability at a global level. You have national regulators, but you have global capital markets you need to change. I think the World Bank has got to change fundamentally. It has got to be able to deal not just with the problems of poverty but the problems of the environment and climate change, and if we are to get an agreement at Copenhagen on climate change which would cut emissions substantially, then there is no way that the poorest countries in the world, the emerging markets or the developing countries in the world can finance the climate change changes that are needed without substantial injections of finance, whether in loan finance or grant finance, and you will need a body with the size and capacity of the World Bank to be able to guarantee that there are flows of money for the investment needed in alternative sources of energy. I also think, as far as the United Nations are concerned, that we will see over time, whether it be Burma or Zimbabwe or before that Darfur or Rawanda or countries in the eastern part of Europe around the break up of Yugoslavia, we will need better ways of establishing stability, reconstruction as well as peacekeeping and humanitarian aid, and we do not have the international organisations that can help us by moving into countries on request with civil society as well as military people that can help reconstruct these societies when they are failed states or failing states.

Malcolm Bruce: I wonder if we could turn to the domestic impact of rising fuel prices.

Q183 Peter Luff: Prime Minister, I was very glad to hear you say earlier on that we are not at the mercy of world events entirely when it comes to energy, you said there is a great deal in the UK to do with rising energy prices. Let us look at what the British Government can do in respect of energy, security, cleanliness and affordability. The first thing we can probably do is make sure the European markets are properly liberalised. I do not mean progress in respect of electricity, but the wholesale gas market is a scandal. Should you not be spending your time persuading our European colleagues to liberalise their gas markets rather than giving lectures to the King of Saudi Arabia about how he should invest his money?

Mr Brown: I was not actually giving lectures to anybody about how they should invest their money. I am trying to find away that, instead of a conflict of interest between oil producers and oil consumers, we can find whether there is a common interest in us working together to reduce our dependence on oil. You are absolutely right that we want to see greater progress in the liberalisation of gas, electricity and energy markets in Europe. There was progress made at the June European Council, but there is a lot more to do and the single market has over time to become a reality in all areas.

Q184 Peter Luff: You have been saying this for years, Prime Minister, and there is progress---

Mr Brown: There is progress.

Q185 Peter Luff: ---but wholesale gas markets in Europe are still desperately illiquid, and that has huge consequences for British consumers, domestic and industrial.

Mr Brown: Yes, and one of things that we have tried to do of course is to increase competition in these markets, but at the same time, I am telling you today, we want to reduce our dependence on oil and gas and there are ways that we can make domestic decisions about nuclear energy and renewables to do so, and that is where the environmental agenda and the economic imperatives of our times come together.

Q186 Peter Luff: Well, I agree with you about that and that is what I want to ask you next in fact. The 2003 White Paper on Energy was really disappointing. Really, it relegated nuclear power to two paragraphs, it said very little about carbon capture and storage and virtually nothing about gas storage, so that means that here we are five years on, we are still talking about building nuclear power stations and actually we are not much further forward ---

Mr Brown: I do not accept that.

Q187 Peter Luff: Well, five years on and we still have not got any sign of a starting point.

Mr Brown: I do not accept that. The issue is, first of all, are we going to replace existing nuclear power stations as they themselves reach the end of their lives, and that is the decision that we made and, secondly, will we need to do more, and that is a decision that we are looking at. I just have to say that we are leading the debate around the world about the expansion of nuclear energy. Sixteen out of 27 of the European countries are now either expanding their existing nuclear energy or considering it, or considering having nuclear power for the first time, so we are leading this debate and will continue to do so.

Q188 Peter Luff: But, if we had been there five years ago, as we could and should have been, we would not be where we are now, we would not be facing the loss of electricity supplies in a few years' time and we would not be facing competition for the skills and resources to build those nuclear power stations.

Mr Brown: I just do not accept that. I think the right time to make decisions about nuclear power is as we look to replace existing nuclear power stations, and of course there is the debate now about whether we should go even further than that and whether we should have more of our electricity supplied by nuclear, but I think we have actually led the world and other countries still have not followed. Italy announced a few weeks ago that it was going to do something about nuclear, and we have been debating this and making decisions on this in the last few months. Over the last year, not with all-party support, I may say, not with all-party support, we have made a decision on nuclear, we have made a decision on the planning system that will allow us to speed up the development of these new energy sources and we have made big decisions also about housing and big decisions about infrastructure, so we are trying to make the long-term decisions that are essential for our country.

Q189 Peter Luff: You will understand that I do not accept the point about all-party support. I think my Party's policies on nuclear power are more robust than yours and I think the planning policies you have brought out have sacrificed democracy unnecessarily to achieve an objective which is not secure. I think national policy statements on their own would have done it, we do not need such a planning regime, but, never mind, that is the difference between us.

Mr Brown: I just do not accept that. A national policy statement on its own will not deliver the result that is necessary; you will still have six-and-a-half-year planning inquiries or seven-year planning inquiries ----

Q190 Peter Luff: No, that is not true, Prime Minister.

Mr Brown: We had to have a way of speeding it up.

Q191 Peter Luff: That is not true. If you look at Sizewell B, it was overwhelmingly dominated by national issues and, if you take them out, you can address local issues properly, but, never mind, let us move on. Gas supplies ----

Mr Brown: I think it is probably better for you if you do move on!

Q192 Peter Luff: I think you are on very weak ground there, Prime Minister.

Mr Brown: I do not think so.

Q193 Peter Luff: What about gas storage? We have a fraction of European gas storage levels and that means that our industrial consumers, in particular, suffer very real levels of price volatility as they try to plan their businesses forward.

Mr Brown: You probably know, and perhaps it is not really the best time to go into it in detail, but we are discussing the very substantial changes in how we can guarantee the supply of gas to this country in the future, and there will be announcements made soon.

Q194 Peter Luff: But again, if we knew this was happening ten years ago, this should have happened much sooner.

Mr Brown: The truth is that for the last 30 years we have had oil and gas from the North Sea. That has provided a very substantial amount of the energy needs of this country. As the North Sea oil and gas runs down, as it is running down, we are making alternative arrangements. We have led the way on nuclear, and I just remind you that your Party was against nuclear, we have led the way on renewables, we have led the way ----

Q195 Peter Luff: Prime Minister, we have never, ever been against nuclear power.

Mr Brown: ---- we have led the way on renewables and we have now published last week our proposals for dealing with the renewables issue. We are now about to become the world leader in the amount of offshore wind power, basically using the North Sea, which was used for oil, for wind power as well, so we are moving forward with that agenda, and, I agree with you, it is necessary to move quickly on this agenda to reduce our dependence on oil and gas.

Q196 Peter Luff: Well, we could debate nuclear power at greater length, but we will not now. Just one last question on energy efficiency: quite understandably, you have targeted a lot of your assistance on the vulnerable pensioners who have experienced very real price increases which they cannot tolerate as a result of rising fuel prices worldwide, but you do not seem to do quite so much for other vulnerable households, particularly those with young disabled people in them, for example. In that context, after years of welcome increases in the Budgets for the Warm Front Programme, why are you planning over the next three years to significantly cut support for the Warm Front Programme?

Mr Brown: I think you will find that we have just signed an arrangement with the utility companies that will help exactly the low-income households that you are talking about, particularly those that use meters. Up to now, about £50 million has been made available by the utility companies for this. The arrangement is that it rises to £100 million and £150 million and that is money that will go directly to low-income families. As far as Warm Front is concerned and measures to improve the insulation, the draught-proofing and the energy efficiency of homes, we are doing more than we used to do and I think you will find that we will be doing even more after further announcements later.

Q197 Peter Luff: Well, the announcement you made on 30 June, in a written answer, showed you were cutting the budget over the next three years. That is 30 June, the parliamentary answer I have here, so that answer is inaccurate, is it?

Mr Brown: I think you will find that in times like this, where the need for greater energy efficiency through insulation and draught-proofing can both save energy and cut the bills of households, there will be further measures that will be announced soon.

Q198 Malcolm Bruce: Just before we move on to the effect on transport, you have mentioned the North Sea, Prime Minister, and not only did you go to Saudi Arabia and encourage them to increase production, but you met oil companies in Aberdeenshire to have a similar discussion. We are currently still 90 per cent self-sufficient in oil and 70 per cent self-sufficient in gas and the estimate is that there is probably as much oil to be got out of the North Sea as we have yet produced, so can you tell us what you are prepared to do to ensure that we maximise the production from our own resources for oil and gas in the UK and, if I may make a local point, what you will do to support the infrastructure on the ground that is necessary to enable the companies to deliver that degree of extra oil and gas resources from the UK rather than from Saudi Arabia?

Mr Brown: It is true to say that some estimates suggest we have only taken half the oil from the North Sea that is available and, therefore, there is a considerable amount of resource there. The difficulty is we are moving to a new stage of exploration and development where you are dealing with small fields, you are dealing with difficult-to-recover oil and you are dealing with the West Shetlands, so there are three specific types of problem that have got to be dealt with. That is why we are looking at the incentives for exploration and development and we will bring forward proposals, if we think it is right to do so, and that is why the activity in the North Sea has tended to move from the big majors to smaller companies who are more willing to spend their energies developing particular fields that are more difficult for extraction and demand special expertise.

Q199 Malcolm Bruce: Those are the ones who could do with the unexpected tax changes that you imposed upon them in the past.

Mr Brown: Well, we have given, as you know, special tax incentives for exploration for these particular types of companies and we will look at what we can do. There is this other issue about existing fields where we have only extracted about 40 or 50 per cent of the oil, but it is harder to get to the rest of the oil and we are going to look at that as well, so these are the three problems, the small fields, hard-to-extract oil in big fields and the West Shetland activity, and we are looking at all of these things.

Q200 Mrs Ellman: The price of oil has now reached over $145 per barrel, petrol is 118.9p per litre and diesel, the second-highest in Europe, is 132.3p per litre. What specific work have you commissioned to look at the impact of these ever-rising prices on the economy and on businesses?

Mr Brown: Well, we have not only looked at the impact, but we have, for the time being, frozen petrol duty.

Q201 Mrs Ellman: No, no, I am asking you what work have you commissioned to look at the impact of this on businesses and on the economy?

Mr Brown: Well, we are looking at that everyday. When you look at the effect that the price of oil has on other consumer spending, when you look at the effect that the price of gas and electricity has on the household bill and then of course when you look at the effect it has on industry generally, these are studies that we are doing everyday, and rightly so, but I was answering about what we have actually tried to do to alleviate some of the problems. We have frozen petrol duty most years since 2000 and we froze it in the Budget and, at the same time ----

Q202 Mrs Ellman: No, I want to know where you are identifying the specific problems that have arisen from this situation and then how you are addressing them. If you had to look at the specific areas, not what you have done in the past or what you have not done in the past, where are the problems now?

Mr Brown: But, if you are asking me about the source of these problems, it is essentially that demand exceeds supply. That is the essential problem that has got to be dealt with in a rising population and of course the rising prosperity of some people in different parts of the world, like Asia. If demand exceeds supply, and it is likely to exceed supply for years to come, then people will expect the oil price to rise.

Q203 Mrs Ellman: No, what I want you to answer, Prime Minister, is: where are the specific problems in the economy here now, which particular groups of people are being affected the most and what are you going to do about it?

Mr Brown: Well, obviously those people, households, who are on the lowest incomes are hit most when food and energy are a very high proportion of the money that they have to spend. That is why we have taken action with the Winter Allowance to raise it yet again for elderly people and that is why I was referring to the deal that we have done with the utility companies, that they will give more help to low-income households, especially those who are paying higher costs for their energy than many other people because of the way that they consume energy, and we are always determined to do what we can to help those who might be people who suffer from fuel poverty.

Q204 Mrs Ellman: So this is something you are looking at all the time?

Mr Brown: Indeed, and will continue to do so and, if we can take measures that will help people cut their energy bills by using energy more efficiently or finding a way that we can help them cut the consumption of energy, we will do so.

Q205 Mrs Ellman: One of the key questions for the moment of course is whether you are going to increase fuel tax duty, as you have said you will. Now, the Treasury are saying that the matter will be considered in the autumn and the decision will be taken based on economic and social factors. What are those factors?

Mr Brown: Well, I think exactly the same factors that have led us to previous decisions. You have got to be conscious of what is happening to the oil price itself, what then is the effect on the cost of diesel and petrol and the impact that that is going to have on the economy as a whole. I think you will find in most years since 2000 that the duty has actually been frozen.

Q206 Mrs Ellman: In view of what you know now, are you going to increase fuel duty or is it better that you say now that you are not going to?

Mr Brown: I can say now that that is a decision for the Chancellor and he will make his decision in due course.

Q207 Mrs Ellman: Are you seriously saying, Prime Minister, that the Chancellor will take that decision in isolation from the Prime Minister?

Mr Brown: Not at all, but the Chancellor will take the decision looking at all these factors that I have just told you are borne in mind, and I think it is right, having frozen duty in April, that he has time to review the situation and then make his announcement before the time at which duty will go up.

Q208 Mrs Ellman: Based on what you know now, will you be putting it that it should be increased?

Mr Brown: I am not going to make a forecast, but it is clearly a matter that will be looked at very, very carefully over the next few weeks.

Q209 Mrs Ellman: The Government have said that the policy on fuel taxes is to do with addressing the external costs of pollution and to fund public services. Is that still the Government's policy?

Mr Brown: One of the problems about the whole energy market around the world is the subsidies in China, Asia and in the oil-producing countries, so you have a very unbalanced market where people can buy oil without knowing the real cost of it economically. We also have to take into account the cost to the environment and that is one of the reasons why successive governments have wanted to look at the cost of fuel in relation to its effect on the environment.

Q210 Mrs Ellman: Yes, but is what you said at the time of the Budget, that fuel taxes are to be based on the external costs of pollution and to fund public services, still government policy in the light of current developments and current public concern?

Mr Brown: Well, of course these are some of the issues that will be taken into account when the decision is made and it is right to look at the effect of oil consumption on pollution and it is also right to look at the balance of taxes as they affect our ability to provide public services.

Q211 Mrs Ellman: One of the other concerns is to do with the increasing numbers of Continental vehicles, haulage vehicles, coming into the UK and, according to the Freight Transport Association, the costs of foreign lorries working in the UK are actually 10 to 15 per cent less than UK-based operators working in the UK. Now, decisions have been taken in Europe which mean there will be increasing numbers of Continental hauliers working in this country. In view of that, why did the Government state that they were not going to go ahead with the vignette scheme so that those hauliers could help to pay for the costs of using the roads here?

Mr Brown: The problem about that scheme is that the capital costs of introducing the new proposals were so great that it would have cost us more to introduce the proposals than the amount of money it raised. As far as Continental hauliers are concerned, I think you have also got to look at the fact that there are higher VAT rates in these countries, there are higher social insurance payments in these countries and there are higher taxes in these countries, so I think you have got to balance that off against the costs of fuel.

Q212 Mrs Ellman: So, when the Freight Transport Association make this statement, are you saying that that is wrong?

Mr Brown: We have had lengthy discussions over time and there has been previously a transport forum when these issues are looked at and I would very much like for the Department for Transport to have talks with those people concerned about the freight industry and hauliers generally, but I think you will find that the Continental costs of operating, particularly from many of the countries from which they come, are, in VAT, social insurance and general taxation, higher than they are in Britain and that is balanced off against the costs of fuel.

Q213 Mrs Ellman: When you say that the study that the Department for Transport commissioned on introducing the vignette scheme in relation to hauliers would cost more than the amount of money it would save, over what timescale?

Mr Brown: Well, it would take a very long time for it to pay back the costs of the initial investment in it.

Q214 Mrs Ellman: How long?

Mr Brown: Well, I cannot remember the exact details. I dealt with that when I was in the Treasury about two years ago, if I remember rightly, and I am very happy to send the Committee the figures, but it was a very expensive capital cost to introduce the scheme in the first place.

Q215 Mrs Ellman: But, in view of the current situation and the current disquiet, do you not feel that is something you should revisit?

Mr Brown: Well, it is obviously something we would continue to look at, but I think we have got to be aware of the very big costs of introducing the scheme in the first place.

Q216 Mrs Ellman: But do you not think you should look at the benefits and at the anger that there is now in the absence of a scheme or an equivalent and, if you are not going to have such a scheme, why is there not something else?

Mr Brown: Well, I think there has been discussion on other possibilities and I do say that the debate and the dialogue between the freight industry, the hauliers and the Government about these issues should continue, and I would be very happy to make sure that it is expedited.

Q217 Michael Connarty: One thing which has not been covered, Prime Minister, when I was at the last meeting with members of the UK oil and gas industry, their chief executive said that "the Prime Minister and Chancellor are sitting on a big, fat windfall from production tax from the North Sea". Why is it not going to be used to relieve some of the problems that you have been discussing in the past 30 minutes?

Mr Brown: I was trying to explain yesterday in the House of Commons that essentially, when you have higher costs for oil, it is true that, if you have North Sea production delivering oil and you tax it, there is additional revenue, although production in the North Sea has not been increasing. However, that is offset, when oil prices are high, by the fact that people spend less on other things and, therefore, VAT revenues go down, people spend less on property as a result of some of the things that are happening in the economy and your stamp duty receipts go down and companies tend, with a few exceptions, to make less profits and, therefore, your corporate tax receipts go down, so the effect of a rise in the price of oil is that it affects the rest of the economy in such a way that you usually have lower receipts overall than you have higher receipts and that is the impact of high oil prices.

Malcolm Bruce: Thank you, Prime Minister. You can see that oil and food prices are not going to go away and your political challenges will intensify. Thank you.

Chairman: We now move on to managing the economic slow-down. John McFall?

Q218 John McFall: On the theme of oil, Prime Minister, can I add that it is reported that both presidential candidates in the US say that action is needed to rein in speculators in the oil market. If so, what action are you taking? I would remind you of what Joe Lieberman said when he said that they are a "significant contributing factor to the economic distress now being felt by American consumers every time they stand in the grocery store checkout line or pay for a fill-up at the gas pump". Lieberman is very close to McCain, and Obama has also made these points. What are you going to do about the speculators?

Mr Brown: Well, we are looking at this, the Treasury is looking at this and the Financial Services Authority is looking at this, just as the US authorities are looking at it and the European Union, so, if there were any market manipulation, it would be exposed and we would take action.

Q219 John McFall: But, Chancellor[sic], the Financial Services Authority are not looking at it yet. I had Lord Adair Turner before my Committee yesterday, the incoming Chairman, and I pointed out to him that the Americans are saying at the moment that there is a 'London loophole' in oil futures market trading and artificially boosted prices, and indeed the Commodity Futures Trading Commission, the chief futures regulator, imposed limits on the US last week on the size of speculative positions that could be taken on the London futures market, so there is a real problem here. I am going to have an inquiry in a couple of weeks, one session, on that, but we really need some action because it was reported that there is $260 billion of speculative money in the oil futures market.

Mr Brown: I have looked at that, I know what you are talking about and there are these inquiries going on, but I would say to you that, in an oil market where demand exceeds supply today and tomorrow and people expect it to exceed supply next year and for a few years afterwards, that is the primary reason why the price is going up. We have got to have measures that both make more efficient the use of oil itself so that you can actually reduce consumption where it is possible to do so and increase supply from other sources by reducing the dependence on oil, so you cannot put down to speculation the whole of the problem that we are dealing with at the moment; there is greater demand than there is supply and that is why we have got to take economic action to deal with that.

Q220 John McFall: I understand, Prime Minister, but let me take an example. You went to Saudi Arabia when they increased their output, but the next day the price of oil went up, so, to the ordinary person's perception, what is the score?

Mr Brown: Well, what happened on that particular day was that the Nigerian oil production was interrupted by violence and I think they lost 10 per cent of their oil production, so you are dealing with difficult oil production prices around the world, in this case Nigeria, but it could be any other place where something is happening that has gone wrong. The real problem that we have got to deal with, and this is why the debate is bigger than simply about oil, is that in the foreseeable future demand will exceed supply unless we can take very big measures to deal both with our dependence on oil and with the efficient use of oil. That is why I say that we have got to deal with the nuclear issue, we have got to deal with the renewables issue and we have got to deal with, if you like, making the use of oil more efficient by the way we deal with the future production of cars as well as household consumption.

Q221 John McFall: Chancellor[sic], I understand that, but underlying my question is the theme of fairness here. The ordinary person will think, "Well, what's fair about this?" If the market is there, it has got to work properly and it does not seem to me as if it is working properly.

Mr Brown: But the oil market, if I may say so, does not work properly, first of all, because you have got an organisation called OPEC which actually tries to set the production limits on oil and it is one of the most sheltered markets in the world. It is a great irony that the two areas where we have got the greatest inflation, food and oil, are the two biggest protected markets in the world where we need demand and supply to work better.

Q222 John McFall: Okay, Prime Minister, what I would say to that then is, if that is the case, let us try and do something about it and be seen to be doing something about it. That is the issue here. Talking of unfairness, both you and the Chancellor have stressed continued wage restraint on pay for both the public and the private sector, yet in the private sector in the past few weeks we have seen the Shell tanker drivers having a two-year settlement of 14 per cent, Babcock Engineering, for example, having 7.6 per cent for its 500 workers and Barclays Bank announcing a 5 per cent increase for its 55,000 employees as the first leg of a three-year RPI deal. What realistically can you do to ensure that wage restraint in the private sector is held back beyond making more speeches?

Mr Brown: I just say that we have now signed three-year public sector pay deals with nearly 1.75 million public sector workers, the teachers at 2.45, 2.3, 2.3, the nurses at figures that are just around that, doctors at 2.2 per cent, workers in the Inland Revenue and workers in the Department of Work and Pensions, so we have nearly two million workers covered by three-year pay deals. If I may say so, I hope that Members of Parliament today will recognise that the settlements in the public sector for these key workers have been around 2.3, 2.4 and 2.5 when they vote on this year's pay in the House of Commons this afternoon. As far as private sector pay is concerned, just to answer your question, total earnings growth in the public sector and the private sector is roughly the same, it is about 3.8 per cent at the moment, and I think it is a very important thing to remember that in Britain historically we had a huge inflation problem because of two parts of it. One is that we allowed inflation too easily to creep back into the system, and the second is that we then had on top of that the wages spiral and that actually gave Britain the big inflation problem we had in the past. It is very much in the interests of everybody in the country that we avoid what is an internationally generated problem of inflation, everybody knows it comes from oil prices and food prices around the world, we avoid it becoming also a wages problem in the future and that is why we are taking the action that we are taking.

Q223 John McFall: Chancellor[sic], I will come on to that inflation thing in a minute, but on this issue of the public sector, Brendan Barber has stated just recently that asking low-paid and average earners in the private or public sector jobs to make sacrifices when there is little sign of restraint from those at the top who continue to enjoy lavish bonuses, and he was talking about the City bonuses, and ONS statistics show that in 2005 it was £5 billion and last year, even though we have got this credit crunch, it was almost £14 billion, surely that breaches any test of fairness, and Brendan Barber has got a really serious point here to make?

Mr Brown: Well, there has got to be restraint in the private sector as well ----

Q224 John McFall: There has got to be fairness.

Mr Brown: ---- and there has got to be fairness at the top as well as at the low-paid end of the spectrum. We have in our public sector pay settlements, particularly the nurses and Health Service settlement, given more money to the low-paid, so they have a higher level of earnings. We have in the Army, for example, given the lowest-paid last year a 9 per cent pay rise, so we are trying, both with the minimum wage rising and with help to particular groups of low-paid workers, to do more and the Tax Credit was specifically introduced to help low-paid workers get a minimum income guarantee and not just a minimum wage guarantee, but you are right, that at the top of British business people have got to accept their responsibilities as well, that, in the interests of the country, we have got to keep inflation low.

Q225 John McFall: Yes, but we need not just words, but actions, Prime Minister, and it does not seem as if that is particularly happening at the moment. You talk about inflation. The Governor sent a letter to the Chancellor on 16 June in which he made the point eloquently that the inflation we are experiencing now is imported, and he mentioned that world agricultural prices have been up by 60 per cent, oil prices have been up by 80 per cent and wholesale gas prices have been up by 160 per cent in the past year. Given that is the case, do you not think that the Government must have the courage to be honest with the public and explain that, in the short term at least, take-home pay and living standards are going to be squeezed as a result of inflationary pressures in the global economy? If you are not up-front and honest in explaining that, then that message is not going to get across to people and indeed we will get back to the 1970s inflation when it ripped and we will not get the genie back in the bottle.

Mr Brown: I understand the pressures that people face and I am very concerned about the impact that the petrol pump and the high petrol price has on people's ability to afford to meet their weekly costs. I am concerned when people go to the supermarket, because of the international rise in food prices, that people are being squeezed there as well and feeling the pinch, and I am concerned about gas and electricity bills. We are trying to take action in each of these areas to help hard-pressed consumers and one of the actions we have taken is in response to the controversy over the ten pence tax rate. We have extended the amount of money we are injecting in the economy so that 22 million people get the benefit of the £2.7 billion rise in money injected in the economy, and it is roughly about £120 for most people in the country, so that is one way we are trying to help people alleviate their bills. The task at the moment is to keep the economy moving forward. I believe the British economy is far more resilient than it was facing the last two oil shocks and facing some of the problems we had when there was a world downturn in the early 1990s, but our task in keeping the economy moving forward is to make sure that we retain and maintain the levels of public investment so that we can help the construction industry and to do something to help people who are hard-pressed homeowners, and you have seen the measures that we are taking to buy up some of the houses that are unsold in the market at the moment and the measure we are also taking to help people with their gas and electricity bills, and these are the things that we can do both in the short term and of course the action we are taking in the medium term to reduce the dependence of this country on what has been the fastest-rising product, and that is oil.

John McFall: On the ten pence tax issue, I am very pleased to see that you have taken on board the wise counsel of the Treasury Select Committee's Report, to think about it at the weekend, so that is a good start. Terry, on poverty?

Q226 Mr Rooney: I hope the wise counsel of the Work and Pensions Select Committee on child poverty is the same story. Prime Minister, you will be aware that, after some good progress in the last couple of years, the figures on child poverty have somewhat stalled, and there are some very welcome measures in this year's Budget, but part of this agenda has to be getting more people, particularly lone parents, into work. In the benefits system, you have income disregards ranging from £5 a week to £95 a week, depending on the individual benefit. Do you not think it is time to align some of these so that the disregards become incentives to try and work rather than barriers, as they often are?

Mr Brown: You are absolutely right, one of the biggest challenges is getting lone parents with children better chances of getting jobs that will give them a decent standard of income. We have got about 300,000 lone parents back to work. I think when we came into power, the figure was about 45 per cent and I think it is over 55 per cent now, but we want to get towards 70 per cent of lone parents with young children getting the chance to work. We are changing the rules about the expectations we have of single parents to take a job so that, after a certain age when the child is at school or in nursery accommodation, we will give opportunities for training and then opportunities for work. You are right, that we have given disregards, but we have also given bonuses for people who go into work so, if in London you go into work as a lone parent, you will get a certain amount of extra money per week and in the rest of the country you get extra money as well, and we will look at what you say about bringing the disregards and the allowances together, but there are very substantial incentives now for lone parents either to work part-time or full-time, and I hope many more will take up that opportunity.

Q227 Mr Rooney: The Treasury is leading reviews on both childcare and housing benefit and, I have to say, the analysis that they have done on the current issues is quite superb. When do you expect those to report and when do you expect action to be taken on what they come up with?

Mr Brown: Well, we are looking at how we can improve the welfare system in many different ways at the moment. On housing benefit, we are looking at how we can make it easier for people to return to work when, in other circumstances, they may lose housing benefit, how we can make sure that their income is secure. On incapacity benefit, we are making proposals about how we can help people go back into work more quickly by giving them extra support to get either training or advice that will enable them to come off incapacity benefit and go into work, so in each of these areas incapacity benefit is very, very difficult because you are dealing with a whole range of problems. You are dealing with some people who are drug-dependent and some people who are alcohol-dependent, so we have got to look at special measures to deal with them. You are dealing with some people who, if they could get a particular type of job, could more easily come off incapacity benefit, so we have got to get the training to allow them to change career or to change the skill they have to get them jobs, but a lot of work is going into these pathways into work.

Q228 Mr Rooney: A major issue in addressing and tackling poverty, not least in-work poverty, is the equal pay gap. It is almost 40 years since the equal pay legislation and we are still significantly away, particularly for those working part-time. The Equalities Bill, which was published last week, was, shall I say, fairly weak on taking action in the private sector. Can we expect to see that toughened up because, if we have truly got equal pay, that would eliminate most of the child poverty that we have?

Mr Brown: Some of the cases that now arise on equal pay are actually public sector cases that we are having to deal with which have built up over a long period of time, and a lot of the issue is about how different types of work are valued as equivalent and equal and a great deal of work has got to be done on that, but, I agree, we should continue to monitor what is happening in the private sector as well.

Q229 Mr Rooney: Just finally from me, it is now 60 years since the first legislation enacting Beveridge. There has been a plethora of rules and regulations that make it an extremely complex system. Do you not think it is time for a 2008 Beveridge, for a new welfare commission to look at exactly what we want from the welfare system, what we want it to do, the rights and responsibilities agenda and how government interacts with the State?

Mr Brown: I applaud the work of your Committee and the reports that you make. Basically, the problem about unemployment, particularly, has changed over these years. The biggest barrier to full employment in our country now is not the lack of jobs, it is the lack of skills. It is that young people and others do not have the skills that we need for the particular jobs that we are undertaking. There are six million workers in this country who are classified as unskilled. A large number of these unskilled jobs will not be needed in ten years from now and we have got to persuade those people who do not have the skills to get the skills that are necessary for the jobs that are available, and that is one of the big changes that I think has got to be brought about. When you talk about rights and responsibilities, I would say that the responsibility on the part of the unemployed person is not only to seek work, but to make sure that they seek a skill which will enable them to get a job, and we have a right, therefore, to require people to undergo the skills training that is necessary for them to get a job in return for them receiving support from the State when they are unemployed, and that, I think, will be one of the biggest changes in the welfare system. In all other situations, people have looked at unemployment as a lack of jobs for people to go to, but now, I am afraid, one of the issues we have got to deal with is the lack of skills that people have for the jobs that are available. There are still 600,000 vacancies at least in this economy at the moment and we need people with the skills to take them up.

Q230 Mr Rooney: But again there are perverse barriers and disincentives in the benefits system to people actually trying to improve their employability.

Mr Brown: That is right, and your Committee has looked at this, and we have always got to look at what are the barriers that are preventing people getting back into work or what are the disincentives in the system. Housing benefit has been a big issue. The costs of travel to work, the costs of training itself, the costs of childcare, these are big issues for people who are making big decisions about what work they do and whether they are going to travel further than the immediate vicinity to get a job that is available.

Q231 Mr Yeo: Prime Minister, picking up on your earlier answer to the Chair of the Transport Committee, is it the case that you are proud of the fact that, during your ten years as Chancellor, the rate of duty on petrol and diesel fell in real terms?

Mr Brown: We have got to look at the situation on the ground. For the first few years it rose very substantially and then we had to look at the overall cost of energy itself and, where oil prices are very high themselves, they exercise an effect on demand, so it is the overall price that people pay for the good, not simply the tax rate, that makes the difference.

Q232 Mr Yeo: But, during that decade, our understanding of climate change and the urgency and the scale of the threat that it poses grew substantially. Oil prices were substantially below the levels they have reached in the last 18 months and emissions from road transport were also rising, so was it a sensible policy to reduce the rate of tax on fuel in real terms?

Mr Brown: I think you have got to look at all the factors that the Chairman of the Transport Committee was raising when she gave me the initial statement about what she wanted to see happen. You have got to look at the overall economic environment, you have got to look at what is the overall price of energy itself as well as look at the tax rate, and that is what we had to do, particularly after 2000.

Q233 Mr Yeo: During the decade you were at the Treasury, we had a benign international economic background, we had an expanding British economy and we had a period of relatively modest oil prices. If you were afraid even to maintain in real terms the level of tax on fuel against that background, do we have to assume, now that there is a more difficult economic prospect and much higher oil prices, that there is no chance at all that you are going to use the tax system to encourage consumers to make greener choices?

Mr Brown: I think I should put this in its perspective. During these last ten years, we introduced the Climate Change Levy on business and we also reformed vehicle excise duty substantially, and I applaud the articles that you have written on this in the last day or two, so it was not simply fuel duty on petrol and on diesel. There were an enormous number of reforms that we have made to take account of the climate change issues both in relation to transport and in relation to the environment as a whole, and I think the reform of environmental taxes over these last ten years has been significant. We led the way in the Climate Change Levy, we have led the way in emissions trading, we are leading the way in trying to create a carbon market in this country, a carbon market that can serve the rest of the world, and, as you yourself have acknowledged, our VED reforms are to reward the least-polluting cars and to tax more the most-polluting cars.

Q234 Mr Yeo: Just on the Climate Change Levy, you made a speech to the United Nations Ambassador two years ago in which you referred to the fact that the proceeds from the Climate Change Levy are hypothecated to reduce business taxes and to fund low-carbon technology. If you accept that hypothecation was a good idea in relation to the Climate Change Levy, why does Britain continue to resist the EU's suggestion that the auction proceeds from the sale of permits under the EU Emissions Trading System cannot be hypothecated in the same way perhaps for example, to fund research into carbon capture and storage?

Mr Brown: Well, we are actually trying to do that research already and, as you know, on environmental research we have set up the Environmental Technologies Institute as well as seeking to win the support of other countries for what is a very big investment in carbon capture and storage. As far as the Climate Change Levy was concerned, we looked at this with business, we looked at this together and we decided that the Climate Change Levy could move business towards more environmentally friendly behaviour and, therefore, in return for that, we could reduce their National Insurance, but also of course we could put proceeds to the Carbon Trust, which is doing an enormous amount of very good work in reducing carbon emissions. I think you have got to look at these issues individually. I think the general principle of hypothecation would carry some difficulties, but I think there are specific instances where, for example, when you are looking with business at a particular issue, you can do it.

Q235 Mr Yeo: With your vast and perhaps unique experience at the Treasury, would you agree that a green tax, if it is properly defined, is one which is introduced to change behaviour rather than primarily to raise revenue?

Mr Brown: Absolutely, we are trying to change behaviour, but you have got to bear in mind, as the Chairman of the Transport Committee said quoting the Chancellor, that one reason for taxation, perhaps the only reason for taxation, is to fund your public services, and you are trying to make sure that you are able, in the public services you undertake, also to undertake environmentally sensitive work.

Q236 Mr Yeo: You commissioned Lord Stern to look at the economics of climate change. Do you share his view that early action to tackle climate change is going to be cheaper and far more cost-effective than action in ten or possibly even in five years' time?

Mr Brown: Well, I think all of us in this Committee do. I think both of us do and that is why we commissioned Stern. We have tried to take action quickly on some of the recommendations of Stern, but, you know, one of Stern's main proposals is that you have got to build a global consensus so that what is done in one country is not offset by action by another country that actually harms the environment, so the process leading to Copenhagen is going to be very important. We have got to bring in all the emitters into this dialogue and then, as I said in answer to Malcolm Bruce, I think you have also got to find a means by which you can help finance the environmentally friendly behaviour that we want to see undertaken by developing countries in emerging markets who will find it cheaper to build coal-fired power stations everywhere or to use other high-carbon sources and who have got to be persuaded by incentives and money that is available to build alternative energy in their own countries.

Q237 Mr Yeo: Do you think that Britain's role in helping to build that consensus, which, you say, is necessary, is going to be helped if we are seen to be a country where a coal-fired power station is built before we have viable carbon capture and storage, where we are increasing runway capacity for domestic flights instead of investing in railways, as France has done and Spain is doing, if we are a country where standards of energy efficiency in buildings remain far behind some other EU countries? Do you not think the fact that our domestic record is decidedly patchy is going to reduce our influence in the international negotiations?

Mr Brown: I disagree with you entirely. We are investing substantially in the railways and that is why there are more people using the railways now than at any time for many years, and the number of passengers using public transport is growing substantially. We are investing in the carbon-free home and we have announced that we will build carbon-free homes and we will give fiscal incentives to do so. Also, I think you must have seen last week's paper by John Hutton on renewables. We are investing heavily in alternative sources of energy and one of the things we are trying to do is persuade other countries to form a global energy technologies institute so that the work that we are doing, and are about to do, in our Energy Technologies Institute to look for alternative sources of energy can be mirrored by what happens in other countries. I think you have got to accept, despite the criticisms you make, that we are a world leader in looking for alternative sources of energy, nuclear, renewables, we are a world leader in some of the sources of alternative energy and we are a world leader, and want to be an even bigger world leader, in the research for alternative sources for the future. As for public transport, I do not think any government has invested more in both railways and buses and alternatives to the car in public transport than this Government.

Q238 Mr Yeo: Do you agree that climate change is the most urgent problem now facing mankind?

Mr Brown: I think it is one of the great challenges of our time. We have at the moment, as a world, to come to terms with the fundamental changes that are taking place in our economy and in the shift of economic power that is happening and to make sure that people are not impoverished by that, and we have at the same time, and many of the solutions are similar, to reduce our dependence on fossil fuels so that we can have a sustainable environment. I would say that the challenge of global change at the moment is not only to have free and open markets and the flexibility that is necessary, but to make it both inclusive and sustainable.

Q239 John McFall: On that point, Chancellor[sic], and the green taxes, the existing air passenger duty regime has an exemption for passengers on transfer flights within the UK, but, under the proposals for the new 'per plane' duty, that exemption will be removed. What that means at a stroke, Chancellor[sic], is that UK passengers - sorry, Prime Minister. It is after ten years when he was Chancellor!

Mr Brown: He has asked me these questions for ten years as Chairman of the Treasury Committee!

Q240 John McFall: Exactly. What is happening, Prime Minister, is that UK passengers will save significant amounts of tax by using non-UK hubs, such as breaking long-haul flights from the UK in Amsterdam. For example, if I were flying from Glasgow to Mumbai through London, I would have to pay three times and it would cost me £60, but, if I chose to go via Amsterdam, I would pay once and it would cost £10. Now, that does not make sense at all in terms of a green taxation. Further, commercial delivery companies, like FedEx and DHL, they will be paying the new tax on freight-only flights in contrast to the exemption from the existing APD. What that will mean, Chancellor[sic[, sorry, Prime Minister ----

Mr Brown: I think this is a question for the Chancellor!

Q241 John McFall: ---- is that they will have the opportunity to go to Amsterdam, pay nothing and take their goods then by road further cluttering up the roads, so something really needs to be done about this policy.

Mr Brown: Well, I think part of the measures maybe are for consultation and no doubt the Chancellor will listen to your representations on that matter. I do not think anybody would deny, however, that the decision of a previous government and our Government, that air passenger duty has to be paid and it has got to be paid fairly, is the right decision if we are going to assess the cost to climate change of air travel, and I know there are many representations about that, but I think the duty that is levied generally is the right duty.

Q242 John McFall: But there is a big international issue here because I am informed that the US Embassy has formally notified the UK Government of its significant policy and legal concerns that the UK Government could possibly be breaching the 1944 Chicago Convention.

Mr Brown: Well, these are matters that will have to be looked at. I have not seen this particular item

John McFall: Thank you, Prime Minister.

Q243 Mr Sheerman: This summer, there are a lot of vulnerable and fearful people out there in our country who can blame the situation they are in on what even the Financial Times can suggest is an incompetent, reckless and downright greedy banking system in our country. What they see is that the position they are in is down to these people that have served them badly. What do you think about that sort of view?

Mr Brown: I think the off-balance-sheet activities of some banks that have caused many of the problems that we have got and the write-offs that are now taking place is something that should never have happened. We need a regulatory system that can pick up more information when firms are using off-balance-sheet methods for financing some of their activities, and the unfortunate thing is that we are talking about probably £400-800 billion of monies, mainly in America, that have been off balance sheet and are now being brought on balance sheet and causing a huge amount of difficulty, so there are reforms to the financial system that are necessary. One is that the transparency of balance sheets so that these off-balance-sheet activities cannot be recorded in the way that they were before and they have got to be on balance sheet. The credit rating agencies have got to do a better job, and that is one of the issues that is before us. I would say also that, where there are to be write-offs, they should happen now because what we cannot have is a situation where, months from now, people have not disclosed write-offs that they know have got to take place now, and I think these measures have got to be taken by the financial system. I think what is also revealed is that you have national regulators that do not have all the information about international companies that are operating in many continents and you are going to have to have a better system of global financial supervision. In many cases, we are dealing with a situation where national supervisors have been outgrown by global financial flows, so we need a better system of supervision at a global level.

Q244 Mr Sheerman: But, Prime Minister, these people are in a mess now and the banks that got them in the mess in the first place are making it even worse because they are not lending to anyone. They are not lending to small businesses, they are not lending to people who want to get a home and they are not lending to each other, so it is a crisis for them now and they want something and they see you and your Government, our Government, as the people that should do something about it. Many of the experts say that, if you do not act soon, if our Government does not act soon, the banking and financial crisis will deepen this summer and we need urgent action. What urgent action are we going to give them?

Mr Brown: Our aim is to keep the economy moving forward. That is why the Bank of England injected £50 billion into the markets only a few weeks ago, so action has already been taken to improve the flow of money. That is why we are taking action in the housing market itself and we have announced that we will buy many unsold properties in the market to enable the housing market to move forward, and we are looking at other measures by which we can help mortgage finance so that, in a situation in Britain where there is demand for housing, we can actually find a way that the market and the financial markets can satisfy that demand. We are aware also that consumers are under pressure and that is why 22 million will get a tax cut, that is why we have raised the Winter Allowance, that is why we have got the low-income support for fuel bills and that is why we are trying to move forward with (?) as well, so we are doing things.

Q245 Mr Sheerman: I accept that. I accept that there is some action going on, some really important action going on, but many of my constituents will say, "Is it enough?" Can I just press you on one thing which you brought up earlier about the Leitch Report and how we do not need any longer very many unskilled people in our economy. Is it not time that we had a total moratorium on immigration into this country that is unskilled? It is stoking up real problems. Whether they come from the Indian Sub-Continent or whether they come from Albania or Romania or anywhere else, unskilled people coming here without the English language are going to be a real problem for the future of our country, so is it not time we acted even more firmly than we have?

Mr Brown: Well, as you know, we have introduced the new points system and the points system means that unskilled workers coming from countries outside the European Union who are not needed by our economy will not be welcomed into this country, so the points system deals with exactly the problem that you have raised. Where there are skilled workers that can contribute to the economy, we will, under the points system, allow them in. Where they have no skills to offer, they will not be allowed in. As far as Europe is concerned, we took special measures for Romania and Bulgaria and we will continue to monitor that situation.

Chairman: We now move to the final theme, international flashpoints. Mike Gapes?

Q246 Mike Gapes: Prime Minister, there has been a great deal of debate recently about what the international community or individual countries can do where there are problems, humanitarian problems or political problems, in different parts of the world and the words of the United Nations General Assembly Resolution in 2005 where national authorities manifestly failed to protect their populations. We have some specific questions about particular countries, but can I just begin by asking you what you understand by the responsibility to protect?

Mr Brown: Well, the responsibility to protect, as you know, is a principle adopted by the United Nations in circumstances where there are humanitarian issues, ethnic cleansing and where there is genocide and it is incumbent on the international community to act. It has also got to take into account that it is a just cause, that we operate on the right intention, that it is a last resort, that any action is proportional and that it must have reasonable prospects of achieving that goal. I think the biggest problem we face actually is that we do not have the means by which we can take the action that you would want to see, so whether it was Rwanda or whether it was Darfur, we do not have, beyond the number of peace-keepers and the humanitarian aid that we can provide, the means at the moment by which the international community can offer the help for stability and reconstruction that you are talking about. I think we need the UN to be reformed in such a way that, in addition to humanitarian help and the 100,000 peace-keepers there are, there is a civil society presence, that you have police, you have judges, you have people that can offer their skills to help reconstruct failed states in a way that would mean that your humanitarian aid could lead to the satisfactory restoration of civil order and a civil society in these countries.

Q247 Mike Gapes: But in the meantime before we get that reform of the international institutions and the strengthening of the United Nations - and many people have been trying for many years to achieve that - we have to deal with the United Nations system as it is today. What do you do if you are not able to get Security Council resolution and the international community collectively to act? What can we do in this country, what can the Europeans do in cases for example like Burma where you were quoted in an interview to the BBC World Service in May where you said: "... we have to get the agreement of the international community. And it has been difficult to get all countries to agree to a common approach ..." What do we do when we do not get that common approach?

Mr Brown: There are some cases, as you know, where that has happened in Eastern Europe or in Africa where unilaterally we will provide the support that we can. There are some cases where we will act as the European Union to take the action that is necessary. There are some cases where we will act with other allies to make sure that we can do the right thing. However, that is less preferable than getting agreement at the United Nations. I suppose when you were talking about responsibility to protect, we should reform the peace-keeping system so that there are regional peace-keepers (for example the African Union can do more) and we do need this post-conflict response facility that is not good enough at the moment even when the will is there.

Q248 Mike Gapes: But there are people internationally who are saying that we are never going to get the Chinese or the Russians to agree in the Security Council so we are not going to get the international legitimacy and therefore there is an idea going around - and Senator John McCain has taken it up - of a so-called "League of Democracies". Does our Government have an attitude to that? What do you think about that suggestion? Would it be helpful or would it actually undermine the United Nations?

Mr Brown: I think the United Nations should be reformed and I think we should try and get an agreement about reform. I do believe that there is more will to make these reforms than might be suggested by your question. The Security Council itself in the end will have to be reformed to be more representative. At the same time if we could agree on the purpose of action by the United Nations before we talk about who is going to do what under certain circumstances and which countries have got the votes, I think we could get quite far. We did reform humanitarian aid and we have done quite a lot about peace-keeping. There are now 100,000 peace-keepers, as I say, which is a very substantial number bigger than at any time I think in the history of the world. However, you have got to go further on these reforms and I think talking to Commonwealth countries, to China, to India, to the Americans and the Europeans, there is the potential to reach agreement on many of these reforms, and I think we should be pushing this quite hard over the next year.

Q249 Mike Gapes: So you are not inclined to go along with this idea of a League of Democracies?

Mr Brown: There are various meetings. I think there is a Concert of Democracies at the moment. There is an another group that meets together to look at what democracies can do. Obviously the strongest form of government in the world for the future is where there are democracies, but I think we should try to reform the United Nations itself.

Q250 Mike Gapes: Rather than setting up ad hoc alliances with the United States, the Australians, the Canadians and the Europeans?

Mr Brown: I think there will always be ad hoc alliances. Where you cannot reach agreement internationally in the United Nations you will work with those countries where you can do so, but it is far preferable to have a decision of the international community and to give the United Nations both the strength to act and the representative decision-making process it should have.

Mike Gapes: Thank you. We will move now to the situation in Iraq. James Arbuthnot?

Q251 Mr Arbuthnot: Prime Minister, I will ask you some questions about Iraq and Afghanistan. Afghanistan is much the harder issue to resolve but if I may start with Iraq, may I ask when were you last in Basra?

Mr Brown: I was there a few months ago and I really do not want to give details of my future plans.

Q252 Mr Arbuthnot: I would not ask that.

Mr Brown: But I have seen and heard from visits that ministers have made about the most recent situation in Basra, and I think it is true to say that after the action by Prime Minister Maliki in taking his own troops into the Basra area, there has been substantial progress in dealing with the militias which have been operating in Basra. I think the Defence Secretary described how it was possible for him to walk in the streets of Basra in a way that did not happen before. Really we have got these four tasks that we have got to do. Do you want me to describe them or would you prefer to ask your other question first?

Q253 Mr Arbuthnot: My impression from being there last week was that Basra City has been utterly transformed by the action that Prime Minister Maliki took in March. When we were there last year the rocket and mortar attacks seemed to be coming in every couple of hours or so and we were there for five days last week without a single such rocket or mortar attack and our convoy was stuck in a traffic jam because of the prosperity of the country, and yet nobody seems to know about it. Why do you think that is?

Mr Brown: Nobody seems to know about the ---?

Q254 Mr Arbuthnot: Nobody seems to know about the transformation of Basra.

Mr Brown: I have been talking about it myself and I think others have been talking about it. There are, as I say, four tasks that are important that we have got to still undertake. One is we have got to train the Iraqi forces and one of the problems that Prime Minister Maliki ran into was that some of his forces were insufficiently trained, and of course there had to be support given from the Americans and from us at the time of his exercise, so we have started new ways of helping the training of the Iraqi forces and the Iraqi police. The second thing is we have got to build on this success in Basra by having local government elections so we persuade people to come out of the informal and sometimes violent ways that people have chosen to conduct their activity in Basra into representative government, so I hope there will be local government elections soon. We have got to complete the transfer of the airport to civilian use, and that is where many of our troops are at the moment, and we have got to do what I think you are hinting at which is to build some prosperity in Basra, giving people an economic and social stake in the future of the area. We talk about "over-watch" but these are the four tasks that moving from our combat role to an over-watch role that we have got to undertake and complete.

Q255 Mr Arbuthnot: Can I ask about that first task. The one thing we were told by the British troops when we were there was that they were doing an absolutely essential job in training the Iraqi troops and that the Iraqi troops in turn were doing an essential job in mentoring the Iraqi police, and that it would be quite wrong for our troops to be pulled out prematurely from that job in order to fit into some political numbers game dictated in this country. Would you agree with that?

Mr Brown: There is neither an artificial timetable nor is there any political numbers game being played. I have said all along that we will do what is necessary, taking into account the views of military commanders on the ground, and that we will complete the work of training the Iraqi forces. We have changed the way that we train the Iraqi forces over recent months, as you have probably discovered in your visit to Basra, but the task still remains to be done. I think we have trained up 30,000 but there is a lot more to do.

Q256 Mr Arbuthnot: The only minor political sting I would put into this is that I hope we can have no more predictions of 2,500 or stuff like that because it is the capabilities that we need to put there rather than the numbers that are important.

Mr Brown: I think it is right to suggest the direction in which we want to go. We had 44,000 troops in Iraq at one stage; by the beginning of last year it was 5,500; it is now 4,100. The direction of travel is clear but I have always made it clear that the final decisions about the actual movement and reconfiguration of troops will be based on the situation we find and on the advice of military commanders on the ground.

Q257 Mr Arbuthnot: Turning now to Afghanistan, where tragically the deaths of our servicemen and women have been very high recently, one of the key issues with Afghanistan is their relations with Pakistan, which are not good, frankly. Pakistan says it can only stop terrorists crossing the border into Afghanistan if it is allowed to secure the border, which neither country will agree. President Karzai has threatened to take troops into Pakistan if need be. What can we do to reduce the tensions there?

Mr Brown: We are working with the American and the Pakistani Government as well as the Afghan Government on these issues. It clear that this is a very difficult area. You, like me, have studied this and will know that it is one of the most difficult terrains in the world. I think we have got to have the co-operation that is necessary with the Pakistan Government. It would be better if there were better relations between the Afghan Government and the Pakistani Government. We have also got to move our troops in the right way to ensure that we can protect them from the insurgents that are coming in from Pakistan.

Q258 Mr Arbuthnot: But all the while the commitment of NATO seems a bit half-hearted. You have called for greater burden-sharing and I think you are right on that. The number of troops does seem to be creeping up but there is a sense in Afghanistan that people there do not think we are there for the long haul. How can we change that?

Mr Brown: I think people do know that this is a long-term commitment. I was at the NATO summit in Bucharest. We have got around 40 countries that are contributing to this exercise. You are absolutely right to say that burden-sharing is of the essence for the future. If, for example, the Dutch or the Canadians, who have suffered quite large losses, as we have suffered losses in recent months, did not feel that other countries were contributing properly, then they themselves, as has been said by the Canadians and the Dutch, would have to review their position, so it is very important that there is burden-sharing. The French, as you know, are bringing extra forces in. That will allow American marines to move into the south. There is an attempt to bring together many of the countries of Eastern Europe but also the whole of Europe to contribute to both increased training for police and the provision of equipment like helicopters. We set up this Helicopter Trust Fund and it has had a number of countries contributing to it. We now have offers from some of the Eastern European countries to provide what is vitally needed equipment for Afghanistan, so there is evidence of greater burden-sharing, but I would be the first to say that more has got to be done. As far as the Afghan people are concerned, our aim must be that the Afghan army is strengthened in its ability to run its own affairs and that the Afghan police are sufficiently strong that they can, free of corruption, tackle many of the problems in the country. I do think it is going to be important also to build up local government as well as greater efficiency in national government and the economic and social development programme there if Afghans themselves are going to have a stake in the future. Never forget this: the restoration of the Taliban to power would affect us in Britain in our communities as much as it would affect the Afghan people.

Q259 Mr Arbuthnot: I entirely agree with that but what do you think about the prospects for reducing the corruption that you have just referred to in Afghanistan? What prospect is there of President Karzai achieving a major change in that before the elections of next year and the year after?

Mr Brown: As you probably know, we have been talking to President Karzai about giving him additional support so that we have a civil service that allows decisions that are made to be properly implemented, and he has asked for and we are giving him advice on how to do this. The training of a corrupt-free police force is being supervised by the Germans who have brought additional trainers into Afghanistan for that. I agree with you that these are problems that arise particularly because we have got a heroin trade operating from Afghanistan, and it is important that we increase the number of poppy-free provinces, as has happened over the last few years, but obviously not everything has yet been achieved; there is a huge amount still to do. The battle against corruption is a better civil service, better policing, better local government, action against heroin, and these are the things that we are trying to undertake and complete.

Mike Gapes: Thank you, we will now move to the Middle East. Phyllis Starkey?

Q260 Dr Starkey: Prime Minister, I want to focus on just one particular aspect of the situation in Israel/Palestine. I accept and I think we all welcome the fact that there do seem to be a number of very positive moves across the region between the Israeli and Palestinian Authority Governments to move the situation forward and a great deal of international engagement. Notwithstanding for example the terrorist attack yesterday in West Jerusalem and some continued violence on both sides, there is an improvement, but there is one aspect, which is the one on which I want to concentrate, which is not improving, in fact it is going in the opposite direction, and it is an aspect that could sabotage the entire process, and that is the continued construction in illegal settlements in the West Bank and East Jerusalem. The Israeli Government has announced a whole raft of new commissions for over 2,500 new homes in these settlements. Since Annapolis the rate of settlement expansion has actually increased. Given that the UK Government is on record as saying that the settlements are an obstacle to peace, what can the UK and the EU actually do to insist that there is no further settlement building?

Mr Brown: As you know, negotiations between Prime Minister Olmert and Mr Abbas have continued. A lot of detailed work is being done. The barriers to these being successful are not only the delicate problems that are raised about the future of refugees, Jerusalem, the borders, the map and everything else, but also what you rightly point to as these provocations. One is of course continued bombings and continued missiles being hurled into Israeli places and you have, like yesterday, these problems that arise from what seems to be a terrorist attack, but I agree with you also that it is not acceptable that at the point that we are trying to get to a peace settlement we have the problems with additional settlements being announced or planned. As you know, there was a report in the middle of June about plans to build more houses in East Jerusalem. We made it absolutely clear, as did the Americans, that such activity had the potential to harm all the negotiations going forward and we said at the time, and I repeat, that the settlement programme should be stopped because it is not only causing distress amongst the Palestinians it is actually preventing people seeing that there is, as I believe possible, a resolution to the problems that have eluded us for many, many decades and that there is a two-state solution possible.

Q261 Dr Starkey: Absolutely, Prime Minister, the two-state solution is the only agreed international solution and would be in the interests of both Israel and Palestine if that could be achieved but, on the ground, the facts being created by the continued expansion of the settlements and indeed the continued abstraction of Palestinian land for the wall are foreclosing an eventual solution, even if all the other matters do get sorted out. Words, Prime Minister, do not seem to be enough. Important though Britain is, even the words of the Secretary of State of America does not seem to be having any effect. Why is the EU for example not considering taking action because there are levers the EU can use. On that point, can I press you; why has there been an agreement to deepen the EU-Israel Association Agreement in the margins of the General Affairs Council? Why was there no consideration given to using that as a lever to insist that the Israelis stopped settlement expansion before any such deepening would be considered? That is an actual lever that we have got; why do we not use it?

Mr Brown: There are many points of negotiation and discussion at the moment. We held in Britain a Palestinian Investment Conference ---

Q262 Dr Starkey: Prime Minister, sorry, can I just stop you there. Everybody is in favour of that, everybody understands the need to expand the Palestinian economy, but if this settlement expansion continues there cannot be a two-state solution because there will not be the land to create a contiguous and viable Palestinian state nor a state in which an economy can properly function. Why are we not using the levers we have to at least get a freeze?

Mr Brown: We are taking action on these settlements by making it absolutely clear that we do not see that as an acceptable way of moving towards a peaceful settlement of all the issues.

Q263 Dr Starkey: Prime Minister, I am really sorry to insist but ---

Mr Brown: You are insisting but I need to be able to finish my answers as well. Equally, we have got to bear in mind that consistent provocation, with bombings into the Israeli territory, is also making it difficult for these peace negotiations to go ahead. I think it is good that despite all these provocations that people are still talking and still making progress and I would urge them to continue to do so. We have made our position on the settlements clear to Prime Minister Olmert when I have talked to him directly and on other occasions when the Foreign Secretary has visited Israel. We also make it clear to those people who are conducting violence on the part of the Palestinians that it is completely unacceptable to try to disrupt the peace process by persistent bombings or incursions into Israeli areas.

Q264 Dr Starkey: I absolutely agree with all of that about the violence, but the settlement issue is a separate issue. There can be no security argument on the part of the Israelis for expanding settlements. It is purely and simply establishing facts on the grounds which will be very, very difficult to undo, and it has the potential to sabotage the eventual solution. I just press this: was there any consideration in the discussions at the recent council on the deepening of the Association Agreement on making further movement conditional on a settlement freeze?

Mr Brown: When I have discussed it with my colleagues in the European Union, there has been a very big desire to see the bigger picture, that although there are provocations at the moment on both sides that it is very important that people see that despite the attempts, sometimes by people who are loosely associated with those people who are doing the negotiations or not at all, to either do settlements or alternatively to have these bombings in the Israeli territories, that we must continue with the negotiations and we must also continue looking at these bigger issues about the future of Jerusalem, about the return of refugees, about the territories and the mapping of them; it is very important that these discussions should continue. Nobody wants to see the settlements or the outposts; nobody wants to see the incursions through violence, but it is very important to see the bigger picture as well, and my colleagues in the European Union want to see that bigger picture and see it enacted in practice.

Q265 Dr Starkey: Turning to that bigger picture, do you actually think that if settlement expansion continues there will be the possibility of establishing a viable Palestinian state on what is left.

Mr Brown: I think everybody knows that this is one of the barriers to the final success of any peace talks. There are many barriers to that that have got to be removed and I think it is our responsibility to work in all these areas to see if we can get the two sides to the talks working more closely together, with the prospect, and I believe there is a real prospect that most of these problems are soluble, of these problems being solved in the next few months.

Mike Gapes: We will move on to the difficult and appalling situation in Zimbabwe. Phil Willis?

Q266 Mr Willis: Prime Minister, undoubtedly you inherited foreign policy in terms of Iraq, Afghanistan and the Middle East from your predecessor and you were dealt a very difficult hand. As far as Africa is concerned, as Chancellor of the Exchequer I think all of us around this table would accept that your efforts in terms of the call for action on immunisation and debt relief in Africa were really quite outstanding, and I am quite prepared to put that on the record.

Mr Brown: Thank you.

Q267 Mr Willis: Do you not feel therefore incredibly disappointed with regards to Zimbabwe that your efforts so far have been regarded as little more than ineffectual grand-standing whilst Robert Mugabe simply cocks a snoot at you and the rest of the international community; and why is that?

Mr Brown: I do not think you are right in your analysis about that. I think what has changed - and it is a huge change from where we were a few years ago - is that most of the major African leaders now recognise that they cannot associate themselves with the Mugabe regime that tries to intimidate people during elections, that practises violence against its citizens, and that of course has either arrested or intimidated some of the leaders of the opposition. I think you will see from the announcements of the African Union in a statement two days ago that African leaders will not again be happy with a situation where they can tolerate the status quo in Zimbabwe, so there is movement. The question is how quickly that movement of opinion, working perhaps with the United Nations, the African Union and SADC, can influence the change that needs to take place in Zimbabwe itself. I do not think it is us versus the Africans as you are presenting it. I think everybody, with very few exceptions, now recognises the need for the status quo in Zimbabwe to change quickly.

Q268 Mr Willis: Can we look at something that you can influence directly, Prime Minister. You have made very, very strong comments in your condemnation of the Mugabe regime, particularly on the loss of life in Zimbabwe and the torture and abuse of human rights and the Foreign Secretary has made exactly the same comments. How therefore can you argue that the 13,000 Zimbabweans currently seeking refuge and asylum in the UK are anything other than refugees entitled to full protection under the UN constitution? Are you not a little bit embarrassed at least, if not ashamed, that at the one time you are denouncing Mugabe's criminal cabal and at the other time you are sanctioning the mass deportation of people back to Zimbabwe?

Mr Brown: I just say to you, we continue to look at that situation.

Q269 Mr Willis: Is that the only answer you can give?

Mr Brown: Yes, we will continue to look at that situation.

Q270 Mr Willis: While South Africa has got over a million refugees on its border and we are trying to get Mbeki to do more all we can say is, "We will look at the situation".

Mr Brown: Each case where someone is seeking asylum has got to be looked at individually but we continue to look at the general situation. We have to bear in mind many factors operating in Zimbabwe where we must make sure that we protect people who may be at risk.

Q271 Mr Willis: So you do not regard these as legitimate refugees in the UN Convention sense?

Mr Brown: I did not say that. I said that each application is treated on its merits but we continue to look at the general situation.

Q272 Mr Willis: You know that if the current Zimbabweans in the UK agree that they will go back to Zimbabwe at some future date they get aid and support cut off from them. How is that an example of Britain using its humanitarian muscle to support people in the most enormous distress?

Mr Brown: I think I am telling you that we look at the individual case on its merits and see what we can actually do to help.

Q273 Mr Willis: Back in December 2006 your predecessor, Tony Blair, together with President Bush and President Putin and 138 other leaders, attended the UN World Summit. At that, and you mentioned this earlier in your remarks to Mike Gapes, a resolution was passed which was to condemn the use of torture and terror in situations across the world and, indeed, to give protection to nations as an international community. As a result of that, Resolution 1738 was passed in December 2006. Why have you not, Prime Minister, under the auspices of that resolution, actually called for the naming of Mugabe and indeed his henchmen, who you have proof have conducted themselves in a way which was totally against Resolution 1738, so that they can, when they leave Zimbabwe, be arrested and brought before the International Criminal Court?

Mr Brown: We are imposing sanctions on individual members of the regime and we are considering at the moment and will extend those sanctions, both financial sanctions and travel sanctions. It is not a question of us failing to take action against individual members of the regime, in terms of both sanctions about their financial affairs and their families' financial affairs and the travel sanctions, that is what we are doing at the moment. I would not like to comment on anything further.

Q274 Mr Willis: One of the means by which Mugabe is able to maintain his presence, and indeed cock a snook at the international community, is because he is still being funded. He is still being funded, partly through the UK with our $70 million worth of aid. We are the largest supporter of Zimbabwe, and that is to our credit, Prime Minister, that is not a criticism ---

Mr Brown: You do know that ---

Q275 Mr Willis: Can I just finish my question and say, is there not an opportunity now for you as the British Prime Minister and Britain as the largest donor to get all the donors together, to withdraw that aid and agree a new package which will be entirely commensurate with a new political regime in Zimbabwe? Can you not use your financial muscle to do that?

Mr Brown: First of all, the aid is going directly to people in Zimbabwe, it is not being channelled through the regime.

Q276 Mr Willis: They are not taking any of it for themselves?

Mr Brown: We would try to avoid that at all costs, but the aid is going directly to people in Zimbabwe through humanitarian agencies. Of course, one of the problems has been at certain points the government stopping the work of non-governmental organisations in Zimbabwe. Look, the major pressure at the moment, and I think we have to put this in its proper context, is we have had an election, first of all, that was won by the MDC where the Zanu PF came well behind the MDC, we have had an attempt at a second election that is a travesty of justice, during the election the regime has blood on its hands for what has happened, and we now have the pressure that is growing, I think, from the African Union countries and from the community of the United Nations that the status quo cannot be held, that action has got to be taken. There are discussions about what form of transition there could be. There is enormous pressure for that to happen. I hope that a UN envoy will go very soon to Zimbabwe, to Harare, to put that pressure on, but I think virtually the whole international community is saying the status quo cannot continue, the MDC has got to be recognised for the electoral support it had. There will be no support for this regime until democracy is restored. We will intensify the sanctions unless action is taken to change the status quo. I do not believe that President Mugabe could take any comfort from most of the African Union members who have walked away from him and are refusing to support the status quo in Zimbabwe.

Q277 Mr Willis: Prime Minister, do you believe by the time this Committee next meets you that Mugabe will have gone?

Mr Brown: I hope the transition can be quick. I think when a regime loses an election, as it did in the first election, and then tries to intimidate and claims a hollow victory from a second election where they have intimidated their opponents out of participating in the campaign, they can have no legitimacy at all.

Mike Gapes: Can I bring in Sir Patrick Cormack on the same issue.

Q278 Sir Patrick Cormack: Prime Minister, nobody can doubt your good intentions and good faith on this one, and I would like to echo what Phil Willis said about your record in Africa, but really we have got to be tougher with this man. I am glad you arranged to strip him of his knighthood. I suggest in all your public utterances you strip him of the title of "President" and just refer to him as "Mugabe". Could I ask you again though, on the point that Phil Willis raised, surely we can have a more positive response from you on the refugees? If we had had responses like that before the war, what would have happened to many of those Jews who fled from Hitler's Germany, and Mugabe's Zimbabwe, although much smaller as a problem, is not a million miles from Hitler's Germany?

Mr Brown: We are trying to change this regime at the moment working with other countries to do so because we do not recognise that the Mugabe regime has legitimacy. I have said I will look at the issues which have been raised. We have dealt with these cases on an individual basis.

Q279 Sir Patrick Cormack: Prime Minister, can you not, before this Committee, just say that there will be a presumption of being a refugee as far as anyone from Zimbabwe is concerned if they ask for political asylum?

Mr Brown: I will look at what you say. I am more interested, if I may say so, in getting quicker action in dealing with the transition in Zimbabwe itself and I think that would be your first priority as well. I do not believe the African Union decisions are preventing the action that is necessary. There is an acceptance now that there was not a few months ago that the status quo is completely unacceptable. African leaders one-by-one are walking away from the Mugabe regime and I think it is important over the next few days to build on that recognition, that with United Nations and African Union pressure the status quo can be changed.

Q280 Sir Patrick Cormack: Finally, would you agree in general terms with what Archbishop Tutu said at the weekend?

Mr Brown: Which particular statement are you referring to?

Q281 Sir Patrick Cormack: When he said that he thought it might be appropriate or might be necessary for a peacekeeping force to be put in to Zimbabwe?

Mr Brown: There has been some discussion of an international peacekeeping force and that is an option that is obviously on the table. I think we have to bear in mind that all the pressure at the moment is political pressure to try and achieve a desired result. We have to listen also to what the opposition in Zimbabwe are saying to us about what they think is the right course that they wish to see pursued and we have to get the mediators working very quickly to achieve the transition we want to see.

Q282 Mike Gapes: Prime Minister, you have mentioned several times the African Union and its role, are you disappointed that the African Union, not just on Zimbabwe but on Darfur, has been unable to take more decisive action and more effective action? Is there an intrinsic problem within the African Union in that there are a number of countries which are not democracies and, in fact, some which have worse human rights records even than Robert Mugabe?

Mr Brown: That is an issue, but I think we also have to remember the African Union is building itself up gradually as an institution that is capable of exercising decision-making power. Much of the work in the Zimbabwe election has not been done by the African Union, it has been done by SADC, who had very clear electoral rules, made it absolutely clear that the Mugabe regime had broken these rules and I think we have to help both SADC and the African Union to play their full part. As far as Darfur is concerned, my own view is that we have been prevented from doing many of the things we want to do by the situation on the ground in Darfur itself. There was a period when we thought we could get rebel groups together and then there was this incursion by the rebel groups. There was a period when we thought we could get co-operation from the regime itself and I think a lot of what is to happen for Darfur is a bringing together of the forces inside Sudan and getting them to come together for peacekeeping talks.

Mike Gapes: Michael Connarty, last question.

Q283 Michael Connarty: A further question about Iraq, I thought someone might have asked it. Given the proposals on the carbon law in Iraq, which basically hands over the oil resources of Iraq to the same oil companies which were there when the UK used to run that country, and the proposal for 50 permanent bases for the USA in Iraq, do you share any disquiet that I have, and not just Members of Parliament, members of the public have, that in fact it is turning out to be a war for oil and that what will be left will be American imperialism which will cause the same problems it caused for British jurisdiction when we tried to run the country to take its oil?

Mr Brown: I do not think the Americans are talking in the long run about 50 bases, I do not think that is the fact, but equally you raise an important question about who is going to develop these resources of Iraq, not just for the people of Iraq but for the benefit of the whole world. You have got a very substantial amount of oil that could make a difference even now to the demand and supply equation for oil. I held a meeting of potential investors in the Basra area because we have set up this group to provide an economic plan for the development of Basra and I found that there were many new companies, companies that had never been in Iraq before, not the old companies, many new companies wanting to help develop the resources of Iraq with the Iraqi people. I think we have to look at the situation on the ground and there is a tremendous amount of work being done by our representative and by the Iraqi Development Forum to try and bring new investors into Iraq so that we can get Iraqi people securing the benefit of their own resource by a partnership between the Iraqi people and these investors.

Q284 Mike Gapes: Prime Minister, yesterday you made some change to the list of terrorist organisations with regard to Hezbollah and one of the issues that was quoted as the reason for that was the role of Hezbollah in Iraq. Clearly that was not done by Hezbollah coming from Lebanon directly to Iraq, they are going through Iran. Would you like to assess what the role of Iran is at the moment in assisting the people who are killing our troops in Iraq and the potential difficulties that Iran is currently causing to us in Iraq?

Mr Brown: First of all, can I just say about the announcement yesterday, it was about the military wing of Hezbollah, not about its legitimate political and social wings. It was about evidence that we had accumulated over quite a long period of time of its involvement in terrorism not just in Iraq but also in the Occupied Palestinian Territories. That was the basis on which the order extending proscription to the military wing was agreed. As far as Iran and its influence in Iraq is concerned, I think one of the things which happened after Prime Minister Maliki intervened in the Basra area was that a number of the foreign backed militias which were working in Basra were pushed out. What I am hoping happens in the Basra area, and I am pleased Mr Arbuthnot found what I know from the other accounts I have received is happening there, is that there is a greater willingness on the part of local people in the Basra area to take more control over their own affairs and to act within the ambit of democratic or traditional politics rather than resort to paramilitary activity. When paramilitary activity or military activity is pushed out then the Iranian influence in the Province is also reduced. What we are really looking for in Iraq, and it is a time of opportunity, is that as we move from combat to over-watch, we are able to see the Iraqis move from a situation where they have relied on British and American forces to a situation where they have their own armed forces maintaining the military peace, we have police in Iraq that are corrupt-free who are maintaining law and order and we get to a position where we have local government that is working effectively in the Basra area with elections, I hope, by the end of the year and at the same time the economic and social development programme that Mr Connarty talked about, a programme which will give Iraqis in this area a great deal of prosperity because there is an enormous amount of oil wealth, a great port in the area, lots of scope for economic and social development, they will then feel that they have an economic and social stake in the future. I believe that these trends are underway. A year ago I do not think you could have said that. I think now because of the way that we have conducted ourselves and the way that the Iraqi Government has been more determined to reach out, things look as if they are in a better position. We want that more stable situation to extend itself into local government elections and the forces of democracy getting greater control.

Chairman: It has been an extremely wide-ranging two and a half hours, Prime Minister. Thank you very much.